Making sense of market moves
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It’s not easy to find many stock market “losers” this week, given the euphoria following the election.
But one group of stocks that weren’t celebrating Trump’s win?
Retailers.
That’s because they’d bear the brunt of the next administration’s proposed tariffs, which include a baseline of 10% on all imports, and 60% on imports from China.
Over the last week, Dollar General is down 6.32%, Five Below is down 9.93%, and Crocs is down 3.68%, even while the S&P 500 jumped 4.72%.
How tariffs would hurt retailers
Tariffs would make it more expensive for retailers to import the goods they manufacture abroad into the United States. So, they face a choice: absorb those higher costs and live with lower profits or pass those costs along to the consumer. Neither option is appealing.
In a report on Monday, the National Retail Federation estimated that American consumers would lose up to $78 billion in spending power every year tariffs were in place. The group predicted “dramatic” price hikes in the double-digit percentages in categories such as apparel, furniture, household appliances, travel goods, toys, and footwear (consider: 99% of footwear sold in the US is produced abroad).
Winners and losers
If the tariffs were to come into effect (a big if), they would not impact all retailers equally. Some are more exposed to China than others. Some have greater pricing power, so they could raise prices without seeing a major dent in sales. And some have such massive scale that they could absorb the cost of the tariffs without raising prices for consumers.
The unlucky ones: Bank of America analyst Lorraine Hutchinson identified five retailers—Five Below, Crocs, Skechers, Amer Sports, and American Eagle Outfitters—that are most at risk because they source at least 20% of their goods from China.
- Deep discounters like dollar stores, too, are seen as vulnerable. Their whole ~thing~ is that they offer non-essential goods on the cheap, so raising prices could lead to fewer sales.
The retailers in a better position: Giants like Amazon and Walmart should make out OK in the tariff era. Their scale will allow them to negotiate better deals and find lower-cost ways of importing their goods, M Science’s global director of research, John Tomlinson, told Barron’s. The rich get richer.
And companies that have vivid memories of tariffs in Trump’s first term have been preparing for this moment by reducing their reliance on China, a shift that is likely to accelerate. Yesterday, Steve Madden’s CEO said that as soon as the election results hit the wire, it put a plan into motion that would cut its China-made products by 40%–45%.—NF