Now that Donald Trump has taken over as the President of the US, all eyes are on him to see his first move. Whatever plans Trump puts in place to force businesses to produce more in the US, apparel retailers will be hit harder than most other industries. While investing heavily to fight off a growing crowd of internet rivals, many of which operate at a loss to gain market share, retailers import nearly everything they sell. They are in perpetual price competition with their traditional competitors.
Despite his criticism of proposal, Trump, could go ahead with a Republican tax reform plan that would tax imports by making them non-deductible expenses, and exempt exports. He has also pushed a still-vague plan to impose 35 per cent levy on goods made by companies that move their production out of the US and then sell back in. Both proposals would hit importers.
If he does pick a border-adjusted tax plan with a corporate tax rate of 22.5 per cent, then this year’s earnings would be 68 per cent lower at Kohl’s, 52 per cent lower at Urban Outfitters and 37 per cent lower at Lululemon, according to Citigroup. Abercrombie & Fitch, Gap and J.C. Penney would lose money.
Some economists say the effects of the measure would be offset by a rise in the dollar and across-the-board increase in prices of imported goods, but companies that are net importers aren’t buying it. Retailers would have to raise prices to return to reasonable profitability. In December, the consumer price index for apparel stood slightly below where it was in December 1990. Taking inflation into account means prices have fallen significantly.
