By coinnews 
00:00 Speaker A
Retail stocks are on the move as investors weigh the impact of the 90-day tariff reduction from the US and China, but temporary truce companies that rely heavily on Chinese imports, especially in apparel and footwear, are seeing some relief now. With the tariff clock ticking, though, we’re now getting how to play the retail sector with the Yahoo Finance playbook and joining us now is Anisha Sherman, senior analyst at Bernstein. Anisha, good to see you. So, um, let’s start with that US-China trade truce, Anisha. I’m sure your clients were asking you what what that all meant for your coverage universe. What were you telling them?
01:22 Anisha Sherman
Yeah, so what what we what we had seen leading up into this announcement was that retailers and brands were stockpiling product in China and not loading it onto ships to come into the US, because the effective data of the tariff is the date in which the product boards the inbound vessel. So there were stockpiles of containers in China, not boarding ships. With this announcement, we’re now going to see the reverse, where we’re going to see a surge of imports coming into the US over the next month, month and a half, and probably even a pull forward of some of the holiday merchandise before that 90-day mark expires for fear of tariffs going back up. So, you know, a few weeks ago there were concerns of empty shelves because the imports had dropped, and shipments out of China had dropped. We’re now in the opposite scenario where I think there could be an inventory bullwhip effect, where we get this huge surge of inventory coming in over the summer with some pull forward into a slowing demand environment. So we could end up with an inventory glut in the US over the next few months.
03:02 Speaker A
That’s really interesting, Anisha, and it makes me, you know, I’ve had lots of flashbacks to the COVID era, right? Um, and the supply chain lumpiness and disruptions that we saw. Did retailers learn the lessons of that time? Are they better even if there’s going to be that glut, are they better poised to somehow manage through it than they were, say, in 2019?
03:48 Anisha Sherman
Yeah, I mean, the most recent episode of this was in 2022 when we had port blockages and freight rates going up, and it was impossible to find a truck to carry inventory. So we had this shortage, and then everything loosened up and there was this huge glut of inventory. At that time though, demand was very strong. And so that excess inventory got quickly absorbed into the market, and people bought it. What what concerns me now is we’re we’re in an environment of demand weakness. And we could see further demand weakness if we see inflation going up. So a surge of inventory into a weak demand environment is much worse for retailers and brands because that means a race to the bottom on prices, a lot more discounting, and margin pressure.