"We know from the earlier tranche of tariffs though that today’s customer doesn’t have much appetite for price increases" - Jeff Gennette, Macys CEO

"We know from the earlier tranche of tariffs though that today’s customer doesn’t have much appetite for price increases" - Jeff Gennette, Macy's CEO

US department store retailer Macy's has no plans to increase its prices on any items affected by President Trump's latest tranche of tariffs, according to CEO Jeff Gennette.

Speaking to analysts on the retailer's second-quarter earnings call yesterday (14 August), Gennette said the retailer "did play with selective price increases" in categories like luggage, housewares and furniture following the imposition of Tranche 3 tariffs of 25% in May. But "we learned from that experience that the customer had very little appetite for those cost increases so we had to make adjustments."

Earlier this month, President Trump tweeted his plans for a 10% tariff hike on US$300bn of additional Chinese products from 1 September. The new tariffs cover almost all textiles, apparel and footwear, with the decision leaving apparel brands, retailers and importers reeling.

However, while the tariff will now be delayed to 15 December for certain articles, the Tranche 4A (effective 1 September 2019) list remains far longer and still includes the majority of men's and boys, women's and girls apparel and footwear imports. 

"I would tell you that we are looking at no price increases on any content that is touched by Tranche 4," Gennette told analysts. 

"I think on a long-term basis, we believe that we will work through solutions on 10%. We are working closely with our manufacturing partners. We are leveraging our scale and our strong relationships with our sourcing partners, as well as our vendor partners, who source out of China. So I think that 10% is manageable in the short and long term."

However, he waned when the tariff goes to 25%, "you are dealing with a whole other series of dynamics that I would not say we wouldn't have to raise prices. How do you get more value into those products that gives you the permission from a customer's perspective to raise prices?"

Meanwhile, the Macy's chief said the company has laid down holiday 2019 as a "must-win" for the entire organisation.

"While consumer spending remains healthy, there is significant noise in the macroeconomy, tariffs, currency fluctuations, declining international tourism to name a few. It's a dynamic situation and the team is prepared to respond to changes in the consumer environment."

Genette's comments come after the US department store retailer reported a drop in both earnings and revenue for the second quarter. For the 13 weeks ended 3 August, net income almost halved to US$86m from $166m a year earlier, as net sales slipped to $5.55bn from $5.57bn last year, despite a 0.2% rise in comparable sales on an owned basis. 

Macy's CFO Paula Price told analysts any potential impact from the fourth tranche of tariffs is not contemplated in the company's guidance as it is "still processing" the details. 

"We are in active discussions with our vendors and suppliers to mitigate tariffs, and minimise customer impact in 2019 as much as possible and we will know more in the coming weeks," she said. 

Pre-negotiated vendor concessions are likely to bear the brunt of the new tariff, analysts believe: Some brands are mitigating the potential impact of new China tariffs. Here's how