Retailers’ Top Worry In Trump Era? Border Adjustment Tax.

Concerns about profits and prices

Author: Andria Cheng

March 22, 2017

Worries about tax-code changes resurfaced as retailers wound down the four-day Shoptalk conference in Las Vegas.

In particular, retailers, heavily dependent on clothing, electronics and other imports, are concerned that the border adjustment tax will crimp profits and force them to raise prices. The tax is part of the House-proposed tax reform plan.

“I’ve been very active in D.C. this year,” said Target CEO Brian Cornell in a keynote session. “What people don’t understand is if this goes forward, it’s the consumers in the US who are going to pay for it because there’ll be higher prices in apparel, home goods and school supplies. It puts us in a difficult position.”

Cornell in February was one of eight retail leaders who met with President Donald Trump at the White House to discuss the implications of the tax and other things.

“We’ve seen the impact of higher prices in categories. It reduces demand.”

“To tell American consumers they ought to pay 20% more for things like apparel, shoes and home goods intuitively doesn’t make sense to me,” said Kohl’s Corp. CEO Kevin Mansell at a separate presentation. “We’ve seen the impact of higher prices in categories. It reduces demand.”

The proposal has divided corporate America, with major US exporters from Boeing to General Electric forming a coalition to support the plan.

The National Retail Federation, the industry’s largest trade group, has estimated that the tax would cost the average US family $1,700 in the first year alone if enacted. Citing US Department of Commerce Bureau of Economic Analysis (BEA) data, the NRF estimated consumers could expect to see an increase of over $350 per year for clothing if there were a 20% destination-based tax on imports.

“This is a very real threat,” Brian Dodge, a senior executive vice president at the Retail Industry Leaders Association, said Wednesday morning at a session titled “The Future of Retail in the Trump Era.” “The impact on the industry and their consumers will be profound. There’s no messing around.” He said he’s not seen the industry and big and small retailers this united in their view about one issue.

While supporters in the House say the tax change would spur manufacturing—and manufacturing jobs—in the US, Dodge argued that the retail industry is the largest U.S. private employer, employing 42 million with 13 million other jobs in areas supporting the retail industry.

“Made in America ideally is a wonderful thing,” said Matthew Rubel, a board member at retailers including Lord & Taylor parent Hudson’s Bay Co. and home shopping network HSN. “In the apparel, shoe and home furnishings industry, you can’t make it in America. Ninety five percent of cut and sew (goods) are imported. Rebuilding that infrastructure and with pay rates that one would want, it will make goods out of range for 50% of consumers.”

Gilbert Harrison, chairman of Financo, a New York investment bank specializing in retail and consumer goods industries, echoed that there are no manufacturing facilities left in the U.S. to support making apparel and home furnishings for U.S. consumers. He said his firm was asked several years ago to help find manufacturing facilities in the southern US to make a domestic linen line under Oprah Winfrey's brand name.

“We searched high and low and we couldn’t find any factory to produce that,” he said.