Tariffs could cause massive store closures in US: UBS
Imposing further tariffs in the escalating trade disputes between the United States and China would lead to widespread closures of softline stores and cause substantial disruption across the industry, according to a report by Swiss investment bank UBS.
The UBS warned that over 12,000 US brick and mortar stores of apparels and textiles, which have about US$40 billion of annual revenue but only less than 3 percent of earnings before interest and tax profit margin, would be at risk because of the possible new tariffs.
After increasing tariffs on US$250 billion worth of Chinese imports to 25 percent, the White House then threatened to levy extra tariffs on more Chinese goods including clothing and footwear.
US unilateral acts have triggered countermeasures from China, which said it "will fight to the end" if someone brings the war to its doorstep.
"We think potential 25 percent tariffs on Chinese imports could accelerate pressure on these companies' profit margins to the point where major store closures become a real possibility," said UBS analyst Jay Sole.
The US retail industry lost 3,125 stores, or more than 5 percent in the first quarter of 2019, marking the highest rate of year-on-year decline in at least a decade, Sole said.
According to the report, a big wave of store closures would be highly negative and create intense inventory dislocations and discounting in addition to impacts on jobs and the economy.
UBS tracks 524 public and private softlines retailers operating 116,364 stores as of the end of March in comparison with a peak of 132,860 in 2012.