Consumers Go Discount As Tariff Pressures Mount, Warns Analyst

More consumers are trading down, and a noticeable shift toward off-price and discount retailers is emerging.

What Happened: According to J.P. Morgan analyst Matthew R. Boss, retail fundamentals in the first-quarter are tracking close to expectations with signs of stronger momentum in late April due to the timing of Easter.

Apparel and footwear spending remained solid, boosted by affluent consumers and stable lower-income budgets, he says. Most retailers, however, are adopting a four-part strategy to offset new tariffs: renegotiating with suppliers, shifting sourcing, improving cost structures, and applying selective price hikes.

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Here are some key takeaways from his April 14 report:

Store expansion remains a key revenue driver for companies like Ollie’s Bargain Outlet Holdings Inc. OLLI, Burlington Stores Inc. BURL and Boot Barn Holdings Inc. BOOT.
Global brands such as Birkenstock Holding PLC BIRK and PVH Corp PVH are reporting healthy order books and improving visibility.
The analyst reiterated a Neutral rating on the shares of PVH and lowered the price forecast from $91.00 to $87.00.
PVH is seeing macro-driven headwinds in North America and China, with North America DTC revenues down mid-single digits and China down mid-teens in February, partially stabilizing in March. Tariff exposure poses risk, with a potential EPS hit of $4.85.
Specialty retailers like Bath & Body Works Inc BBWI and Urban Outfitters Inc URBN benefit from product diversification and operational gains.
Cruise lines stay relatively insulated, seeing no major booking declines despite recent market volatility.
Brands with the highest exposure to China include American Eagle Outfitters Inc AEO, Nike Inc NKE )) and Boot Barn; Levi Strauss & Co LEVI, Birkenstock Holding PLC BIRK, and VF Corp VFC remain less affected.
Burlington shares have an Overweight rating and a lowered price forecast from $336 to $287. The company saw strong fourth-quarter performance led by lower-income shoppers, with solid comps across all income levels due to value-seeking behavior.
The analyst reiterated a Buy Overweight on the shares of Ross Stores Inc ROST with a price forecast of $161.00. The company expects first-quarter same-store sales to decline 3% to flat, due to cold weather, delayed tax refunds, and consumer hesitation from policy headlines. However, trends improved in March/April, and full-year comps are projected at -1% to +2%, driven by seasonal historical strength and expected easing of first-quarter headwinds. ROST faces limited direct sourcing from China but still expects a modest tariff headwind.
The analyst reiterated a Neutral rating on the shares of Macy’s Inc M and lowered the price forecast from $14.00 to $13.00. Despite progress reducing China sourcing (~30% now vs. ~50% historically), tariffs remain a risk for Macy’s, with a potential EPS headwind of up to $1.45.
The analyst maintained an Overweight rating on the shares of Lululemon Athletica Inc LULU and lowered the price forecast to 4389.00. Lululemon expects +6–7% revenue growth in 1Q FY25. Due to macroeconomic concerns, U.S. traffic declined, though conversion rates and AOV improved. Lululemon faces a 20bps gross margin headwind from tariffs, though China accounts for only 3% of its finished goods. Assuming no mitigation, tariffs could cut EPS by $0.38, noted the analyst.