Bernstein Analysts Warn of Tariff Risks for Major US Retailers
Bernstein analysts have highlighted potential tariff risks for major US retailers in light of President-elect Trump’s commitment to impose tariffs on imports from Canada, Mexico, and China. Among the retailers, Dollar Tree and Target were identified as particularly exposed due to their significant reliance on imported goods, which account for a substantial portion of their cost of goods sold (COGS).
The firm’s analysis indicated that consumer goods such as computers, cellphones, toys, games, electric apparatus, and apparel & textiles, primarily imported from China and Mexico, would be most affected by the proposed tariffs. In addition, the report mentioned possible indirect impacts due to increased commodity prices, like oil & gas and aluminum, though these could be offset by a rise in domestic production.
According to Bernstein, Target and Dollar Tree have the highest exposure to imports, with estimates suggesting that imports represent 50% or more of their total exposure, direct and indirect. Target has the highest proportion of COGS tied to imports, at approximately 50%, among mass and club retailers. Walmart follows, with around one-third of its COGS sourced from imports.
In the home improvement sector, Home Depot and Lowe’s have a similar reliance on imports, with an estimated 40-50% of their COGS coming from international sources. Bernstein points out that Lowe’s heavier focus on appliances and electrical products may result in higher vulnerability to potential tariffs.
The report also reflected on the 2019 tariffs, during which Target and Dollar Tree experienced a gross margin headwind of approximately 30-40 basis points in affected quarters due to increased product costs. Lowe’s reported a similar impact of about 25-40 basis points.
The analysis cautioned that, depending on the specifics of any new tariffs, retailers with substantial Chinese import exposure could face similar margin pressures. While tariffs on Canadian and Mexican imports are expected to have a lesser effect on the retailers covered, the electronics and appliances sectors could still be impacted due to significant imports of computers and electric apparatus from Mexico.
