01:25 PM EDT, 04/03/2025 (MT Newswires) -- The reciprocal tariffs imposed overnight on goods arriving into the US from other countries were worse than expected and will likely have an outsized impact on US retailers, especially hardline retailers, compared with most other sectors, Morgan Stanley analysts said in a new note on Thursday.

The Morgan Stanley analysts said the initial response by investors is warranted, with shares of retailers selling a large percentage of goods made in Vietnam, Indonesia and China experiencing some of the steepest slides on Thursday. The declines reflect the projected increase in import duties on those countries, they said.

The analysts said they believe nearly every hardline retailer, or business that sells durable, non-consumable goods such as electronics and appliances, will be impacted by the tariffs and that previous efforts to diversify away from China will no longer provide much protection.

So-called softline retailers - footwear, apparel and textiles, among other items - likely will see their costs climb given their exposures, with rising prices and waning consumer demand soon to follow, the analysts said. Softline sales already had been slowing recently and the new tariffs will likely add an "incrementally negative" impact on the category, they said.

Among individual companies, Wayfair ( W ) has a disproportionately high exposure to tariff-affected countries compared with its peers, the analysts said, adding that companies such as PVH (PVH), American Sports (AS), Skechers USA ( SKX ) and Nike ( NKE ) , which have less US sales exposure, are better positioned. Wayfair ( W ) has options that could reduce those sourcing problems by cutting its take rate for other companies selling on the e-commerce platform or through other means, "but this is not something the company generally chooses to do," they said.

As a group, the Morgan Stanley analysts said selected retailers such as Walmart ( WMT ) and Costco (COST), along with grocery chains Kroger ( KR ) and Albertson's (ACI), may be better positioned to weather US tariffs due to a relatively low exposure to imported merchandise, with "discounters (and) dollar stores the most vulnerable."

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