CNBC's Eunice Yoon joins 'Squawk Box' with the latest news from Beijing.
China's Ministry of Commerce has held talks with Walmart as the U.S. retail giant reportedly requested price cuts from Chinese suppliers to offset the tariff costs, a state-backed media outlet said Wednesday. The announcement came after Bloomberg reported last Thursday that Walmart had asked some Chinese suppliers, including makers of kitchenware and clothing, to lower prices by as much as 10% for each round of U.S. tariffs.
Beijing has summoned Walmart for reportedly asking Chinese suppliers to swallow the tariff hikes imposed by the Trump administration, marking the latest salvo in the trade spat between the world's two largest economies.
A leading retailer executive is sending warning signs on consumer spending in the wake of higher egg prices, tariffs and higher inflation.
Walmart (NYSE: WMT) has a big problem. Tariffs of what could be 10% on some Chinese goods imported to the US will increase Walmart’s overall expenses substantially. The king of low priced retail may struggle to keep the title. About three quarters of Walmart’s suppliers are located in China. The world’s largest retailer counts on low cost manufacturing in China to allow it to offer its low retail prices while retaining good margins. Walmart has an expensive problem if tariffs bite. If it raises its merchandise prices customers may cut back spending, or shop elsewhere. Walmart has started to attack the tariff problem, although there is no certainty its plans will allow it to keep merchandise prices at current levels. According to Bloomberg, Walmart may be able to overcome a portions of the challenges. “Some suppliers, including producers of kitchenware and clothing, have been asked to lower their prices by as much as 10% per round of tariffs, essentially shouldering the full cost of Trump’s duties…”, the news service reports. However, another point is that Walmart’s China’s suppliers are already operating on razor thin margins. Walmart’s request may put China suppliers in the red. Walmart operates on thin margins already as well. In the most recent quarter, Walmart had revenue of $180.6 billion, and operation income of $7.9 billion. The operation margin is only 4.3%. The US Walmart margin is slightly better. Revenue was $125.3 billion and operating income of $6.5 billion which is 5.3%. Walmart will not get all of its suppliers to cut prices. That leaves it with a difficult choice. Should it risk charging higher prices and potentially losing customers? Or, should it keep prices the same and risk lower operating margins? The post You May End Up Paying More At Walmart appeared first on 24/7 Wall St..
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