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Target to Pass Higher Tariff Costs to Suppliers Instead of Raising Prices In Store

Target Corp. is passing the buck on tariff increases to its suppliers in order to keep its guests happy.

The discounter’s plan to pass along tariff increases to its vendors was first reported by Oregon Public Broadcasting earlier this week. OPB posted a letter on its site dated Aug. 27 from Mark Tritton, Target’s executive vice president and chief merchandising officer, that was sent to the discounter’s vendors.

Tritton reiterated the retailer’s strategy to focus on its guests and “minimize the impact on American families’ pocketbooks…” And while he thanked vendors for helping Target deliver on its guest-centric plan, he also said the retailer was relying on their help and cooperation as tariff changes continue.

“To that end, Target will not accept any new cost increases related to tariffs on goods import from China. Our expectation is that you will develop the appropriate contingency plans so we don’t have to pass price increases along to our guests,” Tritton wrote. He ended the letter by thanking vendors for their “ongoing partnership.”

A source with knowledge of the letter confirmed that one was sent to vendors, but this individual did not address its contents. Brian Cornell, Target’s CEO, has told Wall Street investors in quarterly conference calls that the company’s goal is to maintain Target’s value promise and keep pricing low for its guests.

However, passing costs off to vendors could mean those suppliers decide to push back.

“It’s not going to work,” retail analyst Walter Loeb said, explaining that the discounter could get hurt should suppliers elect not to ship goods. “Suppliers have to make money to survive and they won’t ship if they have to absorb the costs at an amount that they can’t afford. The only vendors who will ship on any terms will be those who are either very hungry or need the opportunity to sell to Target.”

Both Target and Walmart are the better performing retailers in the discount space, and they have both reiterated that focusing on the customer is a priority. Loeb said all retailers, not just Target, will likely try to pressure their suppliers to absorb the added costs from higher tariffs, but he also said there’s only so much suppliers can do.

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“What you will see in the end is that everyone down the line–retailers, suppliers and shoppers–all bearing a portion of the increased costs from tariffs,” Loeb said.

But just how much of the pass along consumers will put up with remains to be seen. Macy’s Inc.’s chief executive officer Jeff Gennette said recently that the department store retailer did some limited testing of price increases and found that shoppers voted against the idea by closing their wallets.

Meanwhile, new tariffs are set to take effect on Sunday. The latest tranche four tariffs will start for some Chinese import classifications, including apparel, but instead of at a 10 percent rate, the items will see a 15 percent tax. The balance of the tranche four list will be taxed starting on Dec. 15. In addition, President Donald Trump has also raised the tax on $250 billion of goods that had been taxed at 25 percent. Those Chinese imports will now be taxed at 30 percent and are scheduled to begin Oct. 1.