There can be massive closures of retail stores because of the latest round of US tariffs on China and tit-for-tat tariffs from China on US goods imported into the country.
A new list of Chinese goods worth about $300 billion imported into the US was issued by the US President Donald Trump’s administration on Monday which includes products that are being considered to be taxed by as much as 25%. The latest list includes a wide range of products from clothing and sneakers to sporting goods and accessories. These are the products that are most often found in retail stores in supermarkets.
“The market is not realizing how much brick & mortar retail is incrementally struggling and how new 25% tariffs could force widespread store closures,” UBS analyst Jay Sole said in a research note. “We think potential 25% tariffs on Chinese imports could accelerate pressure on these company’s profit margins to the point where major store closures become a real possibility.”
Tariffs on $200 billion worth of Chinese goods imported into the US were imposed a higher tariff of 25% just last week. However that somehow kept the retailers insulated while the agriculture sector was hit as many of the products on that tariff list was related to that sector. While the list included furniture, handbags and some consumer electronics, it excluded apparel and shoes.
Following the US action, China announced tariffs on about $60 billion of U.S. goods imported into the country.
The most recent is the fresh list that the Trump administration is considering to impose further tariffs and includes goods such as performance wear, windbreakers, headbands, gloves, bathing suits and ski suits.
Predictions of closure of almost 21,000 stores in the US by 2026 have already been made by UBS. But following the latest round of new tariffs imposed by both the countries, the UBS now estimates that about half of that number of stores would be forced to down their shutters by the next one year, instead of four, if the situation persists. Sole said that this list of stores are only of those companies that are publicly traded.
“We continue to think the apparel and footwear consumer’s willingness to spend remains tepid at best.”
Signs of struggling is already evident in a number many stores- especially those that are into clothing even minus the threat of tariffs. Stores have been shut by many of companies in the US such as Victoria’s Secret, Gap, Gymboree, Chico’s, Payless Shoesource and Charlotte Russe. According to analysts, these companies were unable to find strategies that can help to differentiate them from the popular fast-fashion brands like Zara, and up-start brands like Everlane, Rockets of Awesome and ThirdLove.
The number of announced store closures so far this year has already surpassed the number of closures that were recorded for the entire of 2018.
“Taxing Americans on everyday products like clothes and shoes is not the answer for holding China accountable,” said Matthew Shay, CEO and president of the National Retail Federation. “Slapping tariffs on everything U.S. companies import from China – goods that support U.S. manufacturing and provide consumers with affordable products – will jeopardize American jobs and increase costs for consumers.”
According to the American Apparel & Footwear Association (AAFA), goods imported from China into the US accounted for about 41% of all apparel, 72% of all footwear and 84% of all travel goods in 2017. And additional cost of about $500 each year for an average family of four could be the costs for another round of tariffs, AAFA said. That estimate does not take into account any other increase in prices that could be implemented by suppliers in addition to what they would be forced to because of the tariffs.
(Adapted from CNBC.com)