Mr.
Trump, President-Elect of the USA, will have an impact on the luxury market?
by Earl of Cruise
As United States President-Elect, Donald Trump, prepares to take office
next January. The luxury marketers will have to recalibrate their strategies
and wonder if the billionaire will keep all his campaign promises or threats.
Donald Trump during his CBS, 60minutes (Ger/Deutsch) interview - courtesy of CBS
Mr. Trump ran on the promise of change, as the self-professed political
outsider, post factum politician, vowed
to shake up established policies on the campaign trail. The campaign centered
on a protectionist platform, which may prove a challenge for global luxury
brands that rely on international production and trade. More so, a French, or
German luxury product is expected to be made in France or Germany, and not in
the US or China.
"Since Mr. Trump seems to
be a fan of everything for and in America, the European luxury brands might
face a challenge of increased tariffs on foreign goods, which will indirectly
result in a big drop in American revenues for these brands," said
Ambika Zutshi, CEO of Fashionbi, Milan. "However, he is also going to cut taxes and,
so, in the long-run, as the purchasing power of the people increases, perhaps
we can see an increasing trend back on the graph."
In his first interview after the election,
Mr. Trump spoke as if changed - he smoothed down. His first official nominees
are Stephen Bannon, which schocked even Republican, and as a counterpart
Reince Priebus ... and then there is still his daughter ... as adviser?
Family business?
In opposite to his vocals during his
campaign, Mr. Trump answered modest about free trade - something the
Republican party traditionally supported.
One thing is for sure - the banks will be
unleashed again, and with that will create high risk products ... and
certainly will create a new financial crisis.
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The US fashion industry is a supporter of TPP and TTIP, as trade as a whole
is impportant to producers and retailers of luxury goods. Most products are
made in specific locations (hopefully made in the country where the brand is
officially located - e.g. France) and then exported around the world. It is
damaging the brands position, if the production is changing to the US to avoid
import taxes.
But if the product is only left to an idea of luxury, or the
"spirit" of luxury, or laft as a image of ... then the brand can
produce whereever it wishes and do it the cheapest way. But that may be even
with high import taxes be China.
If these anounced import taxes will come, luxury retail prices will rise.
On the other hand the US home based producers have to rise the prices too, as
raw materials have to imported - over the years the expectations in quality
have risin to a very high standard. A piece of conolly leather has to be of
British origin. These new import taxes will definitely have a impact on the
luxury supply chain.
"Say bye to American luxury
companies making it in China or Mexico," Ms. Zutshi said. "It seems most of the brands would need to
make the product home-grown, which will ultimately increase the costs for the
company and hence the final price of the goods to a whole new level. This can
also mean companies laying off employees, closing stores and making such
adjustments to meet the target forecast," Ms. Zutchi further said.
"On the other hand, European and
other outside items will be imposed heavy taxes on and, hence, will result in a
drop in their revenue stream coming from American consumers, as well. As most
of the fashion luxury labels are coming from outside USA, mainly Europe, this
could be a disaster for the luxury sector, in general."
A survey conducted by YouGov for
GT Nexus before voters headed to the polls found that retailers fear more
difficulties, including higher costs for goods and more delays in getting
merchandise.
In addition to trade, Mr. Trump’s
proposed economic policies are expected to reduce the U.S.’ real GDP by about
4.7 percent compared to the projected forecast from 2017 to 2021, according
to Euromonitor.
Even with his proposed tax cuts
for the wealthiest, the predicted economic downturn may negatively impact the
affluent the most. Stock market drops and other declines in economic
activities mean that the population of those with disposable incomes of at
least $50,000 and total assets of at least $200,000 will grow more slowly
than it would have otherwise.
Sarah
Jones
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In a non-Trump economy, in which 42.4 million adults have been expected to
reach the level of affluence by 2020, a Trump presidency may mean that only 38.5 million will make this benchmark
in the same time period.
"If nothing else, Mr. Trump will
make bling acceptable once more," said Alan Behr, chairman of the
fashion practice at Phillips Nizer LLP. "Remember,
Trump’s idea of luxury is heavy on the gold gilding and plush carpeting of the
nouveau riche. The last time I was looking to buy an apartment, a real estate
broker offered me one in a Trump building, reminding me that they trade at a
premium to the market. He had to explain, 'Where I come from, anything with the
Trump name on it would have to trade at a discount to the market.'"
Having money, does not mean having taste
...
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Donald Trump and Nigel Farage, 2016, gleeful Chesire Cats
Shopping tourism, a main driver of inbound U.S. leisure trips, could also
be negatively impacted if trade is tightened. The vast luxury shopping malls in
Hawaii live from the shopping tourists from Asia. Trade fights will have an
impact on the travel industry and the retailers of luxury goods - with rising prices
the tourists stay off.
"A Trump victory could ignite
demand for status-symbol luxury brands that communicate, 'I'm rich and I've
arrived,'" said Marie Driscoll, CEO and chief consultant of Driscoll Advisors, New York. "With a promise of reduced tax rates across
the business and individual landscape, consumers will have visions of increased
discretionary income, and in the spirit of celebrating the season and providing
oneself with a just reward having endured this election process, this holiday
could see a jump in self-gifting and a move to luxury products from the
cautious spending behavior of the American middle class since the Great
Recession."
Retail sales, luxury demand and, recently, even casual dining have blamed
recent weakness on the U.S. population's preoccupation with the presidential
election. This holiday season the US market will begin to see whether in fact consumers
have been distracted or if a deeper issue, disinterest and/or lack of
discretionary funds are the culprits. We will know soon enough.
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