China tariffs could derail Amazon's chance to dominate holiday sales

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China tariffs could derail Amazon's chance to dominate holiday sales
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Among US internet users who expect to spend more with Amazon during the holidays in 2019 than they did in 2018, 52% expect Amazon to steal some of their sales from Walmart, while 32% said the same for Target, according to a report from Coresight Research sent to Business Insider Intelligence.

What Prospective US Holiday Shoppers Would Do If Tariffs Led To A 5% 10% Rise In Prices ON Holiday Gifts

Respondents noted that Amazon will steal holiday spend from a number of other retailers too, including Best Buy (23%), Kohl's (20%), JCPenney (18%), and eBay (16%). This suggests that, despite its already well-established position, there's still room for Amazon to disrupt other top retailers' performances, even during the all-important holiday season.

But tariffs on Chinese imports could force Amazon to raise prices, which would weaken its ability to steal sales.

  • To account for the growing number of goods affected by tariffs, Amazon may need to raise prices on both its third-party and first-party goods. The estimated price hikes needed to offset the tariffs are 2.6% on third-party sales and 2.1% on first-party sales, according to Bank of America Merrill Lynch as cited by Reuters. To adjust for tariffs, merchants need to either absorb the costs themselves, raise prices for consumers, or find ways to cut costs in their supply chain, so it's certainly possible that Amazon will bump up its prices.
  • Prospective US holiday shoppers say they would change their plans to avoid spending more thanks to tariffs, which could cost Amazon sales if it raises prices. Just 16% of US consumers who plan to shop for the holidays said they'd simply spend more and buy the same products they had planned to if tariffs caused prices to rise between 5% and 10%, per Coresight Research. Many consumers said they'd look to shop with a cheaper retailer, find less expensive products, or buy fewer items; so, if Amazon's prices go up, consumers might look elsewhere and cause the e-tailer to miss out on the chance to steal sales.

If competing retailers can avoid raising their prices due to tariffs, or at least increase them less than Amazon does, they could have an extremely successful holiday season. Consumers might turn away from Amazon if its prices jump, and since 48% of US consumers report always or often comparing prices on different websites before making a purchase, according to a survey from Intelligence Node, retailers might be able to win sales from Amazon if they offer lower prices.

Retailers will need to find ways to account for tariffs themselves, though, if they want to take advantage of Amazon's potential price hikes. Absorbing the added expenses themselves is one option for merchants that can afford it, and restructuring their supply chain can help if they're able to adjust their sourcing quickly. Target has informedits suppliers that it won't accept any new cost increases related to tariffs from them, which might work for it given its powerful position and significant volume, potentially setting it up to battle with Amazon during the holidays.

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