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Retailers face challenges in raising prices without losing

market share

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Suppliers struggle with increased costs due to Trump's

tariffs

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Amid price negotiations, some companies to absorb losses

to

maintain shelf presence

By Timothy Aeppel, Jessica DiNapoli and Siddharth Cavale

NEW YORK, March 24 (Reuters) - U.S. retailers Walmart ( WMT )

and Target ( TGT ) are bickering behind the scenes with

their suppliers over proposed price hikes on everything from

cake pans, tote bags and toys to other merchandise.

The outcome of their talks will determine when and by how

much merchandise prices rise - and even which products retailers

will keep on store shelves.

Major retailers say they can't just raise retail prices

without losing market share and alienating American shoppers.

Their stance is leading to acrimonious discussions about pricing

with goods suppliers whose costs have shot up following

President Donald J. Trump's tariffs.

In kitchenware, David Dalquist, the CEO of Nordic Ware, a

small cookware manufacturer, has been hit hard by Trump's 25%

tariffs on aluminum imports. Dalquist's Minneapolis-based firm

purchases aluminum in 5,000-pound coils, which it uses to make

Bundt pans and other products.

But the fact that his costs have surged by 5% to 10%, due to

new tariffs implemented on March 12, is making it harder for him

to set prices now for retailers in the new season, which

culminates later in the year around the holidays.

Most retailers require a 60-day notice for any price

increase, Dalquist said in an interview. "You can't just hand it

to them," he said. "Then they review it--they go through their

own analysis on whether it's justified." That means months of

delay getting them implemented. In the meantime, Dalquist's firm

must absorb the higher costs.

"Our conversations with suppliers are all aimed at making

our purpose a reality for millions of customers, and we will

continue to work closely with them to find the best way forward

during these uncertain times," Walmart ( WMT ) said in a statement.

ONEROUS PROCESS

In retail, unlike manufacturing, the process of implementing

price hikes is time-consuming and onerous thanks to the typical

contracts that retailers use with their merchandise suppliers.

For vendors, dealing with Walmart ( WMT ) has always been tough because

of its size-- it generates more than $446 billion of annual

sales in the U.S. It also has previously said that it will

scrutinize every line item of cost before it agrees to a

supplier's proposed price hike.

To risk having brands kicked off Walmart's ( WMT ) shelves because

of a dispute over pricing can badly hurt a supplier. Dalquist

said that if retailers don't agree to the price hikes, retailers

will just substitute his Bundt pans with those made by someone

else. Because kitchenware is a category with a wide range of

alternatives at lower prices, it would be hard to lift prices

and not see a weakening of shopper demand for his product in the

current environment.

In accessories, the 20% tariffs Trump imposed on China

imports earlier this year drove Kim Vaccarella, founder of Bogg

Bag of Secaucus, New Jersey, to hike prices on its bags by $5.

Bogg supplies brightly-colored tote bags, manufactured in China

using Croc-like plastic material, to Target ( TGT ), which sells the

original-size bag for $90.

A Target ( TGT ) spokesperson directed Reuters to comments made by its

executives during a recent investor meeting. At the March 4

meeting, Rick Gomez, Target's ( TGT ) chief commercial officer, said it

was too early to tell how prices might change product by

product, but that the retailer was looking at pricing

holistically.

Some retailers have already asked her to consider lowering

her wholesale prices, she said. "People are getting creative,"

Vaccarella said. Her company is also looking at alternative

manufacturing sites in Sri Lanka, Vietnam and other lower-cost

factories in China, she said.

LOSS LEADING

Price negotiations now going on between manufacturers and

retailers have a crucial subtext: "Before you even entertain the

conversation (about a price hike), you have to figure out what

everyone else is doing," said Fraser Townley, chief executive of

T2M, which specializes in full-size video game controllers.

"I was lucky," he said, referring to his own dealings with

big retailers- because he had a unique product: devices that

allow a user to play videogames on a mobile phone without having

to deal with tiny screen/buttons.

Nobody else was offering his very niche-directed

controllers. "But if you were one of 100 TV manufacturers trying

to get your TVs into Walmart ( WMT ), they would say, 'I have 99 others

who don't want to put prices up.'"

It also matters what those competitors are selling, Townley

said. A global producer that sells a range of products through a

major retailer might figure they'll absorb losses or lower

profits on one product to protect other lines of business-or

simply use the opportunity to grow their own market share by

keeping their prices steady.

"There's so much loss leading going on out there," he

said, referring to suppliers' willingness to absorb losses and

maintain current wholesale prices just so they can remain on

retailers' shelves. "It's a wonder anyone remains in business,"

he said.

In toys, Bratz doll maker MGA Entertainment Chief Executive

Isaac Larian said the company is going back and forth

negotiating with retailers on a price hike on its China-made

toys that it wants to go into effect in April. MGA's toys are

sold in Walmart ( WMT ) and Target ( TGT ), among other chains.

"The retailers, that's their job. They resist and say they

do not want to have a price increase, and they have said that to

us, because the consumer is very, very strained and stressed,"

Larian said.

Larian said he does not think he will be able to pass on

the full 20% tariff to retailers as a 20% price hike. "We're

going to have a shared responsibility," he said. "We'll take a

lower margin," but half of the cost of the tariffs "we

have to pass on" with higher wholesale prices to retailers, he

added.