Melissa Minkow, global director, retail strategy at CI&T, discusses the impact of U.S. tariffs on retailers, and explains why Walmart is beating Amazon in earnings performance.

A strategist has analyzed the current pricing strategies of U.S. retailers, noting that many have managed to keep prices stable and offer discounts to attract consumers. However, this approach is not sustainable in the long term, as it can lead to excess inventory and challenges in adapting to rapidly changing consumer trends.

The discussion also highlights the impact of tariffs, with potential changes posing risks for retailers in future quarters. Differences between major retailers such as Walmart, Target, and Amazon are explored, with Walmart's low-price positioning resonating strongly with consumers in an uncertain economic environment, while Target has faced challenges due to stockouts and policy shifts. The comparison between Walmart and Amazon underscores the importance of both price competitiveness and convenience in the retail sector.

Strategist on what will happen to prices at U.S. retailers

Yeah, it's an interesting strategy. As a result, they haven't been had to pass on prices to consumers. They've been able to keep prices pretty stable and on the lower end and offer some good discounts. But they can only do this for so long. Consumers have been buying and spending in the U.S. because of these good prices. But again, it's not a sustainable strategy for the long run. And it leaves them with a lot of excess unwanted inventory. And that's a problem. We saw that with covid. That's a couple of features. So the discounting that can crop up from here, if you've got excess inventory versus the behavior of the consumer, if they've already bought the item, whether they need to replenish. And of course, the tariffs come into effect. They're not the reciprocal tariff level. There's been negotiations that are taking place since the front loading. So piece that together in terms of what these companies are going to be doing in terms of promotional activity and the pricing. Yeah, I think these retailers are going to promote whenever they possibly can to snap up as many sales as they can. But what's really concerning is that if the Chinese tariff then comes down in November because it's been delayed since then, that will give us a very bad Q4 potentially for retailers. So I could see them trying to get consumers to spend as much as possible now if they're not anticipating as much spend during the holiday season. Can I revisit the excess inventory story? Is that a negative at this point? I mean, typically companies get very nervous about holding on to stock levels. They want to get rid of it to manage their exposure. But if they are thinking that, look, these tariffs are sticking around, is it a bad thing to hold the inventory even with the excess cost of storage? Does it make sense to do that? Could we see that strategy deployed? Right. It's a good and bad thing. It's a good thing in the sense that they then don't have to face stockouts. So consumers don't have to worry about inventory not being on hand when they want it. But it's a bad thing because they can't really keep up with trends. And we know that the trend cycle is moving extremely quickly thanks to social media. Consumers are changing their minds constantly on what they want. And if retailers are investing and holding this inventory, they can't cater to those fast-moving trends. Minister, lovely to see you. You've just moved to London, haven't you? I did last week. How are you finding it? Loving it. Expensive or? Favorite city in the world, not compared to New York. That's really interesting, actually, because I think we find it quite expensive. I'm off to New York later in the year, so I'll do my comparison. You're very welcome, by the way, because we've got most people leaving the country at the moment. So thank you. We've talked about retailers in the first three questions there. Retailers, retailers. But it's not monolithic. There's so many different subtleties in there as well. I was just looking at three companies mentioned at the top of the copy I have from you, about Home Depot, Target, and Walmart. And the valuation difference is enormous. Target versus Walmart, for instance. Massive valuation differences. The best in class, I guess, is Walmart. He's negotiating very well. The worst in class, or one of the more troubled companies, Target. What's the difference between those companies that are doing really well and those that aren't? Target has had quite a few struggles over the last few years, but especially over the last couple months when they took back a lot of their DEI policies that did not resonate well with their consumer. Meanwhile, Walmart has always been positioned as that low price retailer. And in these times where the economy is very unstable and consumers are trying to be very conservative with their spend, that's what's really resonating. So Walmart's low price positioning has managed really, really well. Target was a little bit higher brow in terms of how it was messaging. And its consumer has not been happy with its stockouts and its DEI policy revisions. It's, yeah, combination. I'm going to ask you a different question because the threat was always about bricks and mortar versus online as well. And when I've spent a lot of time in the last year or so looking at Walmart versus Amazon, in fact, we've got the chart on the screen and it's narrowed. Thank you, by the way, Matt and the team for getting that very quickly. So look, there's no doubt about it. Amazon have come up the rails as of late, as we can see on that one as well. But in terms of valuation for PE, year to date performance, Walmart's beating Amazon. Why? Again, I think their reputation for the really low prices, their locations are very convenient to their consumers, makes buying in the immediate very easy. I do think prices are starting to look more expensive in the context of Amazon compared to Walmart. But Amazon is also just so convenient from an online perspective. So they both have kind of different corners of the market and yet are overlapping with their customer for different reasons.

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Breakdown