These analysts say that retailers face the greatest uncertainty since COVID

Key Takeaways

• The "reciprocal" tariffs slated to impact goods from dozens of countries will be difficult to avoid for even the best-positioned retailers, Oppenheimer analysts said Friday.
• Many brands' profits will come under pressure, and demand could dampen if they raise prices, the analysts said.
• The near-term outlook for retailers with a discretionary focus "is as uncertain as in the early stages of the COVID-19 pandemic," Oppenheimer said.

Retail operations have just become more difficult. 

As the industry deals with both trade policy and consumer anxiety, navigating widespread “reciprocal tariffs” will be a challenge. The tariffs announced on Wednesday are so broad, that even the most agile businesses will struggle to source products without paying import taxes.

Tariffs will cut into profits and—when passed along to consumers—sap sales, Oppenheimer concluded. For operators of companies selling more discretionary goods, they wrote, the near-term outlook "is as uncertain as in the early stages of the COVID-19 pandemic."

The impact of this uncertainty on consumers is still to be seen. However, it has already impacted share prices. Retailers tracked by the bank’s consumer growth and e-commerce team experienced a 6% drop in stock value Thursday, the analysts said; the SPDR S&P Retail ETF (XRT) edged higher in recent trading Friday. Follow Investopedia’s live market coverage today here.

Analysts have highlighted the following challenges that are now facing some major retailers:

• Around 86% and 78% of the cost of goods purchased (COGS) by athleticwear company Lululumon, and Nike, the shoe giant, respectively, came from Asian nations that will be subject to import tax. 
• Dick’s Sporting Goods, Best Buy and other big-box retailers purchase their COGS from suppliers in the United States. But at least 85% of them originate overseas. 
• LoveSac, a furniture company (LOVE), moved some of its production out of China because tariffs had been imposed on its imports years before. But now, 50% of COGS for the retailer comes from Vietnam. This may be subject to a tariff of 46%. 
• Home Depot and Lowe’s are two of the “least-exposed” chains to tariffs. But about 40% of COGS still comes outside of the United States.

Investors are reacting to the latest news about tariffs by looking for stocks that can better withstand a slower economy or provide a respite to rising prices. Some analysts pointed out that discount retailers and companies selling consumer staples were among the best stocks to buy in response to the latest tariff news.