Home Depot, Walmart talk price ‘elasticity’ in earnings amid tariff threat

A core concept of retail economics, price elasticity, is getting some play in recent days as big box chains The Home Depot and Walmart signaled to investors that they’re keeping a close eye on how tariff-induced price changes could impact demand.

The concept is fairly straightforward: Price elasticity is the measure of how price variations impact demand. If a price change swings demand in one direction or another, then a price is elastic. If it has little or no effect, that price is inelastic.

The question retailers are asking themselves now is: As costs rise in response to tariffs, and prices follow suit, how exactly will consumers respond?

Answering that question could determine if retailers find themselves with too little or too much inventory in the months ahead.

“This is a highly fluid situation and we’ll need to manage quantity decisions as we measure the price elasticity of impacted items,” Walmart CFO John David Rainey told shareholders.

This lack of certainty is why Walmart decided to hold off on issuing Q2 guidance.

While Walmart is essentially forced to make assumptions about demand elasticity to determine how much product to buy, “the range of possible outcomes is much greater than when we originally provided our annual guidance,” Rainey said.

Home Depot, meanwhile, downplayed the significance of this moment, saying it would not have to raise prices in response to tariffs and noting that tracking demand elasticity was just part of its regular business.

“We are always testing the elasticity models in this environment, in every environment,” Home Depot CFO Richard McPhail said in an earnings call. “We’ll do the same here as we’ve done every other time.”

These comments were in response to a question from an analyst asking if there was a specific tariff level, based on its elasticity models, that would make it impossible for Home Depot to maintain its prices.