global data retail 2016 election briefing

441 Lexington Avenue, New York, NY 10017

Phone: +1 718.708.1476Email: [email protected]: www.globaldata.comTwitter: @GD_retail

Election 2016 briefing

GLOBALDATA RETAIL

10 November 2016, Version 1.0

GlobalData: Election 2016 consequences10 November 2016, Version 1.0

02

Contents

Produced by GlobalData Retail

This white paper is produced and published by GlobalData Retail. Unless otherwise stated, all content is derived from GlobalData.

Copyright notice

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, GlobalData. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that GlobalData delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such, GlobalData can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.

441 Lexington Avenue, New York, NY 10017

Phone: +1 718.708.1476Phone: +1 212.634.7650

Email: [email protected]: www.globaldata.comTwitter: @GD_retail

02 Summary

06 US consumer views

11 US policy implications

16 The UK view

18 Further information

Page

SummarySection 1

04

Introduction

Not for the first time in his life, Donald Trump has stunned the nation and the world. His largely unexpected victory heralds political change of a kind that only comes once in a generation. Such change, by its nature, breeds uncertainty. Today people across America, and beyond her shores, will be asking one question: what does this mean for me?

In answering this query, business must take an objective view – separating the heat and and hyperbole of the campaign, and its immediate aftermath, from the realities that are likely to confront them.

In this paper we outline some of the impacts President-elect Trump and his administration are likely to have on retail over the short and medium term.


The quick viewKey points from the research

05

Summary

• The public is split on the economic impact a Trump presidency will have; however, most consumers share the view that not much will change over the the remainder of this year.

• It seems that the election will have very little impact on holiday spending plans; as such, our holiday forecasts remain unchanged.

• Longer term there is a polarization of views on whether the Trump administration will make households worse or better off; on balance, there is a slight bias towards those who view their finances becoming more favorable.

• The policy implications are mixed. It appears that retail demand may be bolstered by tax changes, but retail costs may rise as a consequence of a more restrictive trade policy.

• The good news for retailers is that while the Trump victory has polarized opinions, it does not seem to have impacted on holiday spending plans. This is logical inasmuch as no policy changes will take place over the remainder of this year, so there will be no immediate impact on household finances or the economy in general. As a consequence of this we have no reason to adjust our existing holiday forecasts.

• Longer term views for household finances have shifted as a consequence of the election. The number of consumers who feel more positive has the slight edge over those who are less optimistic, but the majority is a slim one. In any case, the results clearly show a that many consumers expect some form of change.

• In policy terms, we have confined our attentions to three specific areas: trade, labor, and tax and regulation. Each of these is reasonably well formulated and we believe that they will be the main and immediate points of impact on retail.

• Generally, the policy outlook for retailers is mixed with tax policies being favorable but trade policies looking more problematic. This leads us to believe that over the medium term retail will find domestic demand slightly stronger, but will also face higher costs from a less favorable trade and labor policy. While some costs may be passed on, it is likely some will be absorbed. This raises the prospects of lower margins, although these will be tempered by a much more favorable tax regime.

• All of this noted, with consumers still digesting the consequence of a Trump win and with the possibility of the President-elect solidifying and clarifying some of his initial policy ideas, the situation could well change in the coming weeks. We shall update accordingly if circumstances necessitate it.


US consumer viewsSection 2

07

Economic viewsHow people think the result will impact the economy

• Just like the vote itself, the country is divided on the impact a Trump presidency will have on the economy. The positive and negative sides virtually cancel each other out, although there is a slight bias in favor of those with less favorable views.

• Regardless of views, the results suggest that most consumers are expecting a Trump administration to bring about some form of economic change.

How will a Trump presidency affect the economy?Consumer views

Graph shows percentage of consumers giving each responseSource: GlobalData consumer research

6.5

14.6

19.4

16.2

13.2

20.7

9.4

Very positive Positive Slightly postive Neutral Slightly negative Negative Very negative

40.5%Total positive

43.3%Total negative


08

Economic timingWhen people think the impact will occur

• Those who expect some sort of economic impact generally see it as playing out over the medium term. Only 15% think the change will come this year, which is to be expected given that President-elect Trump will not take office until January of next year.

