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After years of the “resilient consumer,” a cooling economy redefined by tariffs will test the wherewithal of American retailers.
In a suite of earnings this week, executives offered an early glimpse of commercial life in a new, high-tariff era. While exposure to the levies differs by sector and brand, a key theme emerged from this season’s commentary: As tariff news changes by the minute, retailers are having an all-hands-on-deck moment to deal with whatever comes. A whatever that feels like it could be anything.
The backdrop for all of this is the idea of the resilient consumer. Americans dutifully swiped their cards for years, powering the economy through the COVID slump and through — and contributing to — historic levels of inflation. Until a Fed campaign of high rates finally pushed pent-up demand into more “choiceful” spending, as one Goldman analyst creatively put it.
After two years of gains at Abercrombie & Fitch (ANF), the company said earlier this week that it expects slower sales growth in 2025, in part due to the impact of tariffs on freight costs and consumer spending. Wall Street pummeled the stock, along with Target, Best Buy, and others whose leaders, in diplomatic, corporate language, managed to crystalize the abstract discussion of tariffs into a warning.
Managers are having to decide whether to eat the price increases, thereby hitting corporate profits, or roll the dice and pass the tariff costs on to consumers, further testing their resiliency. But Americans, worn down by higher costs, are primed to reject another cycle of post-COVID price shocks.
“Many retailers have reported consumers are more sensitive to price hikes and more willing to cut back on purchases in response to them than a few years ago,” Bill Adams, chief economist for Comerica Bank, wrote this week.
Best Buy (BBY) CEO Corie Barry said it’s “highly likely” consumers will see a price impact from tariffs as around 55% of its products are sourced from China “in some way, shape, or form.”
Target (TGT) CFO Jim Lee said they’re expecting “outsized profit pressures” in the current quarter due in part to “tariff uncertainty” and didn’t give guidance specifics.
Walmart (WMT), which kicked off retail earnings season by spooking markets with slowing profit growth, expressed a roll-with-the-punches tariff strategy.
