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Walmart has asked its cosmetics suppliers to consider sourcing their goods in countries outside of China.
Walmart has asked its cosmetics suppliers to consider sourcing their goods in countries outside of China.

Walmart urges suppliers to look beyond China for sources of cosmetics

INTERNATIONAL NEWS

Bloomberg - Aug 20th 2018, 08:46

Walmart has asked its cosmetics suppliers to consider sourcing their goods in countries outside of China, in one of the first signs that the world’s largest retailer hopes to dilute the impact of the Trump administration’s tariffs. 

A "large amount" of items in the cosmetics category fall under the most recent proposed levies on Chinese goods, according to an August 7 e-mail sent from Walmart’s procurement division to some of its cosmetics suppliers.

The list of Chinese goods that could get hit with additional tariffs includes lipstick, eye makeup, powders, shampoo and other hair care products. The missive asks suppliers if they have facilities outside China, and if not, whether they would consider investing in some to broaden their sourcing ability.

The e-mail, obtained by Bloomberg, is entitled 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 spokesperson Randy Hargrove said. "One of those mitigation strategies is to understand what our suppliers are doing and what their plans and alternatives are."

The impact of the tariffs "is difficult to quantify," Walmart CFO Brett Biggs said when the retailer released second-quarter results.

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.

That is certainly true for its huge US food business, but Walmart’s sprawling supply chain includes more than 100,000 vendors around the world.

"Walmart does source a lot from China," Brian Yarbrough, an analyst at Edward Jones, said. "The company has made a big push on US-made stuff, but it’s still small."

France’s L’Oreal is the world’s biggest cosmetics maker, with a stable of brands that includes Maybelline mascara and Garnier shampoo.

Walmart is the company’s biggest customer, accounting for just under 5% of its sales, according to Bloomberg data.

Its main rival in the cosmetics aisle is Coty, which sells beauty items under the Covergirl, Max Factor and Clairol labels. Coty derives 7% of its sales from Walmart.

Coty and L’Oreal did not reply to requests for comment.

In company filings, Walmart concedes that US foreign trade policies could hurt its results, saying in its annual report that tariffs "are beyond our control".

Greg Melich, an analyst at MoffettNathanson, said that a full-blown Chinese trade war could eliminate half of the retail industry’s earnings growth in 2019. Retailers have two primary responses to the tariffs, analysts say: raise prices or get their products elsewhere.

The e-mail to makeup firms, however, shows Walmart is also actively looking for other ways to circumvent the tariffs, asking its suppliers, "Any resources or ideas so far?"
Business Live 

Read more about: walmart | retailer | retail | cosmetics | brands

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