• The Trump tax plan — Reducing the corporate tax rate from 35% to 15% and eliminating the corporate AMT (alternative minimum tax) will prove to be a boon to retailers, boosting profits and shareholder value. Also in the plan is the allowance of billions of dollars earned offshore to be repatriated at a one-time tax rate of 10%. This offshore cash influx should allow companies to make significant investments they might have otherwise postponed or not considered.
For individuals, the tax plan will put more disposable dollars into consumer’s pockets by lowering rates, increasing deductions and eliminating the Obamacare surcharge. I think we can score the tax plan as “good for retail.”
• Bringing back jobs and global trade — Understandably, bringing back jobs sounds great to those who have lost their manufacturing jobs to China, Mexico and elsewhere. The reality is that, for the most part, manufacturing will not be returning to U.S. shores anytime soon. Labor costs are just too high for most consumer goods and apparel manufacturers to come back to the U.S. With incentives, some higher-end products, for which labor makes up less of the cost of the product, could see an uplift in “Made in the USA” — but most of these jobs will remain where the cost of labor is cheap.
On a related note, keeping our trade partners honest on their agreements is a good thing. But rolling back trade deals seems like a real possibility, and this should be viewed with trepidation. Free trade is the best policy for retail and apparel companies that source products from outside the U.S. as well as for those who have expanded retail brands and stores into foreign markets. If tariffs, quotas and a protectionist mind-set creep into our trade policy in order to protect U.S. jobs, this would be a setback for retail and apparel companies. It could put international expansion plans at risk and disrupt sourcing and supply chains.
On the campaign trail, candidate Trump promised many things. How they get implemented could become problematic for the industry.
• Infrastructure improvements — Investments in transportation and infrastructure will have a significant positive impact on the apparel industry, which imports most finished goods from overseas. U.S. ports today have become one of the biggest bottlenecks in getting goods moved through the supply chain. A good example of this issue can be seen in the Gerald Desmond Bridge at the Long Beach Port, which has been in need of replacement for years even as the volume of truck traffic from the ports has increased. This may count as a potential win for the industry.
• National Labor Relations Board — I don’t remember this being discussed much during the campaign, but a lesser-known benefit for retailers is the Trump administration’s ability to appoint, with Senate ratification, the five members of the NLRB. This New Deal-era institution was put in place to act as an arbitration entity, interpreting and settling labor law complaints dealing with workers’ and management rights. The five-member board typically issues rulings based on party lines. During the Obama administration, the board’s rulings tilted heavily in favor of labor unions. To illustrate this point, the NLRB’s 2014 ruling on Micro-Unions landed in favor of allowing unions the ability to establish a union within a department of a store, and not the entire store. This allowed a few employees in the cosmetics department, for example, to form a union and act as a bargaining unit against management. It’s a safe assumption that a Trump administration would appoint a more management-friendly NLRB. This would be another positive impact for retailers.
Three out of four positive Trump administration impacts for the retail and apparel industry is a pretty good batting average. Add to that the real possibility that Obamacare will be repealed and replaced, and an easing of regulations, and there’s a chance we might begin to see significant GDP growth and an economic rising tide lifting all retail boats. All of this is speculative, of course. We don’t really know what a Trump administration will do, but the prospects for retail look pretty good from where I’m sitting.
Isaac Krakovsky is a partner with global strategy and management consulting firm A.T. Kearney. Based in New York, he is focused on the retail sector and can be reached at Isaac.firstname.lastname@example.org.