Best Buy warns of potential price hikes as executives say tariffs will ‘impact the whole industry’
During its fourth-quarter earnings call with investors early Tuesday morning, Best Buy executives gave a detailed look at how they expect new tariffs from President Donald Trump enacted overnight will impact their business and likely lead to price increases for American shoppers.
The tariffs include a 25% tax on imports from Canada and Mexico and increased tariffs on Chinese goods from 10-20%. Best Buy only directly imports 2-3% of what it sells. But the vendors it works with, ranging from Apple to Samsung to LG, are heavily dependent on foreign manufacturing, given the complexities of the electronics industry.
CEO Corie Barry said because China and Mexico are the top two sources for the products the retailer sells, the company expects vendors throughout its entire assortment to pass along some level of tariff costs to retailers, making price increases highly likely for American consumers. The company has previously said 60% the cost of its sold goods flow through China.
Best Buy’s earnings call underscored how much more of a pressing issue tariffs have become for retailers. The 25% tariff on imports from Canada and Mexico, which officially went through on Tuesday, were previously announced a month ago and then delayed.
“I think we need to state the obvious — we’ve never seen this kind of breadth of tariffs, and this, of course, impacts the whole industry,” Barry said during the earnings call.
“International trade is critically important to our business and industry; the consumer electronics supply chain is highly global, technical and complex,” Barry said in the call, adding that the company did not include the impact of the tariffs in its financial guidance for the upcoming fiscal year. “This is because it is a highly dynamic situation with uncertainty about the duration, timing, amount and countries involved, in addition to the potential action of others in the industry, as well as the potential reaction of American consumers.”
Best Buy chief financial officer Matt Bilunas said he expects the previous 10% tariffs on China that went into effect on Feb. 4 alone will create an impact of about one negative percentage point on its sales for this year as vendors raise prices.
“We prefer not to raise prices, but because of the higher [cost of goods sold] we need to enact some price increases, and that is going to vary based on product category, SKUs, competitive environment and other factors,” he said. “What we’re expecting from a profit perspective is really just a normal flow-through at this point, but that is with the net of any sort of other mitigants we would normally do if business starts to go downward.”
Barry explained that this isn’t as simple as Best Buy deciding to raise prices — that instead it starts with manufacturing and works its way through the entire supply chain.
“We’re only the direct importer of record on 2-3% of what we sell. So this starts much further upstream with our vendor partners who are navigating this environment along with us,” she said, adding that the effect wouldn’t play in until the second, third or fourth quarters as these cost increases slowly make their way into product pricing. “We carry, on average, let’s call it six weeks of supply, so you’re not overnight going to see these implications.”
Other investments by the company in other components of its business, including a third-party marketplace set to launch this summer and enhancements to its advertising business, could reduce the impact.
“Part of what we’re trying to do this year, on top of navigating the tariff situation, is also investing in our future,” Bilunas said. “And so, we are getting leverage with some of that revenue growth, and we expect the initiatives we’re driving this year to help expand that rate in the future, on top of actually also contributing to operating income dollars this year, as well.”
Barry said there’s no other time in the history that she could point to to understand the impact of these tariffs and that it’s unclear whether doubled Chinese tariffs will lead to double the impact on the company.
“It’s not just a Best Buy question — it is a broad industry question,” Barry said. “And I say that because that makes the estimation of the impact all the harder, especially when we’re in the guts of a replacement and upgrade cycle where people really need this stuff.”
Barry said that, in response, the company is communicating with its vendors to understand the impacts on inventory down to the SKU level, adjusting its supply chain and sourcing, and analyzing and modeling the impacts on pricing. Additionally, she said Best Buy is engaging with policy makers and working with industry partners including the Consumer Technology Association and the National Retail Federation to explain the company’s perspective.
“We, of course, want to make sure that our prices are as competitive as possible. But across the industry, this is going to be an issue that will impact all parts of the business,” Barry said. “Everyone in the industry is facing this, all the way to what gets passed on to the consumer. I think it is fair to say, and we said it in our prepared remarks, that tariffs at this level will result in price increases. I think it is very difficult to say, given the backdrop that we’re in, exactly precisely how big that is.”