Walmart Inc has asked its cosmetics suppliers to consider sourcing their goods in countries outside of China, one of the first signs that the world’s largest retailer hopes to dilute the effect of US President Donald Trump’s administration’s looming tariffs.
A “large amount” of items in the cosmetics category fall under the most recently proposed levies on Chinese goods, an Aug. 7 e-mail sent from Walmart’s procurement division to some of its cosmetics suppliers said.
TARIFFS
The list of Chinese goods that could get hit with additional tariffs includes lipstick, eye makeup, powders, shampoo and other haircare products. The missive asks suppliers if they have facilities outside of China, and if not, whether they would consider investing in some to broaden their sourcing ability.
The e-mail, obtained by Bloomberg, is titled “Potential alternative plan for WMUS D46 orders” (D46 is Walmart’s internal code for the cosmetics department).
“We are closely monitoring the tariff discussions and are actively working on mitigation strategies, particularly in light of potentially escalating duties,” Walmart spokesman Randy Hargrove said.
“One of those mitigation strategies is to understand what our suppliers are doing and what their plans and alternatives are,” Hargrove added.
The effect of the tariffs “is difficult to quantify,” Walmart chief financial officer Brett Biggs said when the retailer released second-quarter results on Thursday.
In that statement, Walmart downplayed its reliance on Chinese suppliers.
“We buy more merchandise, by a wide margin, in the US than from any other country,” the company said.
SUPPLY CHAIN
That is certainly true for its massive US food business, but Walmart’s sprawling supply chain includes more than 100,000 vendors around the globe.
“Walmart does source a lot from China,” Edward Jones analyst Brian Yarbrough said. “They’ve made a big push on US-made stuff, but it’s still small.”
France’s L’Oreal SA is the world’s biggest cosmetics maker, with a diverse spectrum of brands that includes Maybelline mascara and Garnier shampoo. Walmart is the company’s biggest customer, accounting for just less than 5 percent of its sales, Bloomberg data showed.
The main rival of L’Oreal in the cosmetics aisle is Coty Inc, which sells beauty items under the Covergirl, Max Factor and Clairol labels. Coty derives 7 percent of its sales from Walmart.
Coty and L’Oreal did not reply to requests for comment.
US foreign trade policies could hurt its results, Walmart said in a company filing, adding in its annual report that tariffs “are beyond our control.”
Retailers have two primary responses to the tariffs, analysts say: Raise prices or get their products elsewhere.
However, the e-mail to makeup companies showed that Walmart is also actively looking for other ways to circumvent the tariffs by asking its suppliers: “Any resources or ideas so far?”
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