WSJ What’s News Episode: "What’s News in Earnings: Retailers Scramble to Respond to Tariffs"

Release Date: June 2, 2025
Host: Hannah Aaron Lange
Guest: Suzanne Kapner, Retail Industry Reporter, The Wall Street Journal

Introduction to the Earnings Season Focus: Retailers and Tariffs

In this episode of WSJ What’s News, host Hannah Aaron Lange delves into the challenges faced by major retailers amid the ongoing tariff war initiated by President Trump. The discussion centers around how companies like Macy's, Kohl's, and Best Buy are navigating supply chain disruptions, cost increases due to tariffs, and concerns over a potentially weakening economy affecting consumer spending.

Retailers' Strategic Responses to Tariffs

[01:48] Suzanne Kapner:
"Retailers have been working really hard to offset the impact of tariffs, mostly by diversifying their supply chains. They are moving production out of China into other lower tariff countries like Vietnam, Bangladesh. Some are even trying to move minimal production back to the US, but that's very small."

Suzanne Kapner explains that retailers are employing multiple strategies to mitigate the effects of tariffs:

• Diversifying Supply Chains: Shifting production from China to countries with lower tariffs such as Vietnam and Bangladesh.
• Reducing Dependency on China: Companies like Macy's have delayed or canceled orders from China, while Gap plans to double the amount of American-grown cotton it purchases.
• Negotiating with Suppliers: Seeking concessions to manage increased costs.
• Price Adjustments: Some retailers are considering or implementing price hikes to counteract tariff-induced expenses.

Impact on Pricing Strategies and Consumer Behavior

[02:29] Hannah Aaron Lange:
"A big question is whether retail companies will raise prices for customers on store shelves as a result of tariff-related costs."

[03:00] Suzanne Kapner:
"From Walmart to Ralph Lauren, companies are talking about price increases, but these are not across-the-board hikes. They are what companies describe as surgical."

Retailers are cautiously increasing prices on select items rather than applying uniform price hikes. This selective approach considers the price elasticity of different products:

• High-Demand Items: Products like handbags may see price increases due to their strong demand and pricing power.
• Commoditized Items: Items such as basic T-shirts are less likely to see price hikes to avoid diminishing demand.

Notable Exception:

• Gap: No current plans to raise prices significantly to maintain accessibility for middle-market consumers.

Supply Chain Fluctuations and Production Adjustments

[04:10] Suzanne Kapner:
"Retailers have had to change their strategies on a dime. When tariffs on Chinese imports fell from 145% to about 30% in May, companies rushed to resume shipments they had paused."

The volatile tariff environment has forced retailers to rapidly adapt:

• Shipment Management: Adjusting shipment timings based on fluctuating tariff rates.
• Cost Management: Pressuring suppliers to absorb some costs while trimming internal expenses.
• Production Shifts: For example, Gap reduced its production in China from 10% to 3% within a fiscal year despite tariff-related cost surprises impacting its financials.

Consumer Purchasing Patterns Amid Tariff Uncertainty

[05:34] Tony Spring, Macy's CEO:
"There is this mentality that I've got to buy something now. Maybe that's a part of some of the growth we've seen in fine jewelry, for instance." [05:49]

While some retailers like Macy's observe a pull-forward in consumer purchases of big-ticket items anticipating future price increases, the trend isn't universal:

• Macy's: Noted an increase in purchases of items like fine jewelry and furniture ahead of potential price hikes.
• Gap: Reported no significant stockpiling behavior among customers.

Diverging Consumer Behaviors and Economic Indicators

[07:06] Suzanne Kapner:
"A very bifurcated picture. The lower-end consumer has been under pressure... while higher-end consumers are seeing more full-price buying."

The retail sector reveals a "tale of two consumers":

• Affluent Consumers: Continue to spend freely, supporting high-end brands such as Ralph Lauren and Coach.
• Price-Sensitive Consumers: Lower-income shoppers at retailers like Target and Kohl's are restricting their spending due to economic pressures and increased costs.

Additionally, external factors such as DEI-related boycotts have impacted sales, notably at Target.

Future Outlook and Earnings Guidance Adjustments

[08:36] Suzanne Kapner:
"Retailers are being very cautious about the coming year and some have withheld guidance altogether due to tariff uncertainty."

Looking ahead to 2025, retailers exhibit prudence:

• Revised Earnings Guidance: Companies like Macy's and Abercrombie have reduced their profit or sales forecasts in response to anticipated continued tariff impacts.
• Tariff Uncertainty: Ongoing changes in U.S. trade policy add to the cautious outlook, with rising tariff costs expected to affect bottom lines later in the year.

Conclusion

The episode underscores the complex landscape retailers are navigating amid tariff-induced challenges. Strategies include diversifying supply chains, selective price adjustments, and adapting to shifting consumer behaviors. While affluent consumers maintain robust spending, price-sensitive segments are tightening their belts, signaling a bifurcated economic impact. Retail executives remain cautious, adjusting earnings forecasts in anticipation of sustained tariff-related pressures.

Production Credits:
Produced by Zoe Culkin and Anthony Banci, supervised by Michael Cosmidis. Additional sound courtesy of S&P Global Market Intelligence.

For more detailed analysis, listeners can explore related episodes, including a two-part series on the Target consumers boycott mentioned by Suzanne Kapner.