Roland Mouret RTW Fall 2017

LONDON — Just as Britons had begun to adjust to the uncertainty surrounding the country’s exit from the European Union, a new sense of disquiet has begun to settle like a wet wool blanket over businesses here, and on the continent.

British Prime Minister Theresa May triggered Brexit late last month, raising yet more questions about future trade agreements, border taxes and foreign labor. But now on top of that, brands and industry figures are grappling with a whole new set of fears — this time from across the Atlantic.

The Trump administration’s threat of a 20 percent border adjustment tax on imports to the U.S. and the suspension, as of April 3, of fast-track processing of the American H-1B visas for skilled workers are not only vexing designers and industry figures — they could change the complexion of international fashion for years to come.

Emma Davidson, the owner and chief executive officer of Denza, a London-based recruitment firm that specializes in design and non-design roles, said some of her candidates are getting cold feet about pursuing opportunities in the U.S. She’s also concerned about placing people at American companies because of the new visa complexities and the delays associated with them.

“We were talking about business development within the company recently and we just said, ‘Right, let’s forget America for the time being, it’s not worth it.’ We are incredibly busy with the U.K. at the moment and we’re looking at new markets. We’re not even going to bother with America because there’s too much that’s undefined,” Davidson said.

She believes the consequences of the visa difficulties could be game-changing for the U.S. fashion firms and schools that regularly look to Europe for talent to fill their design studios and faculty rosters.

“There’s some great American talent — don’t get me wrong — but a lot of the big American companies rely on the Europeans. Knitwear designers, the best ones, come from the U.K. What’s going to happen? The whole world comes here for knitwear designers, and for men’s wear, and tailoring. For women’s wear they look to the U.K. and to France,” she said.

Davidson isn’t alone in mulling the consequences of a more protectionist America.

Los Angeles Apparel Co. Dov Charney

According to Trump, border taxes would urge companies to create local factories and generate more jobs within the U.S.  Kari Hamanaka

In an outlook report for 2017, Euromonitor said the proposed trade tariffs and immigration restrictions could cause a downturn in the U.S. economy, with gross domestic product growth falling to 0.9 percent this year.

“On the global scale, Trump’s victory augments uncertainty in terms of U.S. foreign policy stances, such as trade wars with China, a wall with Mexico, involvement in multinational agreements and attitudes toward some of the EU policies,” the company said.

While some in the industry aren’t as concerned about the impact of the U.S. visa changes and Trump’s passion for protectionism, they acknowledge that anxiety — and caution — are hanging in the air.

“I’ve been meeting a lot of Europeans who are working in the U.S. And vice versa. I think there’s uncertainty for sure, for example around Brexit and more generally about the challenges for globalization against increased sentiments of nationalism,” said Caroline Pill, vice president of global executive search at Kirk Palmer Associates.

“This is a time of insecurity, so people might be a bit more cautious; they may insist on more guarantees before moving. But I don’t think it will stop anything. Talent is talent, if you want it you’ll make sure you get it. Unless the anti-immigration sentiments make obtaining a visa virtually impossible, I strongly believe that talent will continue to move.”

It’s not just visa woes that spook Europeans and others. There is also the threat of a border tax, promoted by Trump and the Republican-controlled Congress as a potential way to promote local manufacturing in the world’s biggest fashion market.

Trump told Reuters in February that he supported a “form of tax” on the border. “Companies are going to come back here, they’re going to build their factories, and they’re going to create a lot of jobs and there’s no tax,” he said. Following the defeat of his plan to overturn Obamacare, Trump has been less vocal about a Border Adjustment Tax and some Republicans have backed away from the idea.

Still, while nothing has been confirmed, European exporters are obviously concerned about a potential 20 percent charge on their exports to the U.S.

The French-born, U.K.-based designer Roland Mouret is now mulling moving some of his production to the U.S., one of his largest and fastest-growing markets, in order to circumvent the tax.

“I want to see if the facilities exist in America and if I can find production that is equal to what we have in Europe, as the U.S. stores are still going to have certain expectations of price and quality,” said Mouret, who produces 70 percent of his collections in the U.K.

In an interview, Mouret said finding and supporting local production was exactly what he needed to do when he opened his business in London. At the time, French and continental factories were too expensive.

“In the Nineties, we were coming out of recession, the pound was really low, like now, and we had to really find a way to exist. We took a chance to produce in England, but we had to make it happen. I think the problem is similar now — just in a different place.

“I think American designers have bigger problems than I do because most of American contemporary clothing is made in China. I really want to see how the middle American market is going to consume in America if there is a 20 percent charge on the Chinese-made products,” he added.

While fashion manufacturing still exists in the U.S., with brands such as Creatures of the Wind, Rag & Bone, The Row, Yeohlee, Nicole Miller and Baja East producing all or part of their collections locally, it is a shadow of what it once was before the big clothing companies shifted production offshore.

There are efforts to bring back manufacturing, albeit on a small scale. In February, New York Mayor Bill de Blasio revealed plans to construct a Made in New York Campus at Brooklyn’s Bush Terminal for the garment, film and television industries.

A visual from the Made in New York latest campaign featuring Rony Vardi of Catbird. 

Despite these efforts, most observers say it’s unlikely that large-scale garment manufacturing could ever make a comeback.

Emanuel Chirico, ceo of PVH Corp., which owns brands including Tommy Hilfiger and Calvin Klein, and licenses many others, last month said a border tax would be punishing for lower-margin businesses, and that the economics do not exist to bring apparel jobs back to America.

“Calvin Klein Collection suits at $2,500 could be made potentially in the U.S. But the moderate priced $500 suit? You can’t make it here. Sure, we can develop it over time, but because we are competing with such low-wage countries, it’s not really what we want to develop for our workforce,” he said.

Peter Ackroyd, a U.K.-based textile and manufacturing veteran and chief operating officer of The Campaign for Wool, believes it’s far too late to bring back apparel manufacturing on the sort of scale that Trump dreams of.

He said Trump is seeking to protect “a nonexistent industry” and pointed out that, with American men’s wear, many garments are now manufactured and imported from Canada thanks to the North American Free Trade Agreement, which Trump also wants to renegotiate. “I really don’t see it all coming back to places like the Carolinas or Chicago. It’s just not going to happen,” Ackroyd said.

Paul Alger, director of international business development at the U.K. Fashion & Textile Association, said he finds it interesting — and not completely surprising — that the Trump administration would want to kickstart manufacturing in the U.S. At the same time, he concedes it won’t be easy.

“For the States to suddenly go from having very little manufacturing to having a lot of manufacturing is going to take a long time. Also, the stress points are all around investments and manufacturing, but also around the skills. That’s the big issue that the U.K. still struggles with. Once these industries have gone, once you’ve lost the skills and the support it’s very difficult to regenerate them.”

Alger said most U.K. manufacturing companies are importing huge amounts of labor — a lot from Eastern Europe — with the skills to make quality garments. “The number-one issue for most of the manufacturers is access to skills,” he said.

Even when the local knowledge and skills are there, there are those who believe that “Made in the U.S.A.” adds little value, and that it’s not worth the effort to source there — with or without a 20 percent border tax.

A few years ago, Alexander Lewis, an American-Brazilian designer based in London, tried to shift some of his production to the U.S., but it didn’t work.

Lewis, who shut his brand late last year, had attempted to produce cashmere knitwear in Los Angeles, rather than the U.K., because the majority of his sales were divided between L.A. and New York, with retailers such as Barneys New York and Saks Fifth Avenue.

Alexander Lewis RTW Fall 2016

Alexander Lewis RTW Fall 2016  James Mason

“It didn’t make any difference at all. First of all, the prices were just as expensive, if not more expensive, than production prices in the U.K.,” Lewis said. The final sting came when the U.S. stores ended up placing fewer orders than in the past.

“’Made in the U.K.’ was still attractive to them and the knitwear that I made in the U.K. had such a different feel to it. So many American brands use that same factory, so the buyers were familiar with that handwriting,” Lewis said.

He believes the proposed border tax would have little impact on luxury goods purchases in the U.S.

“In the immediate future, the prospect of the import tax is a bit scary, but it doesn’t stop people shopping in other countries where these tariffs already exist, and probably in a higher rate than the U.S. I do think that Americans are still going to buy luxury.”

He pointed out that Brazil “imposes a 100 percent import tax on luxury, but Brazilians who can afford to buy luxury, do. If they need a dress for the weekend, they’re just going to buy it,” he said.

There are others who believe that while the big brands will quickly adjust to changes and absorb any extra costs, the smaller ones will inevitably suffer from the proposed tax.

Earlier this year, Bernard Arnault, chairman and ceo of LVMH Moët Hennessy Louis Vuitton, was quick to make concessions following a meeting with Trump.

Arnault said he was considering expanding his San Dimas, Calif., factory, and building another facility either in North Carolina or Texas. The San Dimas site, opened in 1990, includes two leather goods workshops. Each Louis Vuitton workshop, whether in France or overseas, typically employs around 250 craftsmen.

By contrast, Malene Oddershede Bach is a small London-based ready-to-wear designer known mainly for her dresses. She derives most of her business from the U.S. and was already concerned about having to raise her prices due to higher sourcing costs from the weaker pound. Now she has to factor in the potential U.S. border tax.

Malene Oddershede Bach's Spring 2017 collection

Looks from Malene Oddershede Bach’s spring collection.  Courtesy Photo

She’s concerned that moving production to the U.S. would raise issues such as lack of quality control. “My brand has been built around the ‘Made in England’ factor, which allows us to quality-control all production, maintaining the highest standards of manufacturing,” Bach said.

Given the current climate, she cannot rule out the idea of producing locally in the U.S.

Maria Lemos, director at Rainbowwave, the showroom that represents brands such as Raquel Allegra and Gabriela Hearst, said she feels for the smaller brands.

“Major fashion houses can either try to absorb some of the costs to minimize the impact on pricing — or simply accept the increase. For smaller U.S. designers and emerging brands, higher costs could be hugely detrimental, and may see them source materials and production [locally] and that could ultimately jeopardize their whole design ethic or concept,” she said.

She said a border tax could also lead to a global price increase of product — leading to myriad other problems.

“Pricing has also become much more of a sensitive issue over the last few seasons and the vast amount of visibility online has made it a challenge to align. Increased tariffs in the U.S. will affect retail pricing globally, which could result in resistance from the end consumer and ultimately see buyers placing smaller, more cautious buys until the market becomes more stable,” Lemos added.

Maria Kastani, whose eponymous sales showroom represents the likes of Turkish accessories label Mehry Mu, British up-and-comer Alice Archer and jewelry designer Katerina Makriyianni, said that, so far, British designers have been benefiting from the depreciation of the pound against the dollar, which has encouraged U.S. buyers to place more orders.

“An increase in import tariffs might offset that advantage. Additionally, the increase might have direct impact on sales quantities. Overall, it will be up to the relationship between the store and the brand to find the right formula. Surely young and upcoming designers will have less negotiating power,” Kastani said.

She remains positive, though, that artisanal labels with a strong identity, a story behind them, and the right price point can establish an emotional connection with the buyer, and will continue to thrive.

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