Hugo Boss Warns on Impact of ‘Protectionist’ U.S. Policies

By Ben Stupples

Hugo Boss AG, the global fashion retailer, has warned of the impact of “protectionist” U.S. policies on the fashion industry, in a reference to the Republican Party’s border-adjustment tax plan.

The tax cuts President Donald Trump has pledged for businesses should have a “positive influence” on Hugo Boss’s financial growth over the next year, the Metzingen, Germany-based company said in its 2016 annual report, filed March 9.

“Protectionist tendencies may have a significantly adverse impact on the industry outlook, however,” it added on the fashion sector.

As part of his presidential campaign, Donald Trump promised an “America First” economic policy that would prioritize domestic jobs and penalize companies that send jobs overseas with import tariffs. However, it is his party’s proposal for a 20 percent border-adjustment tax in imports to the U.S. that has retailers around the globe most worried on taxes.

Backed by House Speaker Paul Ryan, the border-adjustment tax would apply to imported goods sold in the U.S., while companies exporting out of the country are exempt from the levy. The measure aims to tackle the “self-imposed unilateral penalty” for exports and subsidies for imports that currently exists in the U.S., according to the Republican party’s June 2016 tax reform proposal.

Hugo Boss’s press office didn’t respond March 9 to two emailed requests for clarification of the company’s comments about the impact of protectionist measures on the global fashion industry.

European Exposure

European clothing retailers and luxury goods companies—such as like Hugo Boss and LVMH Moet Hennessy Louis Vuitton SE—are at risk due to the importance of the U.S. to their business. In 2016, the Americas region accounted for 22 percent of Hugo Boss’ sales, according to its annual report.

In comparison to its European rivals, Hugo Boss is “significantly exposed” to the U.S., according to Cedric Rossi, a Paris-based fashion industry analyst at European investment bank Bryan Garnier & Co. Ltd.

“Like most luxury groups, they don’t produce locally, and they shut down their only plant close to Cleveland, so they would definitely be affected,” he told Bloomberg BNA in a March 9 telephone interview on the chance of Hugo Boss facing import taxes.

“But it’s the same for U.S. companies like Ralph Loren and Michael Kors, as all their products with regard to textiles are produced abroad,” said Rossi.

U.S. Business Battle

Among U.S. companies, the border-adjusted tax has pitted industry giants against one another, with retailers on one side and U.S. exporters on the other. Including Netherlands-based home furniture company Ikea Group, four retail industry executives met with Republicans in Washington March 8 to try to lure the lawmakers away from House Speaker Ryan.

Poor 2016 Profits

Partly due to weak sales in the U.S. last year, Hugo Boss announced March 9 a 17 percent drop in annual operating profits, to 493 million euros ($521.9 million), according to its annual report.

In the U.S., the company “parted ways” with wholesale partners who focused on discounting Hugo Boss products, which resulted in the company losing sales, and had a negative effect on its brand, Chief Executive Officer Mark Langer said in the annual report.

In the long-run, though, the company’s brand and business should benefit from the move, he added.

With assistance from Lindsey Rupp.

To contact the reporter on this story: Ben Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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