U.S. retailers bet on Congress over Bolivia to thwart Trump border tax issue

0


A customer pushes his shopping cart during the Black Friday sales event on Thanksgiving Day at Target in Chicago, Illinois, U.S., November 24, 2016. REUTERS/Kamil Krzaczynski
Customer
pushes his shopping cart during the Black Friday sales event on
Thanksgiving Day at Target in Chicago

Thomson Reuters

By Nandita Bose

CHICAGO (Reuters) – Target Corp , Wal-Mart Stores Inc and other
retailers are shelving considerations to move supply bases closer
to the United States in the face of a possible border tax,
banking instead on killing support for the tax idea in Congress.

President Donald Trump’s push to impose a tax on imports, such as
the 20 percent levy initiated by House Republicans, could raise
U.S. consumer prices by as much as 25 percent, industry officials
said. Last week, the President said he favored an ‘import tax’
that could be adjusted to reflect the country of origin’s tax
rate for U.S. products.

The decision by retailers to forestall supply chain investment in
countries such as Bolivia and Romania to focus on lobbying
Congress shows how Trump’s ambitious agenda has instilled a new
level of risk operating outside U.S. borders. But the vagueness
around the tax proposals and whether they may ever be implemented
means retail industry executives are still not willing to change
their operating infrastructure.

The Retail Industry Leaders Association, which is leading the
industry lobbying effort, has conducted 140 meetings with
lawmakers since December, focusing on the costs of a new tax and
encouraging lawmakers who oppose the tax.

Prospects for a quick passage of a tax bill took a hit last month
when the Republican attempt to overhaul the national healthcare
law failed to get a vote in the U.S. House of Representatives.
Trump and Republican leaders have said they still intend to pass
a healthcare reform law first, casting further doubt on when
Congress may consider tax reform.

The border tax proposal likely will be “as messy as the
healthcare bill,” according to Brian Dodge, senior executive
vice-president of public affairs for the retail lobby group.

Target, for one, thinks the industry’s lobbying efforts are
succeeding.

“We are working on educating lawmakers and President Trump hasn’t
embraced it yet, so we definitely think we are making progress,”
a senior company official at Target said on condition of
anonymity.

There is good reason for retailers to fight the tax idea. RBC
Capital Markets forecast such a levy could reduce profits of six
large U.S. retailers by as much as $13 billion in its first year,
with Wal-Mart alone seeing its federal tax bill jump to $16.6
billion from $6.6 billion. For a graphic please click
http://tmsnrt.rs/2oVlOPB

Best Buy Co Inc , which relies heavily on electronics imports,
could see its earnings completely wiped out, RBC warned. Best Buy
declined to comment.

Firms with less exposure to overseas suppliers – ranging from
off-price chains like TJX Cos and Ross Stores to cosmetics seller
Ulta Beauty – would feel less impact than heavy importers like
Wal-Mart, Target and Costco Wholesale Corp , analysts and
consultants said.

TJX Companies and Ulta Beauty declined comment. Ross Stores and
Costco did not respond to requests seeking comment.

Steve Osburn, director of supply chain for retail consultancy
Kurt Salmon, said it is more cost effective to spend on lobbying
than on supply chain relocation at this point. Retailers also
have other investment needs, especially around winning consumers
who want to shop from home.

“They are putting a lot of money in e-commerce initiatives to
compete online so there are not a lot of funds to spare,” he
said.

One outlier is luxury handbag maker Rebecca Minkoff, which sells
its own products and supplies other retailers, like Nordstrom Inc
and Amazon.com Inc .

The prospect of a U.S. border tax factored into its recent
decision to supply U.S. customers from Europe as it mitigates
logistics costs to supply to the United States, according to Uri
Minkoff, the firm’s founder and CEO. “The process has intensified
in the past six months,” said Minkoff.

WHERE THE SUPPLY CHAINS ARE

The decision to bank more on the lobby effort to kill support for
the tax idea comes after retailers spent the last few months
considering whether to move some of their production to supply
bases like Bolivia, Brazil and other South American countries
with low wage rates, as well as European countries like Hungary,
Bulgaria and the Czech Republic, industry sources told Reuters.

A return to the United States was also a consideration, the
sources said.

Shifting production from existing supply bases like China is
costly, may involve intellectual property issues and disrupts
long-term supply contracts, making it hard to plan and execute
such moves, two industry sources said.

Consultants have told retailers they could mitigate shipping
costs enough to offset any border tax, while avoiding the cost of
moving production into the U.S, the sources said.

But so far they are not proceeding with major supply chain
changes, according to retailers and industry consultants.

“Wal-Mart is not ready to spend money to deal with this,” said a
supply chain consultant who works with the retailer but requested
anonymity for fear of disrupting the firm’s relationship with
Wal-Mart. Wal-Mart has reviewed its options with supply chain
consultants, but has not yet commissioned a concrete contingency
plan, sources with direct knowledge of the matter said. Wal-Mart
declined comment.

Executives at smaller retailers and brands like Samsonite, Crate
and Barrel and Steve Madden said there is little competitive
impetus for action because they believe a border tax would hurt
them and competitors equally.

Samsonite was studying reviving its U.S. manufacturing base, but
is not close to taking action.

“Setting plans (based) on policy proposals that are yet to be
implemented is not right,” Samsonite Chief Executive Officer
Ramesh Tainwala told Reuters. Minneapolis-based Target is
limiting itself to conducting feasibility studies. “We just don’t
want to get ahead of ourselves and invest capital,” the Target
official said. Target declined comment.

(Editing by David Greising and Edward Tobin)

Read the original article on Reuters. Copyright 2017. Follow Reuters on Twitter.

Click to read the full article from the source HERE

Business Insider

Comments

comments

LEAVE A REPLY