Retail prices may rise after the closure of the Strait of Hormuz

The Iran war may soon mean higher prices on store shelves for consumers.

Iran’s virtual closure of the Strait of Hormuz has dramatically disrupted the global supply chain, affecting goods from fertilizers to minerals to gas and fuel. This corridor is considered a critical point, as it transports tens of millions of barrels of oil daily, along with other exports, as it is one of the most important shipping routes in the world.

And tensions with the Strait are Shows no signs of change. Iran’s new Supreme Leader, Mojtaba Khamenei, said Thursday that the closure should continue “as a means of putting pressure on the enemy” in his first public statement since his appointment. Defense Secretary Pete Hegseth on Friday downplayed concerns about the strait, saying at a news conference at the Pentagon: “We’ve dealt with it, we don’t have to worry about it.”

In a statement Friday, the logistics provider C. H. Robinson It said it continues to monitor updates and urged shippers to plan for continued volatility.

“While transporting freight, carriers manage limited capacity, selective acceptance and fuel-related cost impacts, resulting in price volatility and variable service conditions,” the statement said.

Although it is still too early to determine the exact impact on retail, Coresight Research President Max Kahn said disruption to the global supply chain may already be pushing the industry closer to its limits.

“Retailers have gotten much better at building resilience into their supply chains, and that has accelerated a lot in the past year with the tariffs,” Kahn told CNBC. “The biggest concern is if this continues.”

Prices at the grocery store may be affected first, since food tends to have less resilient supply chains, while apparel retailers will likely be able to slow production and assemble it again later without disrupting inventory, Kahn said.

As retailers navigate the geopolitical landscape, Kahn said they will likely face two factors: input cost pressure and demand pressure.

“Retailers are going to have to play that up,” he said. “One of the reasons the retail sector remains resilient in 2022 and 2023 is its ability to raise prices, and that price rise kind of offsets some of the weakness in units, so our feeling would be that that could be very similar this time around.”

Retail was not affected by the shipping changes either. Clothing shipments for Zara owner Inditex, along with other clothing retailers, were stranded last week as flights were canceled in the Middle East, according to Reuters.

Potential struggles for retailers could have broader economic implications as well, Kahn said. Although companies have learned to be somewhat adaptable to the changing macroeconomic environment over the past few years, he noted that overall retail growth has been “mediocre,” and as the industry continues to navigate the war, this uncertainty will also begin to impact GDP growth.

However, as the chaos continues, Khan said he expects value retailers to do the same Walmart and Kroger And dollar stores like Dollar General and Dollar tree To have an easier time because shoppers will be looking for items of greater value.

In addition to the impact on the global supply chain, consumer confidence has already been damaged by the war. Although Wednesday’s CPI came in as expected, industry experts said higher gas prices will likely impact discretionary spending as consumers pull back to cover costs at the pump, impacting retailers who may already be struggling with supply chain impacts.

In a note issued Sunday, Wolff Research analysts wrote that retailers that rely heavily on discretionary goods are likely to be among the biggest losers from the war.

“Retailers with a larger discretionary mix, e.g Five below and goal“They also face headwinds as consumer confidence comes under pressure and mixes,” they wrote.

However, some retailers may have other factors helping them emerge from the fallout from the war. Retailers that attract high-income consumers or who have specialized offerings, e.g Costcomay be able to escape the pressure.

“Costco should benefit as its leadership on gas prices becomes more significant and consumers become more willing to wait more than 20 minutes for gas,” the analysts added.

The war adds uncertainty to an already vulnerable consumer coping with a changing macro environment and a K-shaped economy, as those at the high end continue to do well while lower-income consumers struggle, UBS analysts wrote in a note Monday.

“Rising oil prices should add a significant burden to household budgets and intensify pressures already evident in the consumer landscape,” they wrote.

While some retailers like… Ulta Costco has historically seen the same increase in store sales along with oil inflation, as companies serving low-income shoppers. Dealer Ollie Dollar General is likely to see a decline in sales as consumers face budget constraints, UBS analysts said.

“Overall, higher oil prices could create persistent and multi-layered pressure on consumer health,” they wrote. “It increases fixed household expenses, puts upward pressure on grocery prices, reshapes retail movement patterns and poses operational challenges for retailers across multiple sectors.”