Tariff Storm Clouds Loom Over Walmart’s Low-Price Empire

As Walmart navigates a shifting trade landscape, the specter of new tariffs imposed by the Trump administration is casting a shadow over the retail giant’s hallmark promise: everyday low prices. With President Donald Trump threatening sweeping levies on imports from China, Mexico, Canada and India, Walmart executives are bracing for a challenge that could upend the retailer’s carefully calibrated pricing strategy — and test the loyalty of inflation-weary shoppers.

While concerns over inflation and tariffs persist, CEO Doug McMillon is optimistic about Walmart’s ability to continue delivering value to customers, especially through its growing eCommerce capabilities and expanded membership offerings.

“Tariffs are something we’ve managed for years,” he said on the company’s Q4 earnings call on Thursday (Feb. 20). “We’re strengthening our ability to serve people in the moment. Customers are shopping with us more often and buying more items and we’re growing profit faster than sales. We know who we are and we know where we’re going.”

While Walmart reported better-than-expected fourth-quarter earnings, executives devoted significant airtime to addressing the tariff elephant in the room. Though two-thirds of Walmart’s products are sourced domestically, its massive global supply chain — particularly its reliance on Chinese manufacturing — leaves it exposed. The company is the largest U.S. importer of containerized goods, with its Great Value private-label brand sourcing over 70% of non-food household items from China, according to Zacks Investment Management.

“U.S. customers remain resilient,” CFO John David Rainey told analysts. “We have to acknowledge we are in an uncertain time, and we don’t want to get out over our skis here. We feel good about navigating the environment, whether it’s tariffs or other uncertainties. Our business model is delivering as it’s designed to do. Becoming more convenient has helped increase our growth with higher engagement across income cohorts and positive traffic and unit growth across markets.”

Rainey emphasized Walmart’s playbook: negotiating with suppliers, expanding private-label offerings and shifting sourcing to lower-cost regions. “We can then pass on [savings] to consumers,” he said. Yet analysts warn the math may not be so simple. UBS estimates a 10% tariff on Chinese imports could squeeze Walmart’s margins by 30 to 40 basis points. “Tariffs are inflationary for customers,” Rainey acknowledged, noting past cycles saw “selected items” seeing price hikes.

But even Walmart’s vaunted efficiency has limits. The retailer warned in SEC filings that “significant changes in trade policies … could have an adverse effect” on its financials.

The Consumer Tightrope

Tariffs arrive as Walmart’s core customers face mounting pressures. While the retailer has attracted higher-income households — a trend that accelerated during 2023’s inflationary spike — its base remains heavily reliant on budget-conscious shoppers. PYMNTS Intelligence found in a survey executed last week that 78% of consumers expect tariffs to drive prices higher, with 75% fearing product shortages.

The report also found that 71% of U.S. consumers and small businesses are knowledgeable about the potential import tariffs, but 57% of those informed consumers believe these tariffs will negatively impact their wallets. Small businesses, however, are somewhat optimistic, viewing tariffs as an opportunity to boost demand for domestically sourced products. Uncertainty surrounding tariffs may cause consumers to shift from spending to saving.

PYMNTS CEO Karen Webster concludes that both businesses and consumers have time to plan their next moves while waiting to see how the tariff talks conclude. “When the future is unsettled, the tendency for people and businesses is to hit the pause button on decisions,” Webster wrote. “The waiting game itself becomes an inevitable part of the economic narrative.”

That economic narrative also got a fair amount of attention from Rainey and McMillon.

“The lower-income customer is still very stretched,” Rainey noted. Walmart’s data shows persistent increases in general merchandise, even as grocery prices remain elevated. The dichotomy was evident in Q4 results: while health/wellness sales surged and eCommerce jumped 20%, discretionary categories like electronics and home goods saw only modest gains.

Upper-income households now account for the majority of Walmart’s market-share gains, according to Rainey, but the retailer risks alienating its traditional base if tariffs force widespread price hikes.

Against this backdrop, Walmart’s Q4 performance highlighted both resilience and looming vulnerabilities. Revenue rose 5.2% to $173.4 billion, with adjusted operating income up 9.4%. U.S. comparable sales grew 4.6%, fueled by a 20% leap in eCommerce. Sam’s Club sales climbed 6.8%, while international markets like China and Mexico delivered strong results.

Yet the numbers also revealed cracks. The company projected sales growth between 3% and 4%, below analyst projections, as rising costs and uncertainties around U.S. tariffs weigh on consumer purchasing power. Inventory rose 2.8%, hinting at cautious ordering ahead of potential tariffs. Gross margins improved, but Rainey warned of “sustained merchandise category mix pressure” as shoppers prioritize essentials. Most tellingly, Walmart’s full-year guidance of 3-4% sales growth fell short of analyst expectations — a gap Rainey attributed to “uncertainty related to consumer behavior and global economic conditions.”

Investors reacted swiftly, sending shares down 7% premarket. “The stock has been treated like a high-flying tech stock,” noted Brian Mulberry of Zacks, per CNBC “The question is when challenges for lower-income customers start hitting results.”

As Walmart prepares for its April investor conference — where it plans to showcase supply-chain automation efforts — executives are betting on a multi-pronged defense: accelerating its U.S. sourcing initiative (a $350 billion, 10-year pledge), leveraging its growing ad and membership businesses, and doubling down on artificial intelligence (AI)-driven efficiency.

“We feel like we’re just getting started,” McMillon said.