Goldman Sachs Warns Tariffs Will Hit Apparel And Home Furnishings Hardest, Highlights Most Exposed Stocks

On Thursday, Goldman Sachs analyst Brooke Roach discussed the impact of the U.S. reciprocal tariffs on retail companies.

On April 2, President Trump announced reciprocal tariffs, including a 10% hike on all countries except Mexico and Canada, with higher rates for select nations with trade deficits.

The most significant retail impact is expected from increased tariffs on major sourcing partners like Vietnam, Indonesia, Bangladesh, and Cambodia, said the analyst.

The U.S. is significantly raising tariffs on imports, with China’s tariff rate increasing to 54% (up from 20%). Other key sourcing countries like Vietnam (46%), Indonesia (32%), Bangladesh (37%), Cambodia (49%), and India (27%) will also see tariff hikes, while EU imports face a 20% tariff.

Canada and Mexico remain exempt under USMCA, though non-USMCA compliant goods will be taxed at 12%. Overall, apparel and footwear tariffs are estimated to rise to an average of 38%, noted the analyst.

Additionally, the de minimis duty-free exemption for packages under $800 from China and Hong Kong will end on May 1, 2025.

These shipments will face a 30% tariff or $25 per item, increasing to $50 per item after June 1, 2025. The Secretary of Commerce will review within 90 days whether to expand this policy to Macau.

The newly announced tariffs will pressure brands and retailers, forcing them to adjust pricing, negotiate with vendors, and optimize costs to protect margins.

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While most companies will be affected, some are less exposed, including brands with lower U.S. sales exposure like Amer Sports Inc AS, Canada Goose Holdings Inc GOOS and PVH Corp PVH. Retailers with indirect sourcing, such as department stores and off-price retailers, could benefit from supply chain disruptions.

Companies that do not source their product from international markets or source from exempt regions, such as Savers Value Village Inc’s SVV with thrift business model and Kontoor Brands Inc’s KTB reliance on Mexico, though it also sources from Bangladesh, are less exposed.

The analyst notes that brands with momentum and strong consumer engagement are likely to have more substantial relative pricing power in the marketplace overall.

The analyst noted higher exposure to incrementally new tariffs from Vietnam and Cambodia-exposed businesses include sportswear like Lululemon Athletica Inc LULU, Nike Inc NKE and general apparel like Torrid Holdings Inc CURV, Figs Inc FIGS, Victoria’s Secret & Co VSCO, and Gap Inc GAP.

The Home Furnishings industry with companies like RH RH and Williams-Sonoma Inc WSM faces the greatest risk from tariffs due to its high exposure to China and Vietnam and the discretionary nature of its products.

RH sources 72% of its products from Asia, including 23% from China and 35% from Vietnam, while WSM has 23% China and 14% Vietnam exposure.

Retailers Five Below Inc FIVE and Best Buy Co Inc BBY are also vulnerable, with 60% of their products sourced from China. While Vietnam exposure remains unclear for most industries, home furnishing companies have the highest risk, said the analyst.

On the other hand, Auto Parts companies like Advance Auto Parts Inc AAP, AutoZone Inc AZO and O’Reilly Automotive Inc ORLY and Home Improvement retailers like Home Depot Inc HD and Lowe’s Companies Inc LOW are better positioned, as they can pass increased costs.

Similarly, retailers that sell food like Walmart Inc WMT, BJ’s Wholesale Club Holdings Inc BJ, and Costco Wholesale Corp COST are relatively insulated.

Companies with minimal reliance on China, such as Ulta Beauty Inc ULTA and Bath & Body Works Inc BBWI, are also well-positioned against these tariffs.

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