These Analysts Say Retailers Face Most Uncertainty They’ve Seen Since COVID

Running a retail operation just got a lot tougher. 

Navigating widespread “reciprocal” tariffs will challenge the industry as it deals with trade policy but also consumer stress. The tariffs announced Wednesday are so broad that even the most agile companies will struggle to source goods without paying import taxes, analysts from Oppenheimer said in a note Friday.

Tariffs will cut into profits and—when passed along to consumers—sap sales, Oppenheimer concluded. For operators of companies selling more discretionary goods, they wrote, the near-term outlook “is as uncertain as in the early stages of the COVID-19 pandemic.”

While the degree to which that uncertainty will hit consumers is yet to be seen, it has weighed on share prices already. Retailers tracked by the bank’s consumer growth and e-commerce team experienced a 6% drop in stock value Thursday, the analysts said; the SPDR S&P Retail ETF (XRT) edged higher in recent trading Friday. (Follow Investopedia’s live markets coverage today here. )

Analysts highlighted the following hurdles now facing a few major retailers:

• About 86% of the cost of goods sold, or COGS, at athleticwear company Lululumon (LULU) and 78% of COGS at shoe giant Nike (NKE) came from Asian nations slated to be subject to import taxes. 
• At least 85% of COGS at Dick’s Sporting Goods (DKS) and Best Buy (BBY) originate abroad even if the big-box stores purchase them from domestic suppliers. 
• The furniture company LoveSac (LOVE) moved some of its production away from China because tariffs were imposed on its exports years ago. But now 50% of the retailer’s COGS come from Vietnam, which may fall under a 46% tariff. 
• The home improvement chains Home Depot (HD) and Lowe’s (LOW) are some of “least exposed” to tariffs, but about 40% of their COGS still comes from outside the country.

Investors have sought to react to the latest tariff news by seeking out stocks that might better withstand a slowing economy or offer a respite from rising prices. Some analysts pointed to the makers and sellers of consumer staples, along with discount retailers.