With the upcoming U.S. elections on the horizon, trade policies and tariffs have become significant topics of discussion among investors and analysts. The prospect of tariffs returning under a possible second term for Donald Trump raises concerns, particularly for companies heavily reliant on imports from China. Goldman Sachs has identified specific retailers that could face substantial challenges if these tariffs are implemented. In this article, we will explore the implications of such tariffs on various companies and analyze their potential strategies moving forward.
In the event of a Trump presidency, the proposed economic policies include sweeping changes in tariffs, particularly a universal 20% tax on all imported goods and a staggering 60% on products sourced from China. This could significantly alter the dynamics of retail companies that depend on the Chinese supply chain. Goldman Sachs’ analysis provides insight into how these decisions could affect specific retailers based on their import strategies and potential for passing on costs to consumers.
One major player identified is Torrid, a plus-size apparel retailer. Although 95% of its sales are U.S.-based, Torrid’s heavy reliance on Chinese imports—53% of goods sourced from China—places it in a vulnerable position. The company’s inability to effectively pass increased costs onto consumers due to its high product elasticity makes it particularly susceptible to tariff hikes. Despite these challenges, there remains a glimmer of hope, as the average price target for Torrid suggests a potential rise of 85% in shares, indicating that analyst sentiment is not entirely negative. However, achieving this will likely hinge on how well Torrid manages cost structures in light of potential tariffs.
Best Buy, a leading electronics retailer, also finds itself in a precarious situation. With 60% of its goods sourced from China, the company could face significant obstacles due to Trump’s proposed tariffs. Similar to Torrid, Best Buy has high product elasticity, meaning that consumers may be less willing to absorb price increases. While analysts have a neutral outlook, the average price target is approximately 12% above its current share price, reflecting a cautious optimism tempered by the looming tariff threat.
Upscale Retailers: Strategies and Resilience
On the other end of the spectrum, RH (formerly Restoration Hardware) has carved out a niche for itself in the upscale furniture market. Although RH’s dependency on imports from Asia is notable—66% of its goods sourced from the region, with a portion from China—the company’s affluent customer base allows it more latitude to pass on costs. The resilience of RH is underscored by a 12% rise in stock this year. However, analysts remain cautious, with average targets only slightly above current prices, indicating that while the company is robust, it is not immune to the adverse effects of tariff policies.
Floor and Decor represents another interesting case. This flooring retailer has seen its shares dip nearly 3% this year, compounded by its reliance on Chinese imports for approximately 23.5% of its products. Despite this dependency and similarly high product elasticity, recent efforts to reduce exposure to China demonstrate a proactive approach. According to Goldman Sachs analyst Brooke Roach, Floor and Decor is making strides towards diversifying its supply chain, potentially mitigating the impact of future tariffs.
In an environment of uncertainty, brands like SharkNinja and Yeti are actively working to lessen their dependence on Chinese manufacturing. SharkNinja has openly discussed diversifying its supply chain, which should enable the company to navigate potential tariff increases more effectively. Meanwhile, Yeti has also quantified its sourcing and outlined plans for diversification, aiming for a significant reduction in reliance on China by the end of 2025.
The commitment of these companies to adapt gives them a competitive edge over rivals that may be slower to respond. SharkNinja’s shares have reflected this optimism with a 77% increase this year. In contrast, Yeti’s stock has experienced a decline of 28%, underscoring that diversification discussions may be crucial to investor sentiment and market performance.
As the election approaches, uncertainty looms over the retail sector, particularly among companies that heavily depend on products sourced from China. While the proposed universal tariffs could pose significant challenges, the varied responses of retailers—from proactive diversification to cautious optimism—offer a roadmap for navigating potential obstacles. Investors should keep a close watch on how these companies adapt their strategies in response to shifting trade policies, as the actions they take today could significantly shape their market positions in the future.