• Potentially this is good news for holiday spending as it signals that most consumers anticipate a steady state economy over the next two months. However, a majority of consumers feel that change will come early in a Trump presidency, impacting at some point next year.

When will we see this impact?Consumer views


Rightnow

9.8%

Before the end of this year

4.6%

Immediately after inauguration

20.1%

Within year 1 of presidency

32.7%


27.5%


2.7%

Beyondthis

2.6%


09

Holiday spending How consumers will change their plans

• While the electoral outcome has been disappointing for around half the country and has caused uncertainty among many consumers, the vast majority of shoppers say that it will make no difference to their planned holiday spending.

• There are some slight shifts in plans, however, on balance these cancel each other out. As such, we do not anticipate, and are not making, any major adjustments to the holiday spending forecasts we issued last month.

How will the election result change your planned holiday spending this year?Consumer views


0.9 3.7 4.2

80.9

6.92.3 1.1

Spend a lot more Spend more Spend a bit more Spend the same Spend a bit less Spend less Spend a lot less

8.8%Total more

10.3%Total less


10

Household financesMedium and long term expectations

How do you expect your household finances to change….…over the next year?

Chart shows the percentage of consumers giving each responseSource: GlobalData consumer survey

7.9

16.5

55.6

14.5

6.5

Before electionresult %

Change,% point

Much worse 7.5 +0.4

Worse 15.9 +0.6

About the same 58.4 -2.8

Better 12.3 +2.2

Much better 5.9 +0.6

...over the next two years?

Chart shows the percentage of consumers giving each responseSource: GlobalData consumer survey

8.1

16.2

50.3

16.58.9

Before electionresult %

Change,% point

Much worse 7.4 +0.7

Worse 14.6 +1.6

About the same 57.5 -7.2

Better 14.2 +2.3

Much better 6.3 +2.6

• Although short term views are fairly static, the longer term picture is more fluid. One of the interesting points here is that more households now expect their finances to improve over the medium and longer terms than was the case before the election. The uplifts appear to come from lower to middle income families.

• There has also been an increase in those who think their finances will worsen, although this is more moderate than those who think things will improve.


US policy implicationsSection 3

12

Summary of policy impactsTrade, labor, and tax and regulation

• While the implications of policy are far-reaching, we have confined our attentions to three specific areas: trade, labor, and tax and regulation. Each of these is reasonably well formulated and we believe that they will be the main and immediate points of impact on retail.

• Generally, the outlook for retailers is mixed with tax policies being favorable but trade policies looking more problematic.

Points of policy impactTrump administration likely plans

Summary shows our views on the main impactsSource: GlobalData analysis

Taxation and regulation

Trade

Labor

Generally bad for retail as global trade will be more complex with more barriers and higher costs. Some better news on IP protection. An area of immediate focus for the Trump administration, but change will take time to deliver.

Moderately bad for retail with labor costs likely to increase somewhat over the medium term. Indirect cost impact from other sectors like agriculture. However, costs will be offset by savings from other policies.

The most positive area for retailers with direct benefits from lower corporate taxation and the potential repeal of burdens such as overtime legislation. A boost to retail spending from lower personal taxation for most Americans.


13

TradePolicy implications and impacts

As a candidate, Donald Trump’s statements on trade were strident with threats to impose tariffs or import bans on products from China and elsewhere in a bid to protect American jobs. In reality, the official policy position was always somewhat more moderate – but there are, nonetheless, some serious shifts that will come into play. These will likely be an early focus for the Trump administration, not least because trade policy is largely –although not wholly – under the purview of the President.

Policy area Implications and impacts

America will withdraw from the Trans-Pacific Partnership deal

• As the agreement has not yet been ratified, the impacts on retailers will be minimal. However, US withdrawal will come as a disappointment for both retailers importing from the Pacific region and those looking to expand and export into member countries.

• Retailers looking to rely on TPP to guarantee intellectual and brand property rights will now not be able to do so, and will need to look to local IP protection.

Getting tougher on Chinese subsidies

• While the US is unlikely to take direct and unilateral action over China it will bring cases before the WTO to try and prevent Chinese manufacturing subsidies. The case will likely be protracted but, ultimately, it could result in higher prices for products like apparel and electronics made in the country.

China and intellectual property rights

• The US is likely to get tougher on China’s infringement on the IP rights of US firms. While this is more applicable to areas like pharmaceuticals and technology, it may bring some comfort to US retailers who feel their brands or designs are at risk from infringement.

The NAFTArenegotiation

• This could ultimately see more barriers and tariffs erected between Canada, Mexico and the US. While it may protect American jobs, it would also likely increase prices for US consumers.

• If negotiations fail, the US could withdraw from NAFTA which would have serious implications for retail supply chains. However, Congress would need to be involved in such decision.

The United Kingdom and the EU

• President-elect Trump’s thinking is not completely clear in this area. However, he is likely to be suspicious of the TTIP trade deal with the EU and may end US involvement entirely. Given the deal is not in yet place the impact would be minimal.

• A trade deal with the UK is more likely, though this would take time to ratify as the UK would need to leave the EU first.


14

LaborPolicy implications and impacts

President-elect Trump’s position on labor has two main dimensions. First, his views that immigration should be more tightly controlled to prevent American jobs from going to foreign workers and to prevent wage erosion resulting from the use of low-income illegal immigrants. Second, his promise to create 25 million more American jobs over the next decade. Detail surrounding the jobs promise is thin on the ground, though it looks to be based on the assumption of higher economic growth.


Illegal immigration and low cost labor

• The proposed crack down on illegal immigrants could well drive up labor costs in some parts of the economy. Most retailers are unlikely to be affected, but sectors like agriculture could feel the impact and push up prices.

• There may be a shortage of unskilled labor in some parts of the country, driving up wages.

Skilled labor and visa issuance

• While there will be greater scrutiny over visa issuance, skilled workers are unlikely to be affected as the visa processes in place are already robust. Skilled employees would also be seen by the President-elect as those who add value to the economy, which he has said previously are not a focus of his clampdown.

The minimumwage

• President-elect Trump’s policy on the federal minimum wage is not entirely clear. However, if anything he is likely to err on the side of a slight increase to around $10 an hour to support workers.

• He has previously suggested that minimum wage decisions should be made by states; he won’t repeal federal legislation but could opt out of mandating future increases at the federal level.

Job creationefforts

• There is a shortage of detail on how a Trump administration would generate new jobs, but a focus on reducing business burdens is likely to underpin the plan . There may also be incentives for firms creating new jobs in certain areas.

Labor costs• Given the current tightness of the labor market, President-elect Trump’s policies are likely to

increase direct labor costs over the medium term. However, these costs would be offset by reductions elsewhere in business such as lower taxes.


15

Taxation and regulationPolicy implications and impacts

Taxation is one of the more fully formulated policy areas. The general direction is clear inasmuch as it involves lower taxes for workers and for businesses and a simplification of the tax system, though not to a radical degree. Delivering on the tax promises is problematic only in that, to pay for themselves, they rely on high rates of economic growth – growth that may initially prove elusive due to the continued softness of the global economy.


Low incometaxation

• The good news for low income consumers is that the effective tax rate will be zero if President-elect Trump’s plans are enacted. This will help to boost spending in retail, though only to a small degree.

• On a sector level the main beneficiaries are likely to be grocery, apparel and casual dining.

Personal taxation levels and brackets

• Personal income tax brackets are likely to be simplified with 3 effective levels of taxation, down from the current 7. The standard deduction would also increase significantly, though personal exceptions would be scrapped.

• Most income groups would be better off with those earning $50-80k saving $1,000 a year. However, larger families could take a hit because of the end to personal exceptions.

General corporatetaxation

• The aim is to bring corporate taxation down to 15% from the current 35% rate. However, most business deductions would be eliminated. Ultimately this will benefit larger retailers, allowing them to keep a bigger slice of profits. It could also attract more foreign retailers to the US.

• Retailers with overseas cash piles could repatriate it to the US at a 10% tax rate.

Estate tax repeal• Estate taxes would be repealed under the Trump tax plan. Given that fewer than 1% of estates

currently pay the tax, the impact for retail will be limited. All the more so as those affected are likely to be wealthy and will, therefore, probably invest their windfalls rather than spend it on retail products.

Overtime regulation and costs

• As of December 1st, legislation will require that workers with salaries under $47,476 get paid overtime wages when they work more than 40 hours in a week. This will affect many retailers.

• Under Clinton this rule would have been kept and extended. Although he has not committed to repeal, its future under Trump looks far more uncertain.


The UK viewSection 4

Implications for the UKSummary of effects

• While the Trump administration will not directly affect UK retailers, its policies will nonetheless have an impact. The good news is that not all of these are negative.

• Those with operations within the US will, over the medium term, find burdens on their businesses reduced. Corporation tax will come down, healthcare costs will be slashed, and red-tape is likely to be cut – especially for those firms looking to grow and create jobs for Americans. In short, the business environment will become friendlier and more conducive to growth.

• Those not present in the US may also benefit. Unlike his predecessor, President Trump is highly likely to prioritize some sort of trade deal with the UK. While the terms of this agreement are open to speculation, and while the timing will be protracted as ratification can only come with the UK’s exit from the EU, it will inevitably mean that trade between the UK and US will become easier and stronger. This is something UK retailers can take advantage of.

• In the short term, uncertainty in the US will ease some pressure on the pound as the dollar sinks. This is unlikely to undo all of the depreciation sterling has seen over recent months, but it will take the edge off the decline and may stop further inflationary pressures.

• The positives, however, will be counterbalanced by a number of negatives.

• Outside of any potential trade deal, importing and exporting could become more challenging. If a Trump administration places tariffs on goods from China and elsewhere UK retailers present in the US could find it more expensive to bring goods into the country, a particular problem given the international nature of retail supply chains.

• If the Trump trade policy results in a more closed global economy, even UK retailers that have no relations with America could be affected. If US policy pushes up costs for Chinese manufacturers or reduces their economies of scale, retailers might find the goods they source become more expensive. A cost they would need to pass on consumers or take from their margins.

• Prices in the UK may also rise for products made by American firms. Apple’s devices, for example, are reliant on Chinese manufacturing. Any barriers to the free movement of parts or increased costs in the supply chain will inevitably find their way through to the consumer.

17 GlobalData: Election 2016 consequences10 November 2016, Version 1.0

Further informationSection 5

19

Methodology

A combination of consumer research, secondary research and market forecasting were used to compile this report.

Consumer research in this report is based on a survey conducted with a US nationally representative poll of consumers. 510 consumers were interviewed on 9 November 2016 and asked about their views in relation to the election.

All numbers relating to expenditure and forecast expenditure of retail are taken from GlobalData’s retail model. This is updated on an ongoing basis with inputs from official sources, retailers’ results and trading updates, other secondary sources and industry surveys, GlobalData’s ongoing program of research into consumer spending and habits, and underlying economic drivers and trends. GlobalData analysts both model and interpret this information to provide guidance on the likely future direction of retail expenditure at an overall, sector and category level.

Unless otherwise stated, all sources of information are derived from GlobalData’s own research and should be referenced to GlobalData.


20

About GlobalData

GlobalData Retail is a research agency and consulting firm. Our work focuses on all aspects of retailing and consumer behavior, which we deliver through a variety of different reports and our interactive Intelligence Centre. We also undertake bespoke research and consulting work for our clients.

We are headquartered in New York and London, but have a team of consultants and analysts who work around the world; together, they help you understand the latest trends and developments in retailing across developed and emerging markets. We also have a global panel of consumers across most countries which we use to undertake consumer surveys and to gauge and assess sentiment and views on various retail issues.

We work with many of the world’s leading retailers, FMCG groups, property firms and those in the financial sector to help them maximize success through developing a thorough understanding of the retail sector and its likely future performance.

Our recent clients include: Walgreens, Walmart, Target, Macy’s, Ted Baker, Ralph Lauren, Publix, Whole Foods, McDonalds, Kroger, Staples, Gap, eBay, Lacoste, Burberry, Amazon, