Kohl’s, the retailer introducing Nine West shoes and handbags to its department stores, is simultaneously bracing for potentially higher costs as the Trump administration considers including apparel in its latest round of tariffs on Chinese imports.
The 25 percent duties on $200 billion of goods shipped to the U.S. from the world’s second-largest economy are the focus of hearings by the Office of the U.S. Trade Representative this week and next. If approved, they would be added to surcharges on $34 billion of Chinese products already in effect, with duties on another $16 billion slated to start this week. Trump has also threatened an additional $250 billion of imports, effectively taxing everything the U.S. buys from China.
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“The tariffs haven’t yet been applied to apparel,” Kohl’s Chief Financial Officer Bruce Besanko told investors and analysts on Tuesday, “but we’re obviously monitoring the situation closely.” Executives are conferring with vendors and reviewing company’s supply chain to determine the potential impact, which Besanko said should be curbed by a diverse manufacturing base.
The Menomonee, Wis.-based retailer’s bottom line, like those of many competitors, hasn’t shown significant harm yet from Trump’s global trade war. Its profit grew 40 percent to $292 million, or $1.76 a share, in the three months through Aug. 4. That topped the $1.64 average estimate from analysts surveyed by FactSet.
Total sales climbed 4 percent to $4.57 billion, led by growth in men’s and women’s apparel as well as footwear, Chief Executive Officer Michelle Gass said. Separately, Kohl’s reached an agreement with Authentic Brands Group to add Nine West products – including a new clothing line – to its stores by July 2019.
“Our results for the second quarter exceeded our expectations on both the top and bottom lines,” Gass said on an earnings call. “The strategies we put in place are accelerating our performance, while the teams continue to manage the business with great discipline.”
The next six months, however, may prove more challenging if Trump adds further tariffs against both allies and competitors and they continue to retaliate. Large, publicly traded companies will likely weather the rising supply costs and reduced overseas sales more easily than smaller, newer firms, economists say.
The tariffs will “create a temporary drag” on the U.S. economy by the end of the year, with growth slowing to 2.7 percent in the three months through December from a previous projection of 3.1 percent, predicted Seth Carpenter, an economist with Swiss lender UBS.
Duties on steel and aluminum have already disrupted American trade with allies like Europe and Canada, business executives say, and automakers have lined up to contest duties on cars and parts.
“The ongoing trade war puts at risk the economic momentum achieved through the administration’s tax and regulatory reforms,” the U.S. Chamber of Commerce said in a regulatory filing opposing the latest Chinese duties.
A study from the National Retail Federation and the Consumer Technology Association noted that tariffs on just a tenth of Chinese imports may trim $3 billion from the U.S. economy and eliminate 134,000 jobs, the Chamber noted.
While the Trump administration “has attempted to assure Americans that it has a strategy to resolve trade frictions with China without excessive collateral damage to U.S. economic interests,” the chamber said, “these assurances lack the coherence that would provide comfort to those businesses, farms and workers whose livelihoods are being put at risk.”
