Costco, Walmart Seek Strategies to Keep Lid on Tariff Hikes

America’s top retailers are telling investors they can’t avoid passing on some price increases from the roiling tariff wars, but they’re trying.

In earnings calls over the last few weeks, company officials from Walmart Inc., Target Corp., Costco Wholesale Corp., and more described how they’re trying to alleviate the tariff hit to customers—including by negotiating with suppliers, sourcing from lower-tariff countries, and shipping inventory before rounds of tariffs took effect.

And some are taking even more targeted strategies, like absorbing a margin hit on pineapples, or sending goods by ship instead of by air. They’re trying to protect their revenue stream and soften any hits to their standing among customers.

US companies are facing the highest import costs they’ve seen for decades under President Donald Trump’s shifting tariff policies, including a universal 10% tariff on worldwide imports, with higher rates for many countries. Court challenges are underway that could overturn the tariffs.

Trump lambasted Walmart last month for passing tariff costs on to consumers, calling for the company to “eat the tariffs.”

“Walmart did a big favor to everybody by just saying, ‘Look, prices are going to go up,’” said Sebnem Kalemli-Özcan, an economics professor at Brown University.

Studies show that “any tariff always ends up being borne by consumers—most of it,” she added.

Still, retailers are assuring investors that they’re trying to pass on as little of the tariffs as they can.

Passing on Costs

“The biggest concern that companies face when deciding, ‘When do I start increasing prices?’ is the realization that consumers are very price sensitive,” said Angela Gamalski, a partner at Honigman.

There’s a reputational risk to hiking prices, too, she said: Companies want to look steady and reliable to both consumers and their business partners, showing they’re able to weather tariff uncertainty without prices wildly fluctuating.

Target CEO Brian Cornell described price increases as “the very last resort” for dealing with tariffs.

“We will do our best to keep our prices as low as possible,” Doug McMillon, Walmart’s president and CEO, said in a May 15 earnings call. But given the magnitude of the tariffs, he added, “we aren’t able to absorb all the pressure given the reality of narrow retail margins.”

Companies are more likely to raise their prices if tariffs are large and persistent, and if there’s not another good solution available, said Alberto Cavallo, a professor at Harvard Business School who studies pricing.

But even when a strategy like front-loading inventory or trade diversion means they can delay a price change, “these solutions have a cost to firms, so they might face pressure to eventually pass some of the cost either to foreign suppliers or consumers,” Cavallo added.

Companies are worried about “antagonizing customers, who may think the firms are taking advantage of the situation to raise their margins,” Cavallo said. That’s why it’s important to companies that consumers understand when the price of a product is affected by a tariff, he added.

Companies can’t just tell investors that consumers should take the hit, because demand for the company’s products would decrease with higher prices, Kalemli-Özcan said. “Nobody wants to lose market share here. Yes, profit is clearly the most important thing to investors—but if you don’t have a market, then you don’t have the profits.”

Suppliers and Supply Chains

To mitigate the impact of tariffs Trump has imposed on any one country, retailers are diversifying their supply chains—with companies like Target emphasizing to analysts that they’re moving away from Chinese imports.

GAP Inc. CEO Richard Dickson said China will likely account for less than 3% of the company’s sourcing by the end of this year, after once being one of the top suppliers. The company is aiming for no single country to account for more than 25% of its supply by the end of 2026, he said.

Ralph Lauren Corp. Chief Financial Officer Justin Picicci similarly pointed to the company’s “significant supply chain diversification”—with most countries accounting for a single-digit percentage of production volume.

The strategy known as trade diversion, “puts more pressure on foreign suppliers to drop their prices and absorb some of the tariff cost,” with the extent of that pressure dependent on the industry and supply chains, Cavallo said.

McMillon said Walmart’s suppliers were also changing not just where, but what products are sourced from—like moving from aluminum, which is subject to a tariff, to fiberglass.

Urban Outfitters Inc. said it’s saving money by shipping by boat, instead of by air.

And Costco stocked up on many popular summer items—like patio items and sporting goods—ahead of the tariff hit, CEO Ron Vachris said.

Multiple companies emphasized they were working with their suppliers to negotiate better prices.

“There are a lot of things that go into paying tariffs,” Gamalski said. “Who’s paying the tariffs? Whose profit margin is feeling the immediate hit? Who’s doing the importing? What is the price you’re paying?”

“Eat the Tariffs”

Some companies, in line with Trump’s urging, are choosing to absorb price increases for certain products.

For example, a company might take a margin hit on one product where it has a large share of the market, to remain competitive—while allowing a price increase could mean ceding market share, Kalemli-Özcan, the Brown economist, said.

Walmart, for example, decided not to increase prices on Mother’s Day flowers.

Its competitor Costco, meanwhile, is holding steady on the price of pineapple and bananas—reducing the impact to the company by working with suppliers and finding efficiencies, the company said, but also “accepting that there may be a margin impact,” said Chief Financial Officer Gary Millerchip.

But unlike Walmart, Costco viewed flowers as “more of a discretionary item.” Those prices went up.