How Will The Sino US Trade War Affect The Medium And Long-Term Profitability Of The Fashion Industry?

After the Chinese government took retaliatory measures against the latest round of tariff increases by the Trump administration, the US China trade war entered a full-scale combat stage in May 14th.

Beijing announced that it would start tariffs in June 1st on a range of US exports of a total value of US $60 billion, ranging from 5% to 25%.

According to the statement issued by the official website of the Chinese government, various target products, such as agriculture, metals, clothing and footwear, are on the list.

If things get worse, Chinese consumers will soon show their hostility towards the US.

In May 15th, Kang Hui, the anchor of the news network broadcast by CCTV, issued a 90 second statement on China's attitude towards trade war, and immediately spread to all social media platforms.

Kang said: "talk, the door is open, fight, stay in the end.

"This speech aroused public nationalism, and a large number of users expressed their support for the government's war against the United States.

At present, there is no concrete indication that this sentiment has been turned into a consumer's protest against us goods.

However, the experience of Korea and Japan, which has political disputes with China, can give us a lesson from us.

For example, in 2017, South Korea and China launched a geopolitical dispute over the issue of THAAD missile launches, which led Chinese consumers to boycott Korean products voluntarily, which seriously affected the Korean business community, from automobile manufacturing, hairdressing, fashion to tourism.

In an anonymous interview with Jing Daily, a marketing professional who worked for high-end American fashion brands admitted that the company was very concerned about the impact of the current dispute on Chinese consumers' brand enthusiasm and the possible adverse impact on the business.

Although the European luxury fashion company is not at the center of the conflict, it should also pay attention to the relevant events.

The escalation of trade tensions between the US and China has brought a new round of devaluation pressure on China's currency, which has weakened to its lowest level in nearly six months after China announced tariff increases.

In theory, the weakening of the renminbi can partly offset the effect of high tariffs.

Nonetheless, it also undermines people's purchasing power: This is bad news for luxury brands who rely on outbound Chinese tourists to grow their businesses.

Moreover, as trade wars have worsened China's economic growth prospects, many experts worry that this will add a new layer of uncertainty to the current unstable economic situation in China. No luxury brand can circumvent this influence.

So far, as the results of the first quarter profits of major luxury goods show, China's market is still exceptionally strong.

However, Mr. Dong, an international law firm, added: "it takes a couple of months for economists to measure and report the impact of this dispute based on trade data."

Therefore, for luxury brands, especially in the case of trade wars, it is urgent to establish the right strategies to cope with the potential weakness in China.

The effect has already appeared.

It has been reported that the Ralph Lauren group has fallen back into the North American market in the recent quarter, and even if the annual investment in the market has increased by 13%, it will not be able to pull the business back to a stable recovery track.

In the fourth quarter of 2019 fiscal year ending March 30th, the group's North American income dropped 6.3% to 708 million 400 thousand US dollars compared with the same period last year. The decline of 7% of the entity stores completely offset the 6% growth of e-commerce, resulting in an annual decrease of 4% in retail sales, and a 10% drop in wholesale income because of the unsalable sales and deliberately reduced discount sales strategy.

In recent years, Ralph Lauren Corp., Michael Kors and Coach have been trying to restore the high-end brand image and strive to get rid of the local mid-range department stores. At the same time, they are committed to strengthening investment in digital and social marketing to pursue millennial and Z generation consumers.

Capri Holdings Ltd. (NYSE:CPRI) and Tapestry Inc. (NYSE:TPR), which belong to the luxury group of Michael Kors and Coach respectively, have basically reversed their weakness. In contrast, the Ralph business in North America has increased only in the two or three quarter of fiscal 2019 over the past two years.

At the analysts' conference call, the group management admitted that in the fourth quarter, they focused on using fashion to attract young customers, but ignored core categories including cowboy products.

BlueFin Research analyst Rebecca Duval pointed out that regardless of the Ralph Lauren main line or Polo brand, the spring series used logo too much in design.

Ralph Lauren Corp. (NYSE:RL) has fallen 13.2% in the past eight trading days due to the sharp drop in trade between China and the US.

Jane Nielsen, chief operating officer and financial officer, revealed at a conference call that the group had 1/4 products purchased from China, and the products of Polo and Lauren series knitted sweaters, polo shirts and shoes shoes had been reduced.

Last Friday, the first round of US $200 billion tariff adjustment on Chinese goods was launched on the handbag of fashion fashion industry. Jane Nielsen said it had limited influence on the group.