President Donald Trump’s “Liberation Day” tariffs have sent fashion’s C-suites to the war room.
Right now leaders are still planning, taking the lay of the land, exploring their options and re-running their numbers.
But if Trump’s dramatic bid to remake global trade sticks for any length of time — adding a 34 percent tariff on goods made in China, a 46 percent levy on Vietnam and more — there are few business plans in retail and fashion that won’t have to be thrown out.
Luxury goods might fare better than more price sensitive products, but a fallout in the economy would hit everyone.
And so Wall Street tanked for a second straight day on Friday, sending the S&P 500 down 6 percent to 5,074.08 — forcing a market correction of 21.2 percent in just six weeks.
The megacap consumer stocks — Amazon.com, Alibaba, Procter & Gamble Co. and Walmart Inc. — collectively lost more than $161 billion in market capitalization on Friday.
Hopes that Trump could cut a deal with Vietnam, which proposed bringing their own tariffs on U.S. goods down to zero, helped Nike Inc. and Lululemon Athletica recoup some of their losses from Thursday.
But plenty of others fell further. TJX Cos. Inc., Simon Property Group Inc. and Estée Lauder Cos. Inc. gave up a total of $7.9 billion in the market.
As action-oriented as retailer’s high-powered C-suites tend to be, consultant Sonia Lapinsky, a managing director at AlixPartners, said chief executive officers need to sit on their hands a little while longer and see what happens next.
“They shouldn’t be reacting and doing things just yet, but they better be doing some scenario planning,” Lapinsky said. “They better figure out what their options are and what they could do depending what happens. This is major. This is not the 5 percent to 10 percent [tariff increase] that we were talking about before.
“No way we think we can just pass all the price along” to shoppers, she said. “That’s not going to happen at a point where consumer confidence is at the lowest in 12 years. Many retailers we’re talking to have had their worst months in February and March than in many years.”
Instead, retailers need to get a real feel for the market right now so when they do start to adjust, they can move with some surety.
“We need a tariff war room,” Lapinsky said. “We need a command center where the data is available and we start to build real projections on real data and are ready to make these decisions when we have to make these decisions.”
When retailers do move, Lapinsky said they’re likely to start to cancel and delay orders from vendors as they look at “their entire margin profile.”
Brian Ehrig, a partner in Kearney’s consumer practice, said the industry was in a state of “shock and awe” on Friday.
“You can’t just lift a factory out of Cambodia because you don’t like the tariffs, because you’ve got to find somewhere else that can make it, you’ve got to qualify them. We can’t forget that they also need to take care of human rights and all these other things. Half a year is probably the best case to reposition something.
“But would you even want to do that right now before the inevitable — at least what I think is the inevitable — bilateral negotiations happen?” he said.
Companies are also going to have to start listen more closely when Trump talks.
“One of the things that we’ve been encouraging clients to do since Trump won the election is to take seriously what he has to say about foreign policy,” Ehrig said. “He’s told us what he planned to do, and he’s pretty faithfully, whether you like it or not, he’s executing against that plan.”
Fashion players all along the supply chain are going to have to figure out where they fit in that plan and how they will work together as it and the economy evolves.
While there already have been a lot of price increases in luxury — with pushback from consumers in some cases — retailers think prices could still go higher without any resistance from customers.
One chief executive officer said that while the European luxury brands face a new 20 percent tariff, not as much of it will pass through as some think.
Instead of importing a $1,000 handbag and paying an additional $200 at the border, leading to a $2,400 retail price, brands are bringing the bag in at $800, paying $160 extra and transferring it to their U.S. subsidiary at something closer to $1,100.
That would equal a $2,200 retail price.
“You’re probably going to end up with a 10 percent price increase,” the CEO predicted of luxury goods made in Europe. “If you look at retail prices over the last couple of years, they’ve gone up 10 percent a year. If everything else was equal, you’re not looking at the luxury consumer even really flinching.
“The bigger problem for that business right now is the market itself and the uncertainty and the fact that this is an actual trade war,” with China now retaliating with a new tariff on U.S. goods.
Even so, that won’t be true for everybody and tension in the system will only grow as both supply and demand get disrupted at the same time.
“Brands will have to absorb the tariff costs for the next three to six months,” said Gary Wassner, who as CEO of Hilldun Corp. helps finance orders designers send to retailers. “Those goods have already been sold to the retailers but not yet delivered to the brands. Their only option is to go back to their suppliers and bargain with them.
“The problem is that presidential policy is so unpredictable,” he said. “There is a bit of wait and see. But everyone must weigh their options should this trade war linger on. The uncertainty is not healthy for the economy. Everyone is in a frenzy. If consumers pull back on spending out of fear and uncertainty, retail will suffer, which will impact how fast they pay vendors. The brands will suffer the most. We will see quite a few failing.”
For now, both retailers and vendors seem watchful, careful not to make any big moves that can’t be undone.
“We’re being told it’s business as usual from the big brands,” said Bob Mitchell, co-CEO of Mitchells Stores. “We haven’t seen any reactionary moves. It’s just too early. Brands are all still honoring their pricing.”
Tariffs aside, prices inched up some 3 to 5 percent over the past few seasons without customer backlash.
Besides the tariffs themselves, there’s the impact that such a broad-based change in trade policy will hurt the economy.
But what is concerning to both him and his vendors now is the impact of tariffs on the macro economy. “If it puts us into a recession, people will buy less,” Mitchell said.
Ken Giddon of Rothmans in New York agreed.
“Consumer confidence and what they feel about their lives is more important than tariffs,” Giddon said, adding that 8 percent of wealth “evaporated in two days. That’s a bigger deal than 10 to 20 percent tariffs.”
Even so, tariffs still bite and Giddon said 95 percent of his assortment is imported. He has spoken to a few vendors and the consensus is that if the tariffs stick, hopefully the costs can be split.
Giddon said he’ll decide on a “case-by-case basis,” however, if he’ll play ball with the vendors. “No one is stepping up for me when I have problems, but we’ll see.”
The wave of tariffs is big enough to get almost everyone soaking wet and it could also bring partners closer together.
Carolyn D’Angelo, who oversees the Nicole Miller brand as senior managing director of brand operations at Gordon Brothers, doesn’t have the burden of producing apparel, but has to work with the licensees who do.
“They’re the ones that are figuring out, ‘How am I going to make this product, keep the integrity of the product, keep the design of the product, keep the look, feel, but offer a really good value to the consumer?’” D’Angelo said. “It’s working really closely hand in hand with them. We don’t exist without our licensees or our retail partners. So we are doing a lot of listening. We are doing a lot of meetings with our licensees to figure out how all three can win in this.
“It’s the brand owner, it’s the license state, and it’s the retailers,” she said. “The three of us really have to be working together because we all need that end consumer to buy our product.”
