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Consumer goods companies are facing pressure to lower prices, even amidst recent tariff increases imposed by the White House, according to CNBC’s Jim Cramer. He articulated this viewpoint to investors, emphasizing that the anticipated necessity for companies to raise prices due to tariffs is misguided.
“The narrative that companies will inevitably pass on tariff costs to consumers is incorrect,” Cramer remarked. “In reality, they should focus on reducing prices to ensure their products remain appealing and sellable.”
Before the imposition of hefty tariffs by President Donald Trump, there was already growing frustration among consumers regarding high prices. Cramer pointed out that even staple items, such as potato chips, were becoming a source of irritation for shoppers. His comments were underscored by a recent analyst downgrade of PepsiCo, which reflected broader concerns around consumer sentiment and inflation impacting sales.
In his analysis, Cramer highlighted the recent earnings report from luxury brand LVMH, which indicated an unexpected decline in sales. The report noted that sales growth had stalled in the U.S., especially for its Sephora cosmetics line and liquor brands. Cramer believes that this trend could challenge other luxury retailers like Lululemon and RH, as they may struggle to maintain their current pricing strategies.
Cramer expressed that companies might be reluctant to reduce their prices, fearing that doing so would adversely affect their gross margins and ultimately their earnings. While he is uncertain about which consumer brand may be the first to face significant margin pressures, he is convinced that such a scenario is likely to unfold within the current year. “Most companies have already eliminated excess costs; what remains are the essential expenses,” he noted.
He suggested that mergers might offer a potential strategy for companies to mitigate the decline in gross margins. “Merging can open up new pathways for cost reductions, which may be essential in preserving their margins during these challenging market conditions,” he added.
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