The trade war with China could cause prices to rise on everything from toys to clothing, but it also could lead to “widespread store closures,” according to a report by UBS.
The investment bank’s analysis said tariffs on Chinese imports could put $40 billion of sales and 12,000 stores at risk.
“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 wrote in the report. “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.”
Earlier this month, the Trump administration increased U.S. tariffs on $200 billion in Chinese imports from 10% to 25%. The president has also threatened to add a 25% tariff on almost all the remaining $325 billion in goods shipped in from China.
UBS was already anticipating more store closures and calculated 20,710 clothing stores need to close by 2026, in an April report.
“Tariffs could cause over half of this change in one year, rather than four,” Sole wrote, adding this is just publicly traded companies and doesn’t include impact on private companies.
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Even before the risk of tariffs, retailers have been struggling this year and have announced more closings in the first 20 weeks of 2019 than all of last year, according to Coresight Research.
The global market research firm tracked the 5,864 closings in 2018, which included all Toys R Us stores and hundreds of Kmart and Sears locations. The record year for closings was 2017 with 8,139 shuttered stores.
Coresight has tracked nearly 6,400 closing announcements this year, but in a new report released Friday estimates “12,000 stores could be shuttered by the end of the year.”
Impact of increased tariffs
Retailers say they are closely monitoring the trade situation and how a potential fourth wave of tariffs could impact prices.
“We’re going to continue to do everything we can to keep prices low,” said Brett Biggs, Walmart’s chief financial officer and executive vice president, during a call with reporters Thursday. “However, increased tariffs will lead to increased prices we believe for our customers.”
The Children’s Place is seeing a “minimal margin impact” on the tariffs that went into effect May 10, said Mike Scarpa, the company’s chief financial officer and chief operating officer, during a May 15 call with analysts.
But, Scarpa said, “additional tariffs on the remaining imported products from China would have an adverse impact on our profitability.”
Macy’s chairman and CEO Jeff Gennette said in a May 14 call with analysts that increased tariffs has already had some impact on the company’s furniture business.
However, if an additional increase is placed on all Chinese imports that would “have an impact on both our private and our national brands,” he said.
“We would work with our manufacturing and brand partners to size and minimize the impact to our customers,” Gennette said. “We are hopeful that trade talks between U.S. and China will continue productively and the trade actions between the two countries will deescalate.”
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Follow USA TODAY reporter Kelly Tyko on Twitter: @KellyTyko