TLDR:
- New U.S. tariff regime includes 10% baseline on all imports with reciprocal rates up to 50% for certain countries
- Apparel, footwear, furniture, and electronics retailers are experiencing severe stock declines with major Asian manufacturing countries facing 25-50% tariffs
- Off-price retailers like TJX and Ross Stores are performing better as they buy excess inventory rather than importing directly
- Grocery chains including Kroger and BJ’s Wholesale Club saw stock increases as they import less from affected Asian countries
- Citi upgraded BJ’s, TJX, and Ross to “Buy” while downgrading Best Buy and RH to “Neutral” based on tariff exposure
The announcement of a new U.S. tariff regime has sent shockwaves through the retail sector, triggering a sharp market reaction that few industry watchers anticipated. The new policy establishes a baseline 10% tariff on all imports, with additional “reciprocal rates” that can reach as high as 50% for certain countries.
Consumer discretionary stocks were hit hard, with the sector dropping 5.3% in Thursday afternoon trading. The broader S&P 500 fell 3.7% as investors processed the implications of the sweeping tariff changes.
The retail industry appeared unprepared for the scope of these new trade barriers. Many companies had strategized around moving production from one country to another, as they did following the 2018 tariffs on Chinese goods. However, the widespread nature of the new reciprocal tariffs has “rendered these initiatives essentially fruitless,” according to Jefferies analysts.
Asian Imports Take the Brunt
The tariffs on Asian manufacturing hubs have created particular concern. These countries produce the majority of apparel, footwear, furniture, and consumer electronics sold in American stores.
Countries in the Association of Southeast Asian Nations accounted for about 26% of all textile and apparel imports to the U.S. in 2024. China represented another 24% of these imports.
The top five apparel and textile exporters – China, Vietnam, India, Bangladesh, and Indonesia – all received tariff rates exceeding 25%. China’s reciprocal rate is 34%, while Vietnam faces a steep 46%. When combined with previously announced tariffs on Chinese goods, some products could see rates as high as 79%.
Furniture importers are also facing major challenges. China and Vietnam supplied nearly half of all furniture imports to the U.S. in 2024, according to the U.S. International Trade Commission.
Market Winners and Losers
The SPDR S&P Retail ETF fell 7.2% on Thursday afternoon. Companies like Five Below, Gap, Urban Outfitters, Kohl’s, and Best Buy were among the hardest hit, each dropping more than 10%. Five Below experienced a dramatic 29% plunge at one point during trading.
Home goods retailers suffered even more severe losses. Wayfair dropped 29%, Williams Sonoma fell 18%, and RH plummeted 42%. RH’s disappointing earnings report added to the negative outlook for furniture companies.
Not all retailers are suffering equally. Off-price chains like TJX and Ross Stores showed resilience, with TJX gaining 1.3% and Ross adding 0.6% to their share prices.
These off-price retailers typically purchase excess inventory from other stores rather than importing merchandise directly. This business model reduces their direct exposure to import tariffs.
UBS analyst Jay Sole noted that as apparel and footwear prices rise due to tariffs, full-price retailers will likely sell fewer items. This could create opportunities for TJX and Ross to acquire desirable inventory at favorable terms.
Grocery chains also performed well amid the market turmoil. Kroger, BJ’s Wholesale Club, and Albertsons all saw their shares rise by more than 1.5% on Thursday.
The grocery sector’s strength stems from its different supply chain structure. Fresh produce often comes from Mexico and Canada, countries not included in Wednesday’s tariff announcement because they are subject to separate 25% tariffs. Goods that comply with the USMCA trade agreement remain exempt from these levies.
Wall Street Adjusts Recommendations
Citi has responded to the new tariff landscape by revising its ratings on several retail stocks. The firm upgraded BJ’s Wholesale Club, Ross Stores, and TJX Companies to “Buy” ratings.
For BJ’s Wholesale, Citi set a new price target of $130. Analysts view the company as “a tariff & trade down relative winner” due to its primarily domestic sourcing and strong grocery business.
In contrast, Citi downgraded Best Buy to “Neutral” from “Buy,” cutting its price target from $93 to $70. Despite some positive factors like AI innovation and a healthy balance sheet, analysts cited “high import exposure” and Best Buy’s focus on discretionary, big-ticket items as major concerns.
Luxury furniture retailer RH also received a downgrade to “Neutral.” Citi pointed to RH’s “high sourcing exposure” to countries affected by the new reciprocal tariffs. The firm slashed RH’s price target from $437 to $200, reflecting concerns about leverage and free cash flow if margins weaken.
Citi analyst Paul Lejuez described the current environment as off-price’s “time to shine,” highlighting how these retailers are positioned to benefit from market disruption.
As retailers and consumers adapt to this new trade reality, the full impact of these tariffs will continue to unfold in the coming months.
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