The owner of Calvin Klein and Tommy Hilfiger has warned that a full-blown trade war between the U.S. and China could lead to price hikes across the fashion industry and that moving production to other countries might not be the answer.
“If there are broad-based tariffs across all Chinese production, I think it’s going to put pressure on the entire industry to raise prices,” Emanuel Chirico, chairman and chief executive officer of PVH Corp., told WWD.
After already slapping China with $50 billion worth of tariffs, the U.S. is gearing up to target another $200 billion worth of items with additional 25 percent levies, including many consumer-facing products such as handbags and travel accessories, but so far apparel doesn’t feature heavily on the list.
However, that could change as President Trump has threatened to impose levies on all Chinese imports if the U.S. is further provoked, which according to Chirico, is far from the best approach, although he still believes China’s trade practices are a problem that needs to be dealt with.
“We are not supporters of tariffs as the main weapon in trade negotiations,” he said. “Clearly, China needs to be addressed and we think having a cohesive global perspective bringing together Canada, Mexico and Europe to confront China about the trade issues that every country has to deal with, we think is the best way forward as opposed to the U.S. having a one-way tariff war with China.”
He also raised questions over whether China’s competitors have the capacity to take on additional production if a lot of companies try to move production in the case that the trade war worsens.
“Supply is pretty full right now globally and to think that there’s just excess that could pick up China is a mistake,” he said, adding that manufacturers in these competitor countries are likely to also increase prices if more Chinese tariffs come into play. While he believes these price increases would be less than the tariff rate, it would still raise the cost of the product, which would lead to higher prices at the tills, hurting the U.S. consumer.
To date, the New York-based apparel maker, hasn’t seen much of an impact to its U.S. business from the trade war as consumer sentiment is so strong, but has noticed a slowdown in traffic in China over the past few months — which it has put down to concerns over the economy and the trade dispute, although Chirico reiterated that business was continuing to grow strongly.
His comments came as PVH, which also owns Tommy Hilfiger, released a stellar set of second-quarter results. Revenue increased 13 percent to $2.3 billion, while net income rose from $119.7 million to $165.2 million over the same period. Within that revenue, the Calvin Klein business was up 18 percent to $925 million and in the Tommy Hilfiger business was 15 percent higher at $1 billion.
All this helped PVH to push up its full-year forecast for earnings per share to a range of $9.20 to $9.25, from its previous expectation of $9.05 to $9.15, but that’s not to say there aren’t other risks on the horizon which have been factored into the guidance.
Apart from the trade war, other notable risks that PVH is monitoring closely are the turmoil around Britain’s House of Fraser’s and Turkey’s currency crisis, which spooked global markets earlier this month.
While both businesses are well below $100 million in revenues, Chirico said that “clearly they’re not at the same kind of gross trajectory that they were before the bankruptcy and before Turkey went into its latest crisis in the last 30 days.”
As for President Donald Trump mooting the idea recently of scrapping quarterly earnings in favor of biannual reporting, Chirico is not in favor of such a move.
“My general feeling is less reporting and less transparency is not a good thing. I don’t subscribe to the fact that quarterly reporting is the problem,” he said. “I think short-term thinking and short-term projections to drive results is a problem. But I don’t think we want to give investors less information so I would not be in favor of going to semiannual reporting.”