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Target tells suppliers to bear cost of Donald Trump’s tariffs

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Target has set the stage for contentious talks with the US retailer’s suppliers of Chinese goods, telling them it would refuse to “accept any cost increases related to tariffs” imposed by Donald Trump in his trade war with Beijing.

Hundreds of suppliers to the S&P 500 company received the warning in a memo sent last week, shortly before 15 per cent tariffs on $112bn of goods from China went into effect at the weekend.

“Our expectation is that you will develop the appropriate contingency plans so that we don’t have to pass price increases along” to customers, wrote Mark Tritton, Target’s chief merchandising officer.

With a network of more than 1,800 stores across the US and sales of $74.4bn last year, Target is a crucial route to market for suppliers of goods ranging from groceries and toiletries to electronics and homewares. Its shares are trading just shy of an all-time high, giving the company a $54.9bn market capitalisation.

The scale of Target’s US presence and popularity among American shoppers have given it substantial clout in negotiations with providers.

Even so, some analysts warned its apparent refusal to accept a share of tariff costs risked alienating suppliers.

“Some will be pretty cross,” said Neil Saunders, managing director of GlobalData Retail, adding that despite Target’s “cosy” public image, the memo was a sign that the company could be “quite ruthless”.

“To be so direct [with suppliers] is fairly unusual,” he said.

Jan Kniffen, a retail consultant, described the demand in the memo as an “opening gambit” and predicted that suppliers would not necessarily give in. “It’s going to be a negotiation,” he said.

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Retailers and their suppliers have also been shifting production and sourcing away from China in an effort to contain the financial fallout from the trade war.

Steve Bratspies, chief merchandising officer of Walmart’s US business, told a conference on Wednesday that while the retailer had successfully navigated earlier rounds of tariffs, the latest tranche “gets tougher” and “covers a lot more” products.

Still, he described price rises as a “last resort”. “There’s a whole bunch of different levers that a buyer can pull,” he said.

Bruce Besanko, chief financial officer of Kohl’s, told another conference organised by Goldman Sachs this week: “We’re certainly partnering with our vendors and suppliers to be sure that we try to avoid having an impact to our customers.”

Mr Tritton’s memo was sent to Target suppliers that are “importers of record” — those legally responsible for ensuring that goods are imported in accordance with the law — for goods from China. It said: “We have delivered on this [customer]-centric plan with your co-operation, hard work and partnership and appreciate the work we’ve done, together.”

Via Financial Times

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