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Retail giant Target demands that suppliers absorb tariff costs to shield consumers

Key Points
  • Target tells suppliers it "will not accept any new cost increases related to tariffs on goods imported from China."
  • In a memo, the retailer also says it expects suppliers to "develop the appropriate contingency plans so that we don't have to pass price increases along to our guests."
A shopper carries Target Corp. shopping bags while walking in New York.
Natan Dvir | Bloomberg | Getty Images

As companies scramble to deal with newly imposed tariffs on Chinese goods, Target is demanding that its suppliers absorb increased costs so consumers wouldn't be affected.

In a letter to suppliers dated Aug. 27 and viewed by CNBC, Target said it "will not accept any new cost increases related to tariffs on goods imported from China."

The memo, signed by chief merchandising officer Mark Tritton, said the big-box retailer expects suppliers to "develop the appropriate contingency plans so that we don't have to pass price increases along to our guests."

"As we've communicated for some time, as a guest-focused retailer, we remain concerned that tariffs increase prices for American families," a Target spokeswoman told CNBC in an emailed statement.

"Given the scope of our business and breadth of our assortment, including owned and national brands, we've needed to take a number of steps to manage our business accordingly and keep prices low for guests. We've written letters to the U.S. Trade Representative, held ongoing negotiations with our vendor partners and conducted contingency planning with our sourcing organization and more. Our goal remains to put our guests first and deliver as much value to consumers as possible across our multi-category business."

Fifteen percent tariffs on $112 billion worth of goods from China took effect on Sunday, five days after Target's letter was distributed.

Companies have been using other strategies to reduce the impact of the duties, including diversifying supply chains to countries outside of China and timing shipments to arrive before the tariffs were imposed. Ninety-two percent of apparel imported from China was hit by tariffs on Sunday, according to the American Apparel and Footwear Association.

Target has also warned the U.S. government that consumers, who would see price increases, would be the victim of tariffs.

"Simply put, additional tariffs on these products will require new families to spend more or make trade-offs about which products they're able to purchase for their families," Tritton had previously said in a June letter to U.S. Trade Representative Robert Lighthizer.

Target's stock has risen 62% since January, bringing it to a market value of $54.9 billion. According to Kantar Consulting, Target was the eighth-largest retailer in 2017, with more than 1,800 stores.

The Wall Street Journal first reported on the memo from Target on Wednesday evening.