Here's What Really Scares Retailers in 2017 - eMarketer

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Here's What Really Scares Retailers in 2017

Worry about 'hidden value-added tax'

January 23, 2017

Retailers are paying close attention to many potential policy changes that may come along under the new, GOP-controlled Congress, but one in particular that has them on the edge of their seats.

Retailers are concerned about the border-adjustment tax proposed by House Republicans as part of a broader tax reform plan, said David French, senior vice president of government relations at retail trade group the National Retail Federation (NRF). Supporters in the House say the tax change would spur manufacturing—and manufacturing jobs— in the US.

(President Trump has criticized the border-adjustment tax as overly complicated as compared to his proposed import tariffs.)

In an interview with eMarketer, French described the change as "a hidden value-added tax." Under the House plan, companies like Nike that import sneakers would not be able to deduct the cost of the shoes they import, French said.

In a statement, the trade group said that "retailers would be taxed at nearly the full selling price of imported merchandise rather than just their profit."

The border-adjustment tax and its potential profit implications was a key discussion point at the recently-concluded annual NRF "Big Show" convention in New York, where attendance topped 35,000.

The tax change probably led to "a lot of changes in the value of the dollar, the prices of imported goods in the US," said Federal Reserve Bank of New York President and CEO William Dudley in a keynote speech at the event. "I also think there could be lots of unintended consequences."

So far, retailers seem to be taking a wait and see approach. (But it is worth noting that, whether by design or coincidence, a number of retailers, including Walmart and Amazon, have announced plans in recent days to add jobs in the US.)

If the change occurs, industry strategists generally expect costs would be passed on to consumers.

"Most retailers would consider (making or buying in) the US option if it's there," French said. But, he noted, in some categories, like apparel, there is very little manufacturing left in the US. "It's not price competitive."

The tax plan is not the only item on retailers' watchlists. They are also interested in the fate of Trans-Pacific Partnership trade pact, which aims to lower tariffs among the US and 11 other nations. President Trump has said the US will withdraw from TPP.

"It's imperative we have TPP," NRF's French said.

—Andria Cheng

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