Tariffs, Recession Fears Could Derail Wayfair, RH And Etsy, Says Analyst

BofA analyst Curtis Nagle looks at the tariff and recession implications for home furnishing companies and Etsy Inc (NASDAQ:ETSY).

The upcoming 2025 tariffs could significantly disrupt the U.S. home furnishings industry, as a large share of imports originate from China and Southeast Asia, regions that now face tariffs as high as 50%, said the analyst.

Although companies previously managed similar tariffs in 2018 through cost-cutting and shifting production, those strategies may no longer be viable due to limited sourcing alternatives and low factory output amid weak demand.

Nagle warned that while retailers may attempt to pass added costs to consumers through higher prices, historical patterns show such hikes often reduce demand.

During the 2018 tariffs, even with mitigation, furniture prices rose and sales growth slowed from a 4% annual increase in 2018 to a 0.6% decline in 2019.

With broader tariffs expected in 2025 and few cost-cutting options available, price increases of up to 30% may be necessary, potentially leading to further demand erosion, especially in the event of broader inflation or a recession.

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The Analyst cautioned that new tariff-driven price hikes, weak consumer confidence, a soft housing market and looming recession fears could further dampen demand.

While sales have already dropped 20% since 2021, a short-term buying boost may occur if consumers try to purchase before prices rise or if tariff relief is negotiated.

Wayfair Inc. (NYSE:W) is a leader in the home furnishings market, with a catalog of over 30 million items from 20,000 suppliers.

This vast supplier network allows the company to avoid inventory risks faced by traditional retailers while enabling strategic flexibility through vendor negotiations, product mix adjustments and pricing strategies.

Historically, Wayfair has demonstrated resilience during inflationary periods. The company successfully preserved its gross margins in 2018 and 2021 despite rising prices across the furnishings category.

However, the analyst warns that if the 2025 tariffs are fully implemented, Wayfair could struggle to fully pass along the higher costs to consumers.

The company's key sourcing partners may not be able to absorb the increased expense and significant price hikes could weaken demand.

RH (NYSE:RH) was initially viewed as well-positioned within the home furnishings sector heading into 2025 due to its plans to shift sourcing away from China and a track record of minimizing tariff-related expenses.

However, the analyst now sees RH at risk of facing considerable cost pressures if the tariffs are implemented as proposed.

The company's sourcing footprint includes 35% of its product volume from Vietnam, which would be hit with a 46% tariff and another 14% from Southeast Asian nations excluding China, where duties could exceed 30%.

Nagle reiterated a Neutral rating on the shares of Etsy Inc. (NASDAQ:ETSY) and lowered the price forecast from $55.00 to $50.00.

ETSY may be less vulnerable to direct tariff impacts than its peers, but the analyst says it still faces significant headwinds.

Only a quarter of the marketplace’s goods are imported and its exposure to China is minimal – under 2% of Gross Merchandise Sales (GMS). Canada and Mexico contribute less than 5% combined, with Canada being the larger contributor.

While tariff effects may be muted, Etsy’s reliance on discretionary spending raises red flags amid growing recession fears.

As of the fourth quarter of 2024, nearly 70% of Etsy’s GMS came from categories such as home goods, jewelry and apparel segments likely to suffer if consumers tighten spending.

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