If you’ve been wondering how tariffs might impact how much you’re spending at the store, you’re not alone. If you’re also an investor wondering how those same tariffs will eventually impact the retail stocks in your portfolio, you’ve got double the reason to pay attention.
The good news is, there are a few retail stocks that might be able to weather the storm, according to analysts.
“Our view is that retailers are better prepared to manage policy risks like tariffs under Trump 2.0,” writes CFRA analyst Arun Sundaram, CFA, CPA. “Supply chains have diversified since the first trade war with China back in 2018-2019. In addition, retailers should be able to flex their bargaining power with suppliers to mitigate tariff pressure (e.g., price negotiations).”
4 retail stocks that could weather Trump’s tariffs
When it comes to tariffs, big brands that have a well-known name, a solid value proposition and sell essential items like groceries are more likely to thrive. After all, everyone needs to eat, and they need a place to buy that food.
As an investor, understanding this demand is key. Look for retailers that have strong domestic supply chains and essential product categories, like groceries. The better chance a company has of maintaining both sales volume and reasonable profit margins, the less likely their stock price will be impacted during periods of economic uncertainty.
Here are four retail stocks that may be well-positioned to weather tariff headwinds.
1. Walmart (WMT)
Last year, Walmart spent more than 66 percent of its total product spending on goods grown, made or assembled in the U.S. last year, says Sundaram. Not to mention, about 60 percent of the company’s U.S. sales mix is in groceries, which face less tariff risk. This helps make Walmart’s stock somewhat insulated against tariff pressures.
Walmart recently pulled back its operating profit outlook for the first quarter, citing tariff concerns, but maintained its first-quarter sales outlook of 3 percent to 4 percent growth.
2. Costco (COST)
While Walmart leverages its domestic supply chain, Costco takes a bit of a different approach.
“Costco’s tariff mitigation strategies include consolidating volume, redesigning packaging and relocating production,” writes TD Cowen analyst Oliver Chen, CFA. “We also like COST’s international growth, which drives a greater capacity to flex global sourcing opportunities.”
Less than 25 percent of Costco’s U.S. sales are imported, says Chen. To take it one step further, less than half of those products are imported from China, Mexico and Canada.
Costco also increased its basic and premium membership prices in September 2024, which could help offset challenges, says Sundaram.
3. BJ’s Whoelsale (BJ)
Several analysts don’t foresee major pricing issues with this bulk retailer either. In fact, only a “few percentage points of total product spend” are imported from China, says Sundaram.
On top of this, Sundaram rates the stock a buy for several other reasons, including lower average prices for consumers, growth accelerated by new club openings and private label growth to name a few.
Other analysts also honed in on low China exposure.
“BJ’s China import exposure is ~3 percent and general merchandise mix is 10 percent,” says Chen, citing BJ’s as one of their top stock picks. “We believe management would sacrifice margin in order to lead with value and gain market share; although we do not believe traffic has suffered recently based on our recent investor meeting.”
4. The Kroger Co. (KR)
Beyond some of the retail giants, specialized grocers may also be able to handle tariff heat. Kroger — a mid-sized grocery chain that operates under various brands across the U.S. — also has low exposure to imported goods. Its groceries are mainly sourced domestically, says Sundaram.
There is, however, some moderate tariff exposure to Canadian and Mexican produce, but Sundaram says tariffs could offer sales growth for the grocer.
“Our buy opinion reflects improving sales momentum, margin expansion potential and attractive valuation versus peers,” says Sundaram.
Should retail stocks be in your portfolio?
Retail stocks are often seen as a barometer of broader economic conditions, especially those in the consumer discretionary sector. For example, poor earnings or lower sales can signal a stressed consumer who is holding on to cash or doesn’t have much discretionary income to spend. If retail sales are up, that can signal that consumers are feeling more comfortable spending money and may have more discretionary income.
On the flip side, consumer staple stocks are non-cyclical because people spend money on groceries and other essentials, such as utilities and health care, whether the economy is up or down.
Retailers — especially the big ones — are also known for their dividends. In fact, there are a few retailers on the list of Dividend Kings, meaning they’ve raised their annual dividend for at least 50 consecutive years. Walmart, a Dividend King and one of the best stocks to hold long term, recently announced it would raise its annual dividend to 94 cents, marking its 52nd year of consecutive increases. Target (TGT) and Lowe’s (LOW) are also Dividend Kings.
However, as an investor, it’s important to keep a long-term view in mind and consider your goals, risk tolerance and time horizon — regardless of the investment you’re considering.
Investing in stocks within the consumer staples industry may make sense if you want to hedge against tariff concerns, potentially receive dividends and diversify your portfolio. You can own individual stocks for specific companies or buy shares in an exchange-traded fund or mutual fund that focuses on consumer companies.
If you’re not sure where to start, speaking with a financial advisor can be helpful.
Need an advisor?
If you’re looking for expert guidance when it comes to managing your investments or planning for retirement, Bankrate’s AdvisorMatch can connect you to a CFP® professional to help you achieve your financial goals.
Bottom line
At the end of the day, there are some companies that are better able to take on tariffs than others. Some of those include big-box retailers who have a solid brand name and customer loyalty, including Walmart and Costco, and lower exposure to imports, making them less susceptible to tariff headwinds.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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