4 factors that help explain why Walmart and Home Depot are sending opposite signals on price hikes

Walmart and Home Depot are taking different approaches to tariff cost increases.Bruce Bennett/Getty Images and Jeffrey Greenberg/Education Images/Universal Images Group via Getty ImagesWalmart said last week that it planned to raise prices over tariffs, opening the door for other retailers to follow suit.On Tuesday, Home Depot said it didn't plan to increase prices and would instead rely on other "levers."Here's why the two companies are looking at the new import costs differently.Retail giants Walmart and Home Depot are sending conflicting signals about post-tariff prices.Walmart said during its earnings report last week that it would raise prices in the coming weeks and months — a move that also opened the door for other retailers to act.But on Tuesday, Home Depot said it didn't plan to follow suit and would instead rely on other "levers" to manage expenses without broad-based price adjustments.A closer look reveals four factors likely contributing to why the two companies are approaching pricing differently as they navigate new import costs.Home Depot has more room to work withHome Depot operates with wider profit margins than Walmart does, which means it has more flexibility to absorb any tariff-related costs.Home Depot reported gross margins of 33.4% in the first quarter, compared to 27.5% in Walmart's US segment.In other words, Walmart's markup is about six percentage points lower than Home Depot's, which makes sense given the different kinds of products each retailer specializes in. Higher-priced items like power tools and home appliances typically have higher profit margins than food and apparel.Shoppers depend on Walmart for low-priced groceriesWhile Walmart is America's undisputed grocery king, Home Depot doesn't sell much food.Sure, you can pick up a snack bar and a drink at the Home Depot checkout lane, but that's not the company's main category. By contrast, roughly 60% of Walmart's sales are from the food and beverage aisles.This matters because many US shoppers have grown frustrated at inflation driving their grocery bills up, so Walmart has effectively ruled out, for now, using food price hikes to offset new costs for imported products."The first thing that goes through my mind is food inflation," Walmart CEO Doug McMillon said. "We've been through a number of years here where prices have gone up on food, and our customers have felt that, and they don't want any more food inflation."For Home Depot, there's a bit more flexibility about where the company can shift costs, make some strategic pricing decisions, or make outright product cuts."We'll continue to use the portfolio approach that we've talked a lot about in the past, but we don't see broad-based price increases for our customers at all going forward," Home Depot's head of merchandising, Billy Bastek, said during Tuesday's call.Walmart depends more on ChinaHome Depot says half of its inventory was sourced from within the US, and the company says no single country will represent more than 10% of its supply base by this time next year.Walmart sources two-thirds of the products it sells in the US from US suppliers. A 2023 Reuters report found, though, that the company depends on China for about 60% of its imports.While Walmart may have made tweaks to its supply chain since then, taken together, those figures would indicate Walmart has a higher exposure than Home Depot does to the 30% additional tariffs on Chinese imports, which Walmart CFO John David Rainey described as "too high."Home Depot has more exclusive brand partnershipsHome Depot also said during the earnings call Tuesday that it plans to enlist its partner brands in its efforts to hold the line on prices for shoppers.As avid DIYers or pro remodelers know, there are certain brands that are only available at a given national chain, so if Milwaukee Tool wants its products' sales to outperform Bosch's, it would behoove the brand to help Home Depot keep prices lower than chief retail rival Lowe's."It's a great opportunity for us to take share, and it's a great opportunity for our suppliers to take share as well," Bastek said.Walmart, by contrast, is a mass retailer, which means it sells many of the same national brands that Target, Costco, or any other large company carries — so there's less incentive for, say, Energizer or Duracell to offer a better deal on batteries.Companies have choices to makeAlthough President Donald Trump has said he would prefer that retailers simply "eat the tariffs," there aren't any set rules about how companies have to handle the new costs on imports.Still, it would appear that Home Depot has a bit more flexibility than Walmart has to keep prices stable and still turn a profit.As more companies report their earnings in the coming days and weeks, analysts will be sure to probe which path other retailers say they'll follow.Do you work at Target or Walmart? Contact the reporter from a non-work device and email at [email protected] the original article on Business Insider

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