Dive Brief:

• Tariffs could imperil retailers to the tune of $40 billion in sales and 12,000 stores in just one year, according to a UBS note from analyst Jay Sole and his team emailed to Retail Dive.

• The industry’s store count contracted 5.3% year over year in the first quarter, the highest rate in at least a decade, they said. Closures accelerated by 100 basis points or 3,125 stores from the fourth quarter of 2018.

• Some retailers and stores could benefit by picking up share, but the disruption could reverberate through the industry through "inventory dislocations and discounting which would hurt almost all Softlines companies" and could "make some C malls unviable, which would have a knock-on effect on healthy retailers, not to mention an impact on jobs and the larger economy," analysts said.

Dive Insight:

With half the year yet to complete, retailers have already shuttered a surprising number of stores in 2019. As of late March, U.S. retailers had announced 5,399 store closures and 2,396 store openings, compared to 5,726 closures and 3,243 openings for all of 2018, according to a report from Coresight Research. The company's most recent report records 6,196 store closures in the U.S. and 2,724 openings.

While the potential impact of tariffs has centered on retailers' struggles to amass their holiday inventory and how much they are willing or able to pass off the added cost to consumers, the impact on physical stores is getting missed, according to the UBS analyst team, who titled their report "The Tariff Risk the Market Isn't Thinking Enough About." The risk also arises in part from the fact that brick-and-mortar retail is already under siege, they stated, citing their own previous note that "the apparel and footwear consumer's willingness to spend remains tepid at best."

"Our view is the market is not realizing how much brick & mortar retail is incrementally struggling and how new 25% tariffs could force widespread store closures," they wrote, noting that they track public companies, so their prediction doesn't include privately held retailers. "We track 73 publicly traded Softline companies. Of these, 15 have EBIT margins less than 3%. This group represents roughly $42B of sales and over 12,000 stores. We think potential 25% tariffs on Chinese imports could accelerate pressure on these company's profit margins to the point where major store closures become a real possibility."

The closures include many that are inevitable, but the analysts, who say that nearly 21,000 stores must close by 2026 anyway, warn that the acceleration could be extremely disruptive. "Tariffs could cause over half of this change in one year, rather than four," according to their note, also saying: "To some, store closures could be a good thing. 'Culling the herd' could get the industry closer to stable traffic patterns and margins. Plus, survivors likely gain share. This is probably a long-term outcome. Near-term though, a big wave of stores closures would likely be highly negative."