LONDON/FRANKFURT--Global retailers including sandal maker Birkenstock and jeweller Pandora are looking at spreading the cost of U.S. tariffs by raising prices across markets to avoid big hikes in the United States that could hurt sales.
A global presence gives large retailers an advantage to minimise higher tariff costs in the U.S. But it is putting central banks on watch as the strategy could fuel inflation in other markets like the European Union and Britain, where consumer prices have finally started to stabilise.
Birkenstock's chief financial officer said last week that a "low-single-digit" price increase globally would be enough to offset the U.S. tariff impact. Pandora CEO Alexander Lacik said the Danish company is debating whether to raise prices globally or more in the U.S., its biggest market.
"Companies are really thinking about distributing the tariff," said Markus Goller, partner at consultancy Simon Kucher in Bonn, Germany. "A manufacturer from outside of the U.S. might say, OK, I cannot increase my prices to the U.S. market that much, so I will do a little increase in the U.S., and a little increase in Europe, and in other markets."
U.S. President Donald Trump has imposed a blanket tariff of 10% on all global imports and is threatening higher so-called "reciprocal" tariffs on its trading partners.When U.S. behemoth Walmart said it would have to raise prices in response to tariffs, Trump ordered the world's biggest retailer via social media to 'eat the tariffs'.
Announcing price increases in non-U.S. markets could be a way for retailers to avoid a similar backlash from Trump."Obviously if your products coming into the U.S. are now subject to tariffs, then math says that you have to raise your prices in the U.S.," said Jean-Pierre Dubé, professor of marketing at the University of Chicago Booth School of Business."But you don't want to be accused by the White House of raising prices purely because of U.S. tariffs, so if you can demonstrate that your prices are going up everywhere then... it's kind of a shield."
Retailers could raise prices on certain products or in certain markets where consumers are less price-sensitive, and use that to subsidise other products or countries where price hikes would hurt sales more, said Jason Miller, professor of supply chain management at Michigan State University. "Maybe a U.S.-only firm has to raise (U.S.) prices by 12%. But you, as a global firm, raise prices by 8% because you can play with pricing in other markets," he said.
If many multinational retailers do spread the tariff pain, higher inflation could spread even to countries which, like Britain, have already struck trade agreements with the U.S. in a bid to minimise the economic fallout of tariffs.Bank of England Governor Andrew Bailey earlier this month raised the issue of "global companies that don't make that distinction [on tariff rates] and just say, we're going to impose a pricing solution which goes right across the world irrespective of those differences."
"I think we do have to watch that carefully," he said.
Global retailers' tariff strategy risks
spreading pain beyond US consumer
LONDON/FRANKFURT--Global retailers including sandal maker Birkenstock and jeweller Pandora are looking at spreading the cost of U.S. tariffs by raising prices across markets to avoid big hikes in the United States that could hurt sales.
A global presence gives large retailers an advantage to minimise higher tariff costs in the U.S. But it is putting central banks on watch as the strategy could fuel inflation in other markets like the European Union and Britain, where consumer prices have finally started to stabilise.
Birkenstock's chief financial officer said last week that a "low-single-digit" price increase globally would be enough to offset the U.S. tariff impact. Pandora CEO Alexander Lacik said the Danish company is debating whether to raise prices globally or more in the U.S., its biggest market.
"Companies are really thinking about distributing the tariff," said Markus Goller, partner at consultancy Simon Kucher in Bonn, Germany. "A manufacturer from outside of the U.S. might say, OK, I cannot increase my prices to the U.S. market that much, so I will do a little increase in the U.S., and a little increase in Europe, and in other markets."
U.S. President Donald Trump has imposed a blanket tariff of 10% on all global imports and is threatening higher so-called "reciprocal" tariffs on its trading partners.When U.S. behemoth Walmart said it would have to raise prices in response to tariffs, Trump ordered the world's biggest retailer via social media to 'eat the tariffs'.
Announcing price increases in non-U.S. markets could be a way for retailers to avoid a similar backlash from Trump."Obviously if your products coming into the U.S. are now subject to tariffs, then math says that you have to raise your prices in the U.S.," said Jean-Pierre Dubé, professor of marketing at the University of Chicago Booth School of Business."But you don't want to be accused by the White House of raising prices purely because of U.S. tariffs, so if you can demonstrate that your prices are going up everywhere then... it's kind of a shield."
Retailers could raise prices on certain products or in certain markets where consumers are less price-sensitive, and use that to subsidise other products or countries where price hikes would hurt sales more, said Jason Miller, professor of supply chain management at Michigan State University. "Maybe a U.S.-only firm has to raise (U.S.) prices by 12%. But you, as a global firm, raise prices by 8% because you can play with pricing in other markets," he said.
If many multinational retailers do spread the tariff pain, higher inflation could spread even to countries which, like Britain, have already struck trade agreements with the U.S. in a bid to minimise the economic fallout of tariffs.Bank of England Governor Andrew Bailey earlier this month raised the issue of "global companies that don't make that distinction [on tariff rates] and just say, we're going to impose a pricing solution which goes right across the world irrespective of those differences."
"I think we do have to watch that carefully," he said.
