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Retail stocks tank as they could take the biggest hit from the new round of China tariffs

Retail stocks tank as they could take the biggest hit from the new round of China tariffs


Retail stocks tank as they could take the biggest hit from the new round of China tariffs

The inside of Walmart’s Intelligent Retail Lab in Levittown, New York, where the retailer is testing a slew of new technology.

Source: Walmart

Shares of retailers are tanking as the industry may have the most to lose with the new round of China tariffs covering items such as clothing and TVs.

President Donald Trump abruptly ratcheted up the trade war with China Thursday, announcing the U.S. is putting 10% tariffs on $300 billion worth of Chinese goods, effective Sept. 1. Wall Street analysts that cover the industry had feared this development because the new tariffs will apply to a large swath of goods that they sell, raising their costs.

“The list of products these tariffs will hit are almost entirely consumer oriented,” said the Retail Industry Leaders Association in a statement. “This new 10% tariff on Chinese imports is a direct hit on consumer products and family budgets, plain and simple.”

“If these tariffs happen, American consumers will bear the brunt of these tactics via higher prices on everyday items like clothing, toys, home goods, and electronics,” the statement added.

The SPDR S&P Retail ETF plunged more than 3%, on pace for its worst day since May. Best Buy, Office Depot and Abercrombie & Fitch all tanked about 10% following the news.

“Particularly this last round is much more consumer than industrial focused,” Oppenheimer’s Brian Nagel said on CNBC’s Power Lunch on Thursday. “Best Buy is very much the last man standing within the consumer electronics category but… it’s a much more price-sensitive discretionary purchase for the consumer.”

Department stores are also under pressure following the tariffs announcement. Macy’s and Nordstrom both dropped about 7% while Kohl’s tanked more than 8%.

“We remain concerned that while most retailers expect to pass costs onto consumers, a deluge of concurrent price increases could potentially ‘shock’ or stall consumer spending overall,” Oppenheimer’s Nagel wrote in a June note.

Most of the apparel and footwear space have moved sourcing out of China but there’s still 10% to 15% of U.S. goods coming from China, Credit Suisse analyst Michael Binetti said on Thursday.

“Companies can’t price quickly, adding risk to C2H estimates before tickets can be reset in 2020,” Binetti said.

U.S. Chamber of Commerce said in a statement on Thursday the new tariffs “will only inflict greater pain on American businesses, farmers, workers and consumers, and undermine an otherwise strong U.S. economy.”

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