By Tonya Garcia, MarketWatch
A 10% tariff scheduled to go into effect on September 1 drove declines in retail stocks on Monday morning, but Moody’s says there are some major retailers that are insulated from the impact.
Walmart Inc. /zigman2/quotes/207374728/composite WMT -2.49% , Target Corp. /zigman2/quotes/207799045/composite TGT -5.02% , Costco Wholesale Corp. /zigman2/quotes/201191698/composite COST -2.35% , Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN -2.81% and Best Buy Co Inc. /zigman2/quotes/205918291/composite BBY -0.99% have diversified their supply chains and pre-purchased merchandise over recent quarters, which should lessen the damage, Moody’s analysts led by Charlie O’Shea wrote in a note.
“In addition, larger retailers have more pricing power with vendors to reduce the impact,” Moody’s said. “As far as their ability to deal with the end consumer, they also have more financial strength to absorb what could very well be a temporary pricing increase.”
As an example, Moody’s used the television selection at Best Buy, which will include merchandise that originated from tariff-impacted countries as well as countries that aren’t hit with tariffs.
President Trump announced Thursday that 10% tariffs would be imposed on an additional $300 billion worth of items from China. The announcement immediately hit consumer discretionary stocks like Dollar Tree Inc. /zigman2/quotes/203712248/composite DLTR -3.92% and Kohl’s Corp. /zigman2/quotes/210414114/composite KSS +5.51% The move will raise the price of clothing and shoes in the U.S., items that have been largely excluded from already-imposed tariffs.
“A 10% tariff is certainly nothing to sneeze at for most retailers, and the consumer cannot be thrilled about the prospect of higher prices,” Moody’s said.
The Dow opened with a triple-digit decline after the tariff announcement.
The National Retail Federation issued a statement after the new tariffs were announced, expressing support for restructuring the trade relationship between the U.S. and China, but disappointment at this “flawed strategy.”
“These additional tariffs will only threaten U.S. jobs and raise costs for American families on everyday goods,” said David French, senior vice president for government relations at the NRF.
“The tariffs imposed over the past year haven’t worked, and there’s no evidence another tax increase on American businesses and consumers will yield new results.”
In addition to the Dow decline, individual retail stocks took a tumble in Monday trading with Calvin Klein parent G-III Apparel Group Ltd. /zigman2/quotes/201364718/composite GIII +2.48% down 6.3%, Macy’s Inc. /zigman2/quotes/201854387/composite M +11.93% down nearly 6%, American Eagle Outfitters Inc. /zigman2/quotes/209429711/composite AEO -5.26% down 4.3% and J.C. Penney Co Inc. down 6.7%.
“The overall credit effect on individual apparel and footwear companies would depend on how quickly they can diversify their sourcing, reduce costs, adjust product designs or obtain vendor and/or government support,” Moody’s wrote in a separate Friday note. Analysts led by Michael Zuccaro note that it will take time to arrange alternatives, given the production cycle, quality control checks and other factors.
“Although companies may opt to increase prices, it will be difficult to do so,” Moody’s wrote. U.S. consumers, saddled with higher costs, would likely cut back on purchases, which would take a bite out of company revenue and profitability. Compounding this, U.S. companies doing business in China could take another hit from any countermeasures taken by China.”