U.S.-based retailers continue to adjust their strategies to combat trade-related tariff headwinds, amid ongoing and escalating disputes with China.

Market participants have warned that levies on apparel, footwear, consumer electronics, and toys imported from China will likely impact profitability at several major U.S. firms, including sportswear producer Nike (NYSE: NKE), iconic department stores Macy’s (NYSE: M), Kohl’s (NYSE: KSS) and Walmart (NYSE: WMT), as well as electronics giant Best Buy (NYSE: BBY).

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Best Buy, for example, has unleashed its next phase financial strategy objectives for the fiscal year 2025, Building the New Blue: Chapter Two, which includes a focus on supply chain transformation to help stave off adverse impacts from tariffs.

Among its aims, the company is seeking to raise its enterprise revenue to US$50bn from its current fiscal 2020 guidance of US$43.1bn-US$43.6bn; generate non-GAAP operating income of 5.0% compared to its FY’20 outlook of flat to slightly up from the 4.6% rate in FY’19; as well as achieve US$1bn worth of additional cost reductions and efficiencies.

Best Buy CEO Corie Barry said in late August that the company’s televisions, smartwatches, and headphones would be most affected by the tariffs that went into effect September 1, while computer-related items, mobile phones and gaming consoles would face impacts starting December 15.

Barry continued that, given this backdrop, “many of our vendors are in the process of migrating their manufacturing out of China,” while Best Buy’s merchants are aiming to “minimize costs and risks.” He added that, as a result, “while there will be some short-term volatility, we expect to adapt to this new environment”.

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Shares of Best Buy were last down around 1% to US$66.75 in intraday trading Thursday. The firm’s shares have lost roughly 16% of their value year-on-year.

Losing Confidence

In its Q2 FY’20 earnings report, Best Buy CFO Matt Bilunas noted that the firm had updated its FY’20 guidance by lowering its top-line range and raising its bottom-line.

Bilunas attributed the narrower ranges in large part to tariff-related effects from Chinese imports, as well as “general uncertainty related to overall customer buying behavior in the back half of the year.”

For FY’20, Best Buy foresees comparable sales growth, for instance, of 0.7% to 1.7%, which compares to prior guidance of 0.5% to 2.5%.

Moody’s Analytics economists Steven Cochrane and Katrina Ell recently noted that it is “through the retail channel where the additional tariffs hurt the U.S. economy more than China.” They noted that “tariffs cause prices to rise on an array of consumer goods in the U.S., resulting in higher inflation and weakened consumer confidence.”

Indeed, the Conference Board’s Consumer Confidence Index fell to 125.1 in September – far more than most market expectations – from a downwardly revised 134.2 in the prior month.

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Lynn Franco, the Conference Board’s senior director of economic indicators, said that the “escalation in trade and tariff tensions in late August appears to have rattled consumers.”

She added that while confidence “could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.”  

With consumer spending the main driver of U.S. economic growth, reduced confidence that leads to lower spending would likely spur a rise in recession risks, which Moody’s places at “about even odds” in the next 12 to 18 months.

Among its more recent actions, the U.S. had increased tariffs on US$300bn worth of goods imported from China to 15% from 10% in two stages, with the first batch made effective September 1, and the second slated for December 15.President Donald Trump said the delay of those items to mid-December was meant to mitigate any potential impact on U.S. customers during the upcoming Christmas shopping season. 

Separately, the Trump administration also raised existing taxes on US$250bn billion worth of Chinese imports to 30% from 25%, which are scheduled to take effect October 1.