Walmart, the world’s largest retailer, has warned customers to expect Walmart price hikes starting late May, with broader increases expected in June. This shift comes as the company grapples with rising costs linked to former President Donald Trump’s tariffs on imported goods. Although some tariffs were rolled back following trade negotiations, Walmart executives say the company can no longer absorb the financial burden without adjusting prices. During its May 15 earnings call, CEO Doug McMillon and CFO John David Rainey explained that the Walmart price hikes are a necessary response to the continued volatility in trade policy.
Rainey also cautioned investors about the potential for uneven financial results in the coming quarters. “The level of tariffs and the timing of their implementation could result in greater variability in our financial performance from one quarter to the next,” he noted. As part of this explanation, Rainey shed light on Walmart’s accounting approach and how it might amplify these fluctuations.
Understanding the Role of RIM in Retail Accounting
At the center of Walmart’s financial forecasting challenges is its long-standing use of the Retail Inventory Method (RIM). This accounting practice, common in the retail sector, calculates the cost of goods sold based on a ratio of the actual cost of inventory to its retail price. While RIM allows for quick and efficient reporting, especially useful for large retailers with millions of low-cost items, it can create uncertainty when external costs like tariffs change suddenly.
“RIM isn’t new for Walmart. It’s been a staple in how we manage our U.S. business,” said Rainey. However, the method’s reliance on estimated costs rather than exact figures makes forecasting difficult during periods of economic disruption. Tariffs increase the landed cost of goods, which includes shipping, insurance, and import duties, thereby pushing up the cost-to-retail ratio, pressuring margins unless Walmart price hikes are implemented quickly.
Dr. Sam Park, an accounting professor at Augusta University, pointed out that while modern enterprise software can track detailed item-level costs, RIM remains the go-to for high-volume, low-margin retailers. “It’s fast and cheap,” he said, but “it’s also more vulnerable to external shocks like tariffs.”
New Tools Needed as Margin Pressures Mount
As Walmart navigates this shifting economic landscape, Rainey signaled a potential need for more granular financial tools and forecasting methods. While he did not propose abandoning RIM, he indicated that Walmart may need to supplement it with more advanced planning strategies. Park agrees, noting that CFOs like Rainey could benefit from layered RIM pools grouping products by tariff sensitivity, and better scenario planning to manage volatility.
Rainey also raised concerns about LIFO (Last-In, First-Out) accounting and how rising costs could lead to additional charges under this method, which assumes the latest goods purchased are sold first. The complexity of blending multiple accounting strategies while dealing with unpredictable tariffs is becoming a key challenge for major retailers.
Despite these headwinds and the planned Walmart price hikes, the company reported solid first-quarter results: revenue rose 2.5% year over year to $165.6 billion, U.S. same-store sales climbed 4.5%, and its e-commerce division turned a profit for the first time.
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