Target, BJ's Say Tariffs Add Layer of Uncertainty to Retailer Business Planning
Target remains “mindful of the volatility and uncertainty in the marketplace, including the timing and extent of additional China tariffs,” CEO Brian Cornell said on a Q2 earnings call Aug. 21. Noting that List 4 Section 301 tariffs at 10 percent are set to hit Sept. 1 on apparel, TVs, toys and home goods, Cornell said Target is following developments carefully: “We’re encouraged that many items originally slated for tariff increases in September have now been delayed until later in the year,” he said of the List 4B tariffs deferred until Dec. 15. As long as the trade situation with China “remains fluid,” he said, “it will present an additional layer of uncertainty and complexity as we plan our business.”
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In Q&A, Cornell noted the Trump administration’s multiple shifts in strategy on tariffs over the past few weeks: “As it sits right now, this is largely a 2020 issue,” he said. All of the current tariffs are built into guidance and plans for the rest of 2019, he said. To navigate the current period of “heightened volatility,” Target will rely on its broad multi-category assortment, “deep expertise in global sourcing” and a “sophisticated set of manufacturing partners around the world,” the executive said.
During the BJ's fiscal Q2 earnings call on Aug. 22, CEO Chris Dawson said the company's decisions to “diversify” its supply chain today gives the warehouse club “significantly reduced” exposure to the 10 percent List 4 Section 301 tariffs on Chinese goods compared with the competition. BJ’s started “several years ago” to “reduce reliance on China by sourcing high-quality products from other markets in both Asia and Africa,” Dawson said. “Chinese-sourced goods represent 3 percent of our cost of sales this year, which we expect to decline slightly next year. This gives us a much smaller exposure to tariffs than many other retailers.” Though the tariff risk is “small for us,” it “creates uncertainty for all retailers that we think we can manage,” Dawson said.
BJ’s is “implementing a variety of mitigation measures in order to reduce the risk associated with our direct exposure to tariffs,” said Chief Financial and Administrative Officer Bob Eddy. “We currently believe that this risk is manageable.” He estimates the tariffs could bring a $5 million hit to adjusted EBITDA for 2019's second half, he said. In giving out those second-half estimates, management is trying to give investors “a sense of the max exposure that we see to the back half of the plan” from the List 4 tariffs, Dawson said in Q&A. “We only know what we know today” about the tariffs threat, he said. “It could change at any moment. This is certainly an evolving and fluid topic out there.”