Australian brands selling clothes into the United States are set to face more cost and margin pressure after the Trump Administration increased its tariffs on imports to 12.5 per cent for a raft of countries – including Australia and New Zealand.
President Donald Trump cited modern slavery issues for the upped tariffs on 60 countries globally.
“The tariff rise is a real cost pressure for Australian brands and retailers, squeezing already-thin margins on top of higher freight and input costs,” Australian Fashion Council executive chair Marianne Perkovic says.
In the short term, Perkovic says the levers businesses must consider pulling are familiar ones. This includes reviewing supply chains and pricing, diversifying export markets, and leaning on efficiency wherever it can be found.
“While tariffs are the immediate headline, they sit inside a much bigger story: around the world, governments are actively legislating to protect and future-proof their fashion industries, and Australia risks being left behind.
“Look at what our trading partners are doing. France has introduced penalties on ultra-fast fashion, banned advertising for it, mandated country-of-origin labelling, and made producers responsible for the textile waste they create.
“The EU is rolling out extended producer responsibility for textiles across the board. These are deliberate policy choices to shield local industry, curb waste and reward businesses doing the right thing.
“So the real question is not just how brands absorb another tariff; it is what Australia is doing to build the same protections. If we want Australian brands to compete on a level field, we need the government to match the ambition our members are already showing.”
Bond-Eye Australia is one of a few Australian fashion brands that will need to navigate this next chapter. CEO Steve Philpott says the 12.5 per cent is just another cost the fashion industry needs to deal with.
“To be honest, the quoted grounds for it seem ludicrous,” Philpott said, referencing Trump’s reasoning for the upped tariff due to the modern slavery concerns.
“It’s another 2.5 per cent on top of the 10 per cent we are already paying and it will apply to everything we are making here in Sydney. It’s basically all of our Authentic Crinkle Bond-Eye Swim and Resortwear and with the US being our biggest market, we’ll feel it.
“It reinforces the need to be running a smart streamlined business with the right pricing and enough margin to absorb these things that randomly happen.”
Bond-Eye opened its first-ever store in the United States this year, in New York City. Before that, the brand was selling in the market via online and through stockists like Nordstrom and Bloomingdale’s.
Then there are other brands that have set down roots in other ways, including the likes of Showpo and White Fox launching warehousing within the US recently. And others still have strong footprints, including Lovisa which operates nearly 240 stores across the US – the largest share of stores than any other country, including Australia where Lovisa has over 180 stores.
RMIT professor Vinh Thai – whose remit covers supply chains and logistics – says even the 2.5 per cent tariff lift will mean Australian products will become less price competitive in the US.
Thai says the best way to look at it is through the concept of price sensitivity of demand. As an example, he names two different products: fresh milk and a premium smartphone. Fresh milk generally costs around $5, while the latest smartphone can cost around $1,000.
The theory goes that a small price lift on a smartphone is not really going to deter customers who buy these once every few years. Meanwhile, a price lift on fresh milk, which is generally bought once a week, could deter regular buyers, particularly in a tough economic environment.
“If we understand that concept, then go back to the question about whether or not a 2.5 per cent change is a lot or not, it depends. Because even in fashion, are we talking about fast fashion or are we talking about high class fashion?”
As for how to tackle the upped tariff, Thai says fashion brands selling into the US should already have plans in place to navigate it, given the tariff increases are nothing new, and that Trump had been talking about increasing tariffs on countries for the last year.
Thai says if brands still want to sell into the US, they may need to shift their business model. This may include establishing a local distribution centre in the country, so brands can send bulk orders into the country and pay less at the border than if they send over one-off items.
Brands could even establish long-term partnerships with local distributors or retailers, so they can ship over bulk orders.
“The other approach is you have to diversify your market,” Thai says. “Yes, the U.S. market is very big, but you have other potential markets as well. Don't forget about the EU, don't forget about some Asian markets, especially in the Middle East and Japan, Korea, China, and and even some South Asian countries.
“Don't forget that there is a rising class of middle income and high incomes people who normally would like to see and would like to buy some product with good reputation and high quality.
“Australian made is one of the more reputable trademarks in the world. Whenever we talk about Australian products, the immediate perception is that we are very strict in terms of quality, we are strict in terms of ethics, and we are strict in terms of social responsibility.
“There'll be a rising class of consumer who normally prefer to buy those sorts of product elsewhere, apart from the U.S. market. Diversification is something that firms will always need to think about.”
Thai adds that Trump’s latest tariff hike is not as surprising as it seems.
“This is not really new because we knew that it should be coming,” Thai says. Trump had proposed these tariffs earlier this year, with the Australian embassy lodging a formal objection to the proposed tariffs in early July.
“Since the U.S. President Donald Trump came into power for the second time, we have been seeing his decisions being made quite abruptly and sometimes with surprise.”
The RMIT professor says every change in a business needs to be from a mindset. The mindset today, he says, is that we are living in a world where geopolitical tensions happen more often.
“What this means is that when you manage your supply chain for your products, you always need to think about efficiency. But, compared to 5-10 years ago, efficiency alone is not enough now. You have to think about resilience as well.
“Apart from practising what you have been doing in terms of make your making your supply chain more efficient, you also need to implement measures in order to make your supply chain more resilient, so that whenever something wrong happens, you are not in a very passive, reactive position.
“That has to start with the mindset of the senior management, because if they do not have that mindset, then of course nobody else in their organisation will follow.”