Tariffs may add to ‘a toxic brew for consumers’

Elsewhere in the dollar store segment, Five Below said it reengineered some products, changed its assortment and collaborated with vendors to work through tariffs imposed in 2018 and 2019 during Trump’s first term in office. It also moved product sourcing to other countries and did increase some prices, mostly for its tech-related products, then-interim CEO Ken Bull said during a December earnings call.

After testing out higher price points, the company introduced its Five Beyond concept, which it has expanded in recent years.

Bull also said the company has a sourcing office in India and that it was working with vendors to mitigate the impact of tariffs.

How might consumers respond?

In a November report, the National Retail Federation looked at the estimated impact of tariffs on six consumer retail project categories — apparel, toys, furniture, household appliances, footwear and travel goods. In 2023, these products comprised 7% of U.S. imports. The study found American consumers’ spending power would decline by $46 billion to $78 billion annually each year tariffs are in effect. That equates to a maximum of $7,600 higher costs per household each year, according to the study. With less to spend on other goods or services, the NRF estimated that the extra annual cost to families would range from $14 billion to $24 billion in those named categories.

Persistent inflation and now the possibility of tariffs “are a toxic brew for consumers,” Shawn Grain Carter, a retail industry consultant and professor at the Fashion Institute of Technology at the State University of New York, told Retail Dive in an email. 

“The Trump tariffs are simply another tax on all consumers in America,” she said. “His proposal for a 60% tax on Chinese imports and taxes on goods from Canada and other nations certainly does not bode well for any American consumer.” 

So, faced with tariff-induced price bloating, Egelanian said lower income consumers, who comprise over half of the U.S. consumer base, will probably move to buy lower cost alternatives before curtailing consumption altogether. There’s also the possibility that shrink or theft may rise as the level of consumer pain increases, Egelanian said.

However, Saunders said the outcome for consumers might not be totally bleak.

“Given that the customer has limited capacity to deal with higher prices, they will likely trim volumes and buy less,” Saunders said. “That said, if the Trump administration provides tax cuts and improves household finances, the situation may balance itself out with limited impact.”

What else are retailers saying and doing?

Retailers began monitoring and commenting on the tariff situation during the last several months. Many also said they’re taking preemptive actions and setting plans into motion to respond to the changes.

“On the retailer side, this is a huge topic of conversation, and almost every retailer is planning for tariffs,” Saunders said. “For some, this means looking at alternative sourcing locations; for others, it’s assessing how to reduce costs in the supply chain; and for others, it’s looking at the impact on prices. Many retailers will use a combination of things to deal with tariffs – but very few retailers will be able to avoid them or ignore them completely.” 

For example, Lowe’s moved to diversify its supply chain after tariffs imposed during Trump’s first term in office. But the company said in November about 40% of its assortment was still sourced from overseas.  

Ted Decker, CEO of rival Home Depot, said that whatever happens regarding the issue “will be an industry-wide impact, it won’t discriminate against different retailers and distributors who are importing goods. The type of product as an industry is generally sourced from the same countries.”

Target has seen negative indicators regarding the company’s “strategic readiness for possible tariffs,” analysts with Roth MKM said in a November note. 

Finally, retail’s off-price segment might be insulated from the negative outcomes of added tariffs. The reason, analysts and some of the companies said, is many businesses in the sector source most of their inventory from within the U.S. 

“The only way to mitigate this looming disaster is for retailers and manufacturers to negotiate and for retailers to source their goods more widely beyond China,” Carter said. “Consumers must budget wisely and shop around for the best deals that offer them a smart value proposition for their merchandise selections and their wallets.”