September 1, 2019 / 1:00 PM / 3 months ago

RPT-Wall St Week Ahead-Retailers in spotlight as tariffs on consumer products kick in

 (Repeats column originally published on Friday)
    By Noel Randewich
    SAN FRANCISCO, Aug 30 (Reuters) - U.S. retailers will be
front and center on Wall Street next week as the United States
imposes new tariffs on $300 billion worth of Chinese imports,
including clothing, televisions and jewelry.
    The upcoming tariffs on Chinese goods will hit consumers
more directly than duties already levied against $250 billion
worth of imports. Retailers are scrambling to cut costs and find
ways to minimize the damage to their bottom lines, while Wall
Street analysts try to identify those best positioned to weather
the taxes.
    The U.S. government is set impose tariffs on the newest list
of products starting Sept. 1, with tariffs on about half of
those goods delayed until Dec. 15 in a bid to soften their
impact on holiday shoppers. President Donald Trump last week
upped the tariffs to 15% from an originally planned 10%.
    Trump's aggressive stance and often mixed signals in his
trade war with China have taken a toll across Wall Street in
recent weeks, especially on the shares of companies that rely
heavily on the world's second-largest economy.
    Wall Street rallied on Thursday after China's commerce
ministry said both sides were discussing the next round of
talks. Still, since Aug. 1, when Trump announced the September
tariffs, the SPDR S&P Retail ETF         has slumped 6%, while
the broader S&P 500        has fallen 2%.
    The Sept. 1 tariffs include consumer electronics worth $52
billion, including smart speakers, earbuds and televisions,
according to the Consumer Technology Association, an industry
group. 
    Tariffs kicking in on Dec. 15 include consumer electronics
worth $115 billion. That includes smartphones, laptops and
videogame consoles, directly hitting tech companies, including
Apple Inc         , Microsoft Corp          and HP Inc        .
    Investors are looking for retailers most able to hold prices
steady without hurting their margins, or increase prices without
hurting demand for their products. They are also looking for
companies that rely less on China for their wares.
    "We're leaning in on quality across our Hardline Retail
universe, favoring retailers with scale, pricing power in
respective categories, less elastic products, and a greater
focus on (professional) influenced sales and initiatives," Wells
Fargo Securities analyst Zachary Fadem wrote in a report this
week.
    On that basis, Home Depot Inc        and Lowe's Companies
Inc         are best-positioned to weather the tariffs, relying
on China for 10% or less of their cost of goods sold, Fadem
wrote.
    At the other extreme, Best Buy Co Inc         on Thursday
gave a lower-than-expected full-year outlook, blaming tariffs
and uncertainty about future consumer behavior, sending its
stock down 8% and extending its loss to 17% in August.
            
    Executives on Best Buy's analyst call said about 60% of the
consumer electronics retailer's cost of goods sold comes from
China, and that it was working on lowering that to 40% next
year.
    A basket of companies impacted by the trade war, created by
Barclays, has fallen around 8% this month, underperforming the
S&P 500. Barclays’ basket includes consumer-facing companies
that it estimates receive over 40% of their sales from products
imported from China, including Apple, Nike Inc         and
Whirlpool Corp        .
    
    Tariffs starting on Sept. 1 will affect $39 billion worth of
footwear and clothing, with the December tariffs affecting
another $12 billion worth of such products, according to the
American Apparel & Footwear Association.
    Heavyweight retailers, including Walmart Inc        , Costco
Wholesale Corp         , Target Corp         and Home Depot, can
adjust their global supply chains and use their clout to force
suppliers to accept smaller margins to offset the tariffs,
giving them an advantage over smaller competitors.
    Showing that investors are willing to buy retailers
positioned to weather the trade war, Walmart has gained 7% since
its quarterly report on Aug. 15, when it said it had raised the
prices of some of its items due to tariffs but was not passing
all the cost pressure it faces on to consumers.             
    Target has surged 26% since its Aug. 21 quarterly report,
when it boosted its full-year profit outlook, even after
accounting for potential additional tariffs.             
    A letter this week to Trump from over 200 U.S. footwear
companies, including Adidas            and Foot Locker Inc
      , warned that the upcoming tariffs would exacerbate
economic uncertainty and could drive up prices in other
countries that produce footwear, given limited production
capacities.             
    Abercrombie & Fitch Co         slumped 15% on Thursday after
the apparel retailer cut its full-year sales forecast in
anticipation of the new tariffs.             

    
 (Reporting by Noel Randewich in San Francisco
Editing by Alden Bentley and Dan Grebler)
  
 
 
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