Building a Smarter Tariff Strategy: Insights from Costco and Lowe’s

With tariffs on Chinese goods making headlines again, companies are rethinking their approach to global sourcing and pricing. While many brands are scrambling to react, major retailers like Costco and Lowe’s have shown that a tariff strategy can make all the difference.

These two companies are taking distinct but equally effective paths: Lowe’s by managing pricing with discipline and supplier coordination, and Costco by prioritizing customer loyalty and long-term supplier relationships. Both approaches highlight the value of preparation, flexibility, and strategic partnerships.

In this blog, we’ll explore how each company is responding to tariffs and what smaller brands can learn when working with their contract manufacturing partners to build a more resilient and cost-effective supply chain.

How Lowe’s Is Responding to Tariffs

Lowe’s is taking a strategic and disciplined approach to managing tariffs by focusing on competitive pricing, diversified sourcing, and close supplier relationships.

According to Supply Chain Dive, Lowe’s is using a portfolio-based pricing structure to maintain its competitive edge. Instead of passing cost increases across the board, the company carefully analyzes each product category and adjusts pricing selectively. Lowe’s CEO, Marvin Ellison, explained that Lowe’s is willing to take lower margins in certain areas in order to remain price competitive in key categories.

The article also notes that only about 20% of Lowe’s sourcing currently comes from China, while approximately 60% is domestic, which is pretty surprising. This is the result of a long-term effort to diversify their supply base and reduce exposure to tariff-affected regions. Over the past six years, Lowe’s has built a more globally distributed supply chain that gives it flexibility when external factors, like tariffs, shift.

Crucially, Lowe’s leadership emphasized the importance of strong vendor relationships in navigating tariff pressure. As Ellison stated during the company’s May earnings call, this is a moment when “those relationships start to pay off.” Longstanding partnerships allow Lowe’s to negotiate smarter and share cost impacts more effectively with their suppliers.

Taken together, Lowe’s approach demonstrates the value of having internal pricing discipline, geographic sourcing flexibility, and collaborative supplier strategies, all of which are highly relevant for any brand trying to manage manufacturing costs in a volatile global trade environment.

How Costco Is Managing Tariffs

Costco is taking a different path, prioritizing price stability and customer loyalty over immediate margin protection. As reported by Supply Chain Dive, the retailer has made a deliberate choice to hold prices steady on many tariff-impacted goods, including everyday staples like bananas.

During its earnings call, Costco’s CFO, Richard Galanti, explained that the company’s goal is to avoid passing increased costs to customers wherever possible. Even when certain products are affected by tariffs, Costco absorbs the hit rather than compromising its reputation for low prices. This approach reflects the company’s long-term mindset of protecting the brand, earning customer trust, and maintaining loyalty.

One reason Costco is able to do this is scale. Its massive purchasing volumes give it leverage with suppliers and allow it to negotiate pricing more effectively. The company also benefits from a strong global sourcing network, which provides flexibility when facing rising costs in specific regions. In some cases, Costco can shift suppliers or rebalance its sourcing strategy to help offset the impact of new duties.

But perhaps the most notable part of Costco’s strategy is its philosophy of partnership. Like Lowe’s, Costco relies on deep, long-standing relationships with suppliers. These relationships help the company manage cost increases more collaboratively and strategically, rather than reacting with knee-jerk price hikes.

In short, Costco’s response to tariffs isn’t about protecting quarterly margins, it’s about playing the long game. That’s a lesson many brands, regardless of size, would do well to remember.

Lessons for Brands Working with Contract Manufacturers

While Lowe’s and Costco are two of the largest retailers in the world, their tariff strategy carries powerful lessons for brands of all sizes, especially those working with contract manufacturing partners. Their success doesn’t come from reacting to tariffs, it comes from the systems and relationships they’ve built well before trade tensions started to escalate.

Partnerships Are a Competitive Advantage

Both Lowe’s and Costco made it clear: strong supplier partnerships are central to how they’re managing tariffs. In their earnings calls, executives from both companies emphasized the importance of long-term relationships with vendors who understand their goals, share information proactively, and are willing to collaborate when costs shift.

This same mindset applies to working with a contract manufacturer. A true contract manufacturing partner should want to grow with you, not just win your business on a one-time quote. Contract manufacturers, such as EPower Corp, should work with customers to help them navigate challenges like tariffs, cost increases, and country-of-origin planning.

If you’re working with a supplier that disappears during problems, pushes back on questions, or doesn’t understand your goals, it’s worth asking whether they see you as a partner or just a transaction.

Build Tariff Resilience Into Your Supply Chain

Lowe’s has spent years shifting sourcing away from China and diversifying its supply base. Smaller brands can adopt the same approach by building flexibility into their manufacturing strategy. For example, we operate production facilities in both China and Thailand, allowing customers to adjust production locations to minimize tariff exposure and control landed costs.

This flexibility is especially important as the policies constantly change. A contract manufacturer with operations in multiple countries gives you options. 

Collaborate on Cost Transparency and Pricing Strategy

Costco is holding prices steady on items like bananas, not because they’re immune to tariffs, but because they understand how to manage costs internally and with suppliers. You can do the same with the right contract manufacturing partner.

Don’t Overreact, Strategize Instead

Both Costco and Lowe’s are taking measured, strategic approaches to tariffs. They’re not slashing quality or overhauling SKUs, they’re protecting what matters most to their customers and adapting behind the scenes.

Your approach to tariffs should be no different. By working closely with a contract manufacturer that understands your business, your customers, and your long-term goals, you’ll be better positioned to absorb cost increases when necessary, find efficiencies when possible, and maintain product consistency where it counts.

Conclusion: Tariff Strategy

Tariffs may be outside your control, but how you respond to them is not.

Retail giants like Lowe’s and Costco are showing that there’s more than one way to navigate tariff pressure. Whether it’s Lowe’s using disciplined pricing and diversified sourcing, or Costco protecting customer trust by holding prices steady, both companies rely on strong, strategic relationships with their suppliers to weather uncertainty. Their success stems from having a well-defined tariff strategy instead of just reacting.

The key lesson for smaller brands is simple: don’t treat your supply chain as an expense; treat it as a partnership. A smart tariff strategy starts with working alongside a contract manufacturer that values your business and wants to grow with you. That’s how you build the flexibility and transparency needed to manage cost pressures and protect your margins over the long term.

At EPower Corp, we help brands do exactly that. We offer multi-country production options, transparent pricing, and value-added engineering services to help take you from development to mass production.