Another wave of tariffs is right around the corner, and the timing ‘could not be worse for retailers,’ according to a Bank of America Merrill Lynch analyst.
Trump announced on Twitter that on September 1, the U.S. will implement an additional tariff of 10% on the remaining $300 billion of goods from China. The President then went on to say that the new duties would not include the $250 billion of items that have already been tariffed at 25%.
In a note to investors, Bank of America retail analyst Lorraine Hutchinson said that while retailers have been rapidly moving production out of China into other areas of Southeast Asia over the past decade, only 16% of production remains in China.
“The problem is, there’s only so much capacity in those areas and there’s only so much time for [retailers] to move. Given how crucial the fourth quarter is for retail...this timing could not be worse for the retailers. They can’t move quickly enough to move production. The goods are landing shortly for the Christmas and holiday season,” Hutchinson told Yahoo Finance’s The Final Round.
The retail industry has not shied away from letting the President know the negative impact tariffs will have on U.S. retailers.
Hutchison said she believes the retailers that will get hit the hardest are ones with the most exposure to China with the least amount of pricing power to offset the impact of tariffs like Chico’s (CHS), American Eagle (AEO), and Abercrombie & Fitch (ANF).
However, Hutchison said off-price retailers like TJ Maxx (TJX), Burlington (BURL), and Ross Stores (ROST), will not be as impacted and “may even benefit [from tariffs], which they usually do from supply chain disruption in the industry.”
“The worst case scenario [for the retail sector] is that Trump moves that number up to 25%. And in that scenario, with no price increases from the retailers, we actually see a 33% earnings hit for U.S. retail,” Hutchinson said.
Sara Dramer is an associate producer at Yahoo Finance. Follow her on Twitter @saradramer