The "Border Tax Adjustment" In The United States Will Give A Heavy Blow To European Luxury Group.

According to the world clothing shoes and hats net, at the beginning of the new year, Europe

The market shows signs of recovery: the Chinese market has warmed up, the number of tourists to Europe has picked up, and even Swiss watches export volume has increased for the first time in 18 months in December last year.

However, the new US President Donald Trump (Trump) proposed "border tax adjustment", which may cast a shadow over the European luxury market.

As Trump took office, the US trade protectionism intensified, and Trump had made it clear that he wanted to impose a high "border tax" on local manufacturers who produced and sold their products to the United States overseas.

The US "border tax adjustment" (BAT) refers to a 20% tariff on US imports and a tax exemption for US exports.

Barclays (Barclays Bank) said that the "border tax adjustment" was designed to punish American companies that moved factories overseas to protect "made in the United States".

The European luxury group has expressed concern about the tax adjustment on the US border. Although they are in a better position than their counterparts in the US, the future "border tax adjustment" will hit the European luxury group at any time.

JP Morgan Cazenove (Morgan chase Ka Shing) analysts said European luxury groups are facing great risks because their average 20% sales come from the United States, but most of them are manufactured in Europe.

Many luxury brands derive from "origin manufacturing", such as luxury.

Urberry's windcoat is made at the factory in Yorkshire, England.

Therefore, for European luxury brands, the possibility of moving factories from the mainland to the United States to try to offset the value added tax is unlikely.

Serious blow

Below, the potential impact of "border tax adjustment" on European luxury group profits:

However, there is no way to deal with the "border tax adjustment".

First of all, the gross margins of these luxury goods groups are usually as high as 62% to 70%, which allows them to take on extra taxes instead of shifting tax pressure to customers. This is what they strongly want to avoid. In recent years, the demand for luxury goods has been very weak and has only recently recovered.

Below, the European luxury group's gross margin is:

Room for remission

The luxury group's gross margin is too high, which provides buffer space for us to cope with the "border tax adjustment".

However, with the implementation of the "border adjustment tax", if European brands have to raise their prices, it will be faster for consumers than buying.

Brand goods and luxury goods are worth choosing.

For some high consumption tourists, they will move from the United States to Europe.

For designer brands at the bottom of luxury goods in Pyramid, the pricing power may not be so large that these brands usually do not stick to production at a specific location.

The global luxury goods giant LVMH group's brand Louis Vuitton has some products in the United States.

After meeting with us president Donald Trump, chief executive Bernard Arnault said that the trend in the future would be even more obvious.

However, American brands, such as Michael Kors, Coach and Ralph Lauren, are mostly manufactured overseas.

In view of the problems facing these American brands, they are less likely to raise prices than European counterparts, especially for popular brands.

Consumers' preference for discount activities further supported retailers' resistance to the "border tax adjustment" (BAT).

For the sports brand of luxury group, the potential impact is very great.

The German sports brand Puma of KeringSA, a luxury group in France, has a relatively low gross profit margin of only 46%.

Such brands bear relatively little space for "border tax adjustment".

But on the other hand, they may also turn their sports shoes into the United States.

In view of this, the "border tax adjustment" may not be a bad thing for the European luxury industry after two years of turbulence.

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