Consumer-oriented companies will be compelled to lower prices despite new tariffs from the White House squeezing them to do the opposite, CNBC’s Jim Cramer on Wednesday told investors.
“You keep hearing that companies will have to raise prices with tariffs — that’s wrong,” he said. “What they really need to do is cut prices, or their stuff isn’t going to move off the shelves.”
Even before President Donald Trump slapped hefty tariffs on U.S. suppliers and trading partners, consumers were fed up with high-priced goods, Cramer said. Shoppers even bristled at the price of potato chips, he said, citing pessimistic sentiment about snack sales and inflation from a recent analyst downgrade of PepsiCo. Cramer argued most companies aren’t ready for what’s to come in an economic landscape weighted with tariffs.
He reviewed recent earnings report from luxury goods company LVMH, which showed an unexpected sales decline. The company said it saw sales slow in the U.S. for its Sephora cosmetics brand and its liquor brands. Cramer suggested other high-end retailers will have difficulty maintaining their price points, including Lululemon and RH.
Companies are afraid to “take the hit” and lower prices, Cramer surmised, because their gross margins will slide and they worry earnings will follow. He said he doesn’t know which consumer company “will break the gross margin buck first,” but he thinks it will happen this year. There just aren’t enough costs left to cut, Cramer claimed, saying companies have “trimmed most of the fat, now what’s left is flesh and bone.”
The only alternative to gross margin decline, he conceded, could be mergers.
“When companies merge, that creates new cost-cutting opportunities, which is exactly what can prevent their margins from getting annihilated here,” he said.
