From Tariffs to Tags: The Price Hike Reality for US Shoppers (Part 2)

Yahoo

03-06-2025

So far in 2025, the U.S. economy has maintained its strong performance, propelled by factors like low unemployment and real wage gains, according to the National Retail Federation (NRF). Nevertheless, policy uncertainty, primarily linked to the unpredictable nature of Trump's tariffs and ongoing legal disputes, is eroding both consumer and business confidence.
For 2025, the NRF anticipates retail sales to expand between 2.7% and 3.7%, hitting between $5.42 trillion and $5.48 trillion. This outlook is consistent with 2024's 3.6% sales growth ($5.29 trillion) and matches the 3.6% average annual growth recorded in the ten years prior to the pandemic. Even with these broader economic trends, the retail sector confronts unique challenges.
This second part of our series will delve into how other retailers are reacting to ongoing tariff issues and the implications for investors in this volatile climate. (Read Part 1 here now).
Home Depot missed Q1 earnings expectations but reaffirmed its full-year guidance — a signal of operational confidence despite economic headwinds and tariff pressures. CFO Richard McPhail emphasized that the company does not plan to raise prices in response to tariffs, citing Home Depot's size, strong supplier relationships, and ongoing productivity gains as buffers.
More than half of the company's inventory is U.S.-sourced, and McPhail noted that no single country outside the U.S. will represent more than 10% of imports by next year — reflecting a long-term shift away from Chinese dependence. The company has been steadily diversifying its supply chain for years.
However, with high interest rates dampening home improvement demand and tariffs threatening product costs, executives acknowledged that if certain items become too expensive to source under current trade policy, they may simply be removed from the shelves. For now, Home Depot is betting on scale and flexibility, while keeping pricing steady to maintain customer loyalty in a cooling housing market.
Lowe's reported a smaller-than-expected Q1 sales drop, thanks in part to steady demand from professional contractors. Like its rival Home Depot, Lowe's said it aims to remain price competitive, although it did not rule out increases in the second half of the year when newer, tariff-impacted inventory reaches shelves.
CFO Brandon Sink expects flat profit margins this fiscal year, signaling that Lowe's is absorbing some near-term cost pressures. About 60% of Lowe's products are sourced from the U.S., while 20% still come from China. The company has expanded its network of local suppliers and diversified its sourcing to cushion the tariff blow.
Investors should watch for incremental pricing shifts as the year progresses — particularly as older, pre-tariff inventory phases out and newer stock reflects rising input costs.
Best Buy posted solid Q1 earnings but lowered its full-year outlook, citing the growing impact of tariffs and weakening consumer demand. The retailer has already raised prices on some items, including electronics heavily sourced from China — such as smartphones, laptops, and appliances.
CEO Corie Barry called price hikes a 'last resort', but said they've already gone into effect for select goods as of mid-May. The company's sourcing has shifted considerably in recent months: China now accounts for about 33% of imports (down from 55% earlier this year), while 25% of goods come from the U.S. and Mexico, and the rest from other tariff-exposed countries like Vietnam and South Korea.
Despite the price increases, demand has held steady for now. Still, the margin pressure and uncertainty over future tariffs have led Best Buy to guide lower, warning that it will continue adjusting pricing and sourcing strategies as conditions evolve.
For ultra-price-sensitive retailers like Dollar Tree, tariffs pose a direct threat to their core value proposition. After raising its base price point from $1 to $1.25 in 2021, the chain is now considering further price increases on select products to offset rising costs from ongoing U.S. trade actions.
CEO Michael Creedon said the first round of 10% tariffs on Chinese goods cost the company roughly $15–$20 million per month, but Dollar Tree has mitigated around 90% of that impact so far. Additional tariffs on Mexico and Canada, now partially in effect, could add another $20 million monthly burden.
Dollar Tree is still evaluating how best to absorb these costs, and due to the fluid policy environment, the company has not fully factored tariffs into forward guidance. Surprisingly, the company is observing a rise in demand from higher-income customers in addition to low-income shoppers, indicating a broader shift in consumer behavior: seeking value is now a common behavior across different income levels.
For investors, the situation poses a complex challenge: U.S. consumer spending has remained resilient so far, but rising retail prices and cost-cutting responses hint at a deeper strain brewing beneath the surface.
Many retailers are trading cautiously on guidance, with some already lowering earnings forecasts — a potential red flag for stockholders seeking stability in a volatile market. Tariff-driven margin compression could weigh heavily on retail earnings in the second half of the year, especially if trade tensions escalate or consumer sentiment falters.
The on-again, off-again nature of Trump's tariffs creates another layer of unpredictability, making it increasingly difficult for companies to plan their supply chains and pricing strategies. This uncertainty is compounded by recent court rulings that have challenged the legal basis for some of these tariffs, leading to a dynamic situation where the very existence of certain levies is in question.
Furthermore, there's always the possibility that the U.S. might completely rule out some tariffs, or pivot to different trade strategies, adding another layer of complexity for businesses and investors trying to anticipate future costs and market conditions.
Retail-focused ETFs and sector funds may underperform broader indices if tariffs remain in play. Investors should watch for further price guidance during the next quarter's earnings season, especially from Walmart, which sets the tone for the sector.
Moreover, long-term investors may want to examine which retailers have stronger supply chain flexibility, digital infrastructure, and pricing power. Companies able to adapt quickly — either by diversifying sourcing or leveraging scale — are more likely to weather the storm than those with rigid or China-heavy supply networks.
In short, Trump's tariff chessboard is reshaping the retail landscape, forcing companies to choose between shrinking profits and rising shelf prices. For shoppers, the consequences are already visible. For investors, they're only just beginning to play out.
This article was originally posted on FX Empire
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