Consumer companies confront tariff pricing dilemma
Adidas said it could launch new products at higher prices in the US, Levi Strauss will cut back on promotions, and packaging giant Proctor & Gamble is introducing price hikes from next week.
Some of the world's biggest companies have warned for months, since US Donald Trump's April 2 'Liberation Day' tariff announcements, that they would be squeezed by hefty duties.
Now, they are outlining how they are changing their businesses to try to cushion the blow of rising costs, uncertainty over US trade policy, and waning consumer confidence.
Their different approaches reflect a growing divide about how much they calculate they can pass on to their customers without hurting sales.
Shoppers, particularly those already grappling with tighter budgets amid economic and geopolitical uncertainty, may baulk at paying more for everyday items, while middle- and higher-income consumers may be willing to splash more cash on higher-priced discretionary items.
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'Tariffs will act as a regressive tax on household consumption, weighing proportionately more on low- and middle-income household spending than upper-income households,' Morgan Stanley analysts said in a note.
French cosmetics group L'Oreal has not tweaked its prices to adjust for tariffs, but CEO Nicolas Hieronimus is scanning his vast portfolio of goods from Valentino perfume to La Roche-Posay face cream to check what increases customers may tolerate.
'We're still assessing all the options, and we're also waiting for the dust to settle,' Hieronimus told Reuters on Tuesday.
'There is some pricing power on fragrances, but we have to also consider the elasticity of the demand, so we'll see how we manage it.'
Reuters' global tariff tracker shows at least 92 out of nearly 300 companies monitored by the tracker have announced price hikes in response to the trade war, with about a third of them from the consumer sectors.
Some luxury firms may have a little more power than others. Birkin bag maker Hermes raised prices by 7 per cent globally, with an additional 5 per cent hike specifically in the US, where the company flagged it would fully pass on the effects of tariffs to clients.
Porsche and Aston Martin on Wednesday disclosed small price increases in the US, but the news came as they issued profit warnings, underscoring the fragility of the market.
'This is not a storm that will pass,' Porsche CEO Oliver Blume said.
As low as possible
Toymaker Mattel Inc announced in May it would raise prices on some US products. Last week, CFO Paul Ruh said the company has now implemented those price increases and does not expect further hikes this year.
'Our goal is to keep prices as low as possible for consumers,' he said.
Adidas, whose Samba sneaker line starts at US$100 on its US website, will review its pricing and decide which products it could hike prices on in the US once tariffs are finalised, CEO Bjorn Gulden said on Wednesday. He declined to say how much prices might increase.
'New product that no one has seen is easier to increase than products that already exist,' he told analysts on a call.
But he warned of the risks of going too far with price increases given the uncertainty over trade and a consumer he described as 'a little bit depressed in many areas'.
Adidas shares fell more than 11 per cent to February 2024 lows on Wednesday as investors fretted about the strategy at a time of fragile consumer confidence and sensitivity to prices.
'I think it is very, very important that you don't run away from the lower price points and believe you can just raise prices and do less volume,' he told analysts. REUTERS
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