As new tariffs take effect across multiple countries, analysts at UBS believe that large retailers with grocery operations, such as Walmart and Costco, are poised to benefit from this economic shift. While tariffs may disrupt many industries, consumer demand for essential goods—especially groceries—remains largely inelastic. This demand, combined with the ability of big retailers to leverage scale and negotiate favorable pricing with suppliers, positions these companies to navigate the economic turbulence ahead more effectively than their smaller competitors.
Grocery Giants Have the Upper Hand
The impact of tariffs on global trade is undeniable, and with goods becoming more expensive as a result, many businesses face pressure to raise prices. However, as UBS analysts point out, essential items—particularly groceries—are less likely to see dramatic reductions in consumer demand. People still need food, and this essential demand will continue to flow to stores that provide these goods at competitive prices.
Walmart and Costco, two of the largest players in the retail sector, are in an especially strong position. With their vast scale and negotiating power, these companies can secure competitive pricing from suppliers, helping them maintain relatively low costs despite the rising tariffs. According to UBS, these large retailers have the ability to widen their price gap with competitors, making them more attractive to cost-conscious consumers.
“The longer the tariffs persist, the more likely it is to drive further consolidation in the retail sector,” UBS analysts said. “This will particularly benefit retailers with scale and strong positioning, like Walmart and Costco.” In essence, the more challenging the market becomes, the more consumers will flock to the big players who offer both essential goods and competitive pricing.
Essential Retailers: Supermarkets and Auto Parts
It’s not just grocery giants that could see a boost. Supermarket chains, such as Kroger, Albertsons, and Sprouts Farmers Market, are also well-positioned to weather the storm created by the new tariffs. Like Walmart and Costco, these retailers deal in necessities—food and household items that people can’t easily do without. While the economic fallout from tariffs may cause consumers to reconsider discretionary purchases, their need for groceries is unlikely to change.
Auto-parts companies are another category that UBS expects to thrive amid the tariff-driven uncertainty. Businesses like AutoZone and O’Reilly Automotive stand to benefit from the fact that people still need to maintain and repair their vehicles, even as the cost of other goods rises. As consumers continue to hold onto their cars longer, maintenance and repair items will remain a crucial expenditure, insulating these companies from the broader economic slowdown.
Off-Price Retailers Also in a Good Position
UBS also highlighted off-price retailers like T.J. Maxx and Burlington Stores as potential winners in a tariff-affected landscape. These retailers specialize in offering discounted goods, and their business models make them relatively immune to the challenges that other retailers face when prices rise.
If the broader retail industry struggles to move merchandise due to higher costs, off-price retailers stand to gain by attracting more bargain-hunting consumers. In a time of rising prices, consumers are likely to flock to stores that offer the best value for their dollar. T.J. Maxx and Burlington, with their focus on offering high-quality goods at discounted prices, could see increased foot traffic as shoppers seek out deals.
The Risk for Smaller Retailers
While large retailers with a robust supply chain and negotiating power will likely fare well, smaller companies may struggle. The new tariffs—covering a broad range of products—make it difficult for many retailers to easily bypass the increased costs by relocating their production to lower-cost regions. For small and mid-sized retailers, the higher cost of imports could become a significant burden. Without the leverage to negotiate better deals with suppliers, these businesses might be forced to raise prices, risking a decline in customer demand.
Moreover, these smaller retailers may lack the financial cushion to absorb the additional costs or sustain their operations in a high-tariff environment. The result could be further consolidation in the retail industry, with larger players swallowing up market share as smaller, less resilient businesses struggle to stay afloat.
What Lies Ahead for Retailers?
Despite the challenges posed by rising tariffs, large retailers with essential product offerings, such as Walmart and Costco, are expected to be relatively insulated from the worst effects. Their scale and strong market positions will allow them to adapt to the changing landscape and maintain customer loyalty by offering competitive prices, especially on essential goods like groceries.
Supermarket chains and auto-parts companies should also remain resilient, benefiting from the ongoing demand for necessities. Off-price retailers, meanwhile, stand to gain as the rising cost of goods forces more consumers to seek out discounts.
For investors, the key takeaway is that companies with the ability to offer value in essential sectors—whether it’s food, auto parts, or discounted goods—are likely to emerge stronger in the face of economic turbulence. As tariffs continue to reshape the retail environment, large and well-positioned companies are the ones to watch.
In summary, while the retail landscape may experience significant disruption due to tariffs, it is those with scale, strong supply chains, and an eye on essentials that will emerge in the best position to thrive. Whether it’s the grocery giants, the auto-parts specialists, or the off-price discount stores, the retailers that serve fundamental consumer needs are poised to continue attracting customers, no matter the economic climate.
