Fears become a reality for retail with a fourth set of tariffs

Retail stocks broke on Thursday as a dreaded fourth round of tariffs quickly pbaded from a threat to a reality with a tweet. The fall of the sector continued on Friday as investors prepared for the latter blow.

US President Donald Trump wrote in part in the third tweet of a four-threaded thread "… the United States will begin, on September 1, to apply a small additional 10% tariff on the $ 300 billion remnants of goods and products from China in our country.This does not include the $ 250 billion already priced at 25%. "

Many consumer products, such as clothing, footwear and electronics have been spared from the last three tariff regimes. But the remaining $ 300 billion of products made in China will capture all this.

Most retailers let lobbyists speak out on their behalf, investors expect profits, but not all.

"Let's not run the economy with the misconception that commercial wars are fun," said Tim Boyle, chief executive of Columbia Sportswear, in a statement.

Tariffs are "a disaster for the US economy, employers and consumers," he continued, adding that his company and others "will be forced to raise prices" .

Best Buy shares lost nearly 11% on Thursday and slid a little further on Friday. Until now, the consumer electronics company said that tariffs affect about 7% of the total cost of products sold.

When badysts asked executives to define the impact of a fourth price bracket, Hubert-Joly, then CEO, said, "We understand that the proposed list 4 includes many consumer items, including many products. electronic, but it is too early to speculate on the impact of future tariffs, because it is not clear if the list 4 will actually be implemented, which products will eventually be included, at what rate and when . "

Shares of shoe maker Steve Madden lost more than 9% on Thursday and fell 3% again on Friday. Madden is on the watch list of several badysts as a name that could be particularly affected if the rates are applied to shoes. Piper Jaffray estimates that 94% of its manufacture is made in China.

According to Footwear Distributors & Retailers of America, an industry organization with more than 500 members, including Madden, approximately 70% of shoes sold in the United States come from China.

Department stores, like Macy's, Kohl's and Nordstrom, were part of the carnage on Thursday, but were flat on Friday. All three sell a mix of national brands such as Nike and Ralph Lauren, as well as their own private label and exclusive products. While department stores will see categories previously excluded from recent tariffs, such as duty-paid apparel, at least for domestic brands, there may be some degree of higher cost-sharing between vendors and large firms. stores.

Macy's had stated that he had implemented mitigation strategies and that each category was reviewed individually. With regard to price increases, the retailer has announced that it will maintain prices for some products, probably those that are more elastic. In other cases, prices will go up. Home Depot uses a similar strategy.

Cowen & Company estimates that Gap Inc. and L Brands hold approximately 20% positions in China. The two retailers are mostly vertically integrated, which means that the products sold are manufactured solely for their own brand, which means that suppliers are not helped to absorb or split the higher costs of tariffs.

But even retailers less exposed to the Chinese manufacturing sector, like Tapestry, owner of Coach and Kate Spade, and Michael Kors-parent Capri Holdings sold abruptly in response to the outstanding tariffs. Tapestry shares rose less than 1% on Friday, while Capri lost nearly 2% more.

Many retailers have been striving for years to diversify their supply chains outside of China and have often attempted to accelerate these projects where possible over the past year. Nevertheless, more clothes sold in the United States are made in China than anywhere else. According to the American Apparel & Footwear Association, in 2018, 42% of all clothing sold in the United States was made in China.

RH is one of the retailers interested in production outside of China. In a statement released on Thursday, the former Restoration Hardware company said it had "several sources of supply outside of China" and said that it "does not matter". Expects no impact "on current financial results or next year's new rates.

The furniture vendor stated that the categories subject to the September 1 tariffs represented less than 1% of the total inventory revenue for fiscal 2019 and less than 2% of the inventory forecast for fiscal year 2020. RH shared closed more than 2% on Thursday, and dropped another 2% on Friday.

"We are disappointed that the administration is redoubling its efforts on an erroneous pricing strategy that is already slowing US economic growth, creating uncertainty and discouraging investment," said David French, Senior Vice President of Relationships. at the National Retail Federation. He added that "the rates imposed last year did not work".

"American families should not be a pawn in this trade war," Hun Quach said in a statement from the Retail Industry Leaders Association.

Rick Helfenbein, CEO and President of AFOA, described the president's announcement as "really shocking".

"The fact that this tweet comes after a single meeting with the Chinese delegation following the resumption of negotiations is extremely worrying," said Helfenbein.