Breaking: Walmart Signals Major Price Increases - How Will The Retail Industry React?

Walmart CFO said last week that price hikes could start later this month.

In an interview with cnbc, Walmart's chief financial officer John David Rainey said import duties are still too high even with a recently announced agreement to lower them on imports from China to 30% for 90 days.

John David Rainey said, quote, we're wired for everyday low prices.

It's more than any supplier can absorb.

And I'm, and so I'm concerned that the consumer is going to start seeing higher prices.

You'll begin to see that likely towards the tail end of this month and then certainly much more in June, end quote.

Michael, we're going to go to you first.

This is a pretty heavy statement from the US, is one of the US's largest retailers.

How do you expect other retailers to react to Walmart's signal of price increases?

I think it's you, I think it's a huge statement and this is a topic I love talking about right now.

Yeah, you know it's, it is huge and I think if I had a crystal ball right now it would be fabulous.

I think we'd all be billionaires.

Right.

And from what we're hearing from all the retailers and vendors that we're talking to.

Yeah.

Is that it's an absolute free for all what people are doing with pricing.

So I think it was pretty ambitious that Walmart came out and kind of planted the flag and said we are absolutely raising prices.

And I think other retailers are either going to say hey, we're going to use this as an opportunity to take market share and sacrifice a little margin or, and keep prices where they are or other retailers are going to say well if Walmart's doing it, we have a license to do it.

And then I actually think you'll see a little bit of both of those activities.

So it's going to be very, very interesting to see how other retailers react.

The other interesting thing that no one's really talking about and you hear this a little bit is it's 30% increase on top of the 301 tariffs that on average were 21% increase.

So over a three year basis it's over a 50% increase if you, if you do it on a relative basis.

So it's not for the faint of heart to take prices up.

So very, very interesting for Walmart and it'll be very, very interesting to see what other retailers do with that.

Yeah, absolutely.

I mean, and I think you have to think about Walmart's unique position too being a mass retailer.

And for things like food and other things that just don't have the margins like you're really, they're really going to, there's no way around it, it sounds like.

But yes, definitely opening the doors for some other retailers to make, make some concessions to.

Chris Disa, what are your thoughts here?

Yeah, I think, you know, I agree with Michael.

I do think that a lot of retailers, you know, for a lot of retailers this is going to bolster their confidence in raising prices.

But I think the watch out for Walmart and other retailers that it has to be done surgically.

There are some categories and items that are inelastic based on utility value or necessity while others are not.

And I think the cautionary tale for other retailers, specifically apparel or non essential merchandise retailers, that if you raise prices and then you have to increase your discount rates to move product in the future, then you're really training your customer to expect a higher promotional value or activity which can have long lasting, long term effects.

So definitely something to watch out for.

There's a ying and a yang to all of this.

Yeah, without a doubt.

Chris Walton, jump in here.

What are your thoughts?

I mean my question for, for Michael since he started out would be do you think the entire retail industry breathed a collective sigh of relief this week with this announcement saying oh thank God Walmart did this because now it gives us some room to move.

What do you think about that?

It's an interesting question.

I don't think so.

I think people are afraid to raise price because there are a lot of retailers with the section 301 tariffs and the inflationary environment Covid raised price and they saw a linear reduction of units purchased and they also saw a red line in the sand of being able to raise price to a certain level.

And then when they got over that, their customers balked at it and said we're not purchasing.

So I think it's sort of an interest.

My point of view is it's an interesting thing that Walmart did and if I was a retailer I'd be saying okay, well glad they're doing it, we can potentially do it, but we're also nervous about doing it.

So I don't think it's giving everyone full license to go out and do it.

Yeah, that's an interesting point.

Yeah.

I think initially I thought yes, but now as, as I'm talking to you and thinking out loud, I'm thinking maybe not.

It kind of depends on what happens from here.

Does Walmart follow through on this or not?

Given the kerfuffle that started there.

But I mean the other point I'd make too is, is the gate, it just gives, it gives license for the game theory to start around this across the industry.

Right.

And you saw Home Depot come out yesterday and be like, we're not taking prices up because they're playing on the opposite trend in the media and the perception that they have there.

So, you know, but at the end of the day like Walmart sets the prices and the rest of industry follows.

So if Walmart brings the prices up, then I think that gives, then the sigh of relief I think comes.

But the trick is, I agree with what Chris said too.

You got to be really smart about how you do this.

You don't want to tell people, I think either.

You just want to let the prices speak for themselves.

At shelf.

I think that's my big lesson here for all retailers they're going to take away from this past week is like you're not talking about this as much as you can, you know, give, you know, depending on what your legal ramifications are in terms of what you got to report to the financial community.

But, and curious if you guys have thoughts on that too.

But you know, for the most part you're just going to want to let this sit and let the customers adjust it over time, I would think.

Right.

But the other interesting thing is Walmart is clearly the gorilla in the marketplace.

Right.

And the hidden thing in this is Walmart can do whatever they, whatever they really choose to do.

So if they raise their prices and it doesn't work, they will shift and pivot it so quickly it'll make your head spin.

They've got the margin then to cover the markdowns and they'll kind of make the we raised our price mistake go away lightning fast.

Not everybody else can do that and not everybody else has that latitude.

So that's where it's a little scary too.

And I look, I think it's amazing.

I applaud them for doing it, but at the same point, like they've got a really easy get out of jail free card and their customer is very reactionary too.

Based on the everyday low value pricing scheme, if you start promoting on top of that, it will clear goods immediately for them and then so they kind of have a very easy safety backup plan.

So raise prices.

Great point.

Doesn't work.

Pull the trigger, bring it down a little bit and then revenues, revenues go through the roof.

We take it on the chin from a margin standpoint a little bit.

But in the quarterly calls we're now talking about a revenue increase with a little bit of margin dilution and the street is going to say, oh, that's awesome.

Super psyched.

So Walmart is kind of insulated in my opinion.

Yeah, 100%, Michael.

I mean that's what I was just gonna jump in and say too.

Like they're also building a moat with retail media.

The recurring loyalty revenue that they're getting from Walmart, plus like all of those things allow them over many of the other retailers that are, are in the industries and in the space, including Target, you know, who announced earnings this morning.

Like Walmart is in a much better position to be able to weather this storm, I think, than a lot of the other retailers out there.

So I don't think it's wrong that they're being transparent with their saying, look, this is going to happen and customers know they're always going to be able to go to Walmart for, for that everyday low price guarantee.

So I think it's just, it's, it's taking a different approach that we're seeing in the market.

I also think that it depends on, you know, the level of which they're taking the prices up 5%, 10%, 20%.

You know, as an everyday low value retailer taking 5, 10, 15% up on, you know, certain inelastic goods may not be a big deal.

Where other retailers who have a higher baseline, it's much more impactful.

Yeah, yeah.

Wow.

Wow.

What a great start to this podcast.

Holy cow, this is.

Buckle up on this one.

The story's still yet to be written.

Oh my God.

Yes.

The game theory starts today.