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US retailers haggle over tariffs with suppliers

US retailers haggle over tariffs with suppliers

Walmart and Target, two of the largest retailers in the United States, are arguing behind closed doors with their suppliers about proposed price increases on a wide range of products including cake pans and tote bags.

Their discussions will determine how and when merchandise prices will rise, and which products will be kept on the shelves.

Major retailers claim they cannot raise prices at retail without alienating American consumers and losing market share. This stance has led to heated discussions with suppliers about pricing after President Donald J. Trump imposed tariffs.

David Dalquist is the CEO of Nordic Ware a small manufacturer of cookware. He has been severely affected by Trump's 25% aluminum tariffs. Dalquist’s Minneapolis-based company purchases aluminum coils weighing 5,000 pounds, which are used to manufacture Bundt pans.

The fact that his cost has risen by 5-10% due to the new tariffs introduced on March 12 makes it difficult for him to set the prices for retailers for the new season. This will culminate later in the year, around the holidays.

Dalquist, in an interview, said that most retailers require 60 days notice of any price increases. He said, "You can't simply hand them the money." Then, they go through their own assessment to determine if it is justified. This can take months. Dalquist must cover the increased costs in the interim.

Walmart stated in a press release that "our conversations with suppliers all aim to make our purpose a reality for millions of customers. We will continue to work with them closely to find the best path forward during these uncertain time."

ONEROUS PROCESS

Retail, unlike manufacturing is a time-consuming process. This is due to the contracts retailers have with their suppliers. Walmart's size has made it difficult for vendors to deal with the company. It generates over $446 billion in annual sales within the United States. Walmart has also said in the past that it would scrutinize each line item before agreeing to a price increase proposed by a supplier.

A supplier can be severely hurt by a Walmart decision to remove a brand from its shelves due to a disagreement over price. Dalquist stated that retailers would simply substitute Bundt pans made by other manufacturers if they didn't agree with the price increases. In the current market, there are many kitchenware products available at lower prices. It would be difficult to raise prices without affecting consumer demand.

Kim Vaccarella of Bogg Bag in Secaucus New Jersey increased the price of its bags by $5 due to Trump's 20% tariffs on China imports. Bogg sells Target brightly colored tote bags made in China with Croc-like material. The original size bag is sold for $90. Target's spokesperson referred to remarks made by Target executives at a recent investor conference. Rick Gomez said that it was still too early to know how the prices of individual products might change. However, the retailer is looking at the pricing in a holistic way.

She said that some retailers had already asked her about lowering her wholesale price. "People are getting creative," Vaccarella said. She said that her company is also considering alternative manufacturing sites, such as Sri Lanka, Vietnam, and lower-cost factories, in China.

LOSS LEADING

The price negotiations between manufacturers and retailers are a complex process.

He said "I was fortunate" when referring to his own deals with big retailers. This is because he has a unique product - devices that let a user play videogames without having to worry about tiny screens and buttons.

No one else offered his niche-specific controllers. "But if I were to sell 100 TVs to Walmart, 99 other TV manufacturers would not want to raise prices."

Townley added that it is also important to know what the competitors are selling. Townley said that it is also important to know what the competitors are selling.

He said that there was a lot of loss-leading going on, which refers to the willingness of suppliers to absorb losses while maintaining current wholesale prices in order to remain on retailer's shelves. He said, "It is a miracle anyone stays in business."

Isaac Larian, Chief Executive Officer of MGA Entertainment and Bratz doll manufacturer MGA Entertainment, said that the company has been negotiating with retailers about a price increase on toys made in China. The company wants this to take effect by April. MGA toys are available at Walmart, Target and other retailers.

The retailers have that job. "They resist and say that they don't want to see a price rise, and they told us this because the consumers are very, very stressed and strained," Larian said.

Larian believes he won't be able pass the entire 20% tariff on to retailers in the form of a 20% increase in price. He said that "we'll have to share the responsibility". He said that while "we'll accept a smaller margin", half the cost of tariffs will "we must pass on" to retailers through higher wholesale prices. Timothy Aeppel in New York, Jessica DiNapoli in London and Siddharth Cavale reported. Richa Naidu contributed additional reporting from London. Vanessa O'Connell, Aurora Ellis and Vanessa O'Connell edited the story.

(source: Reuters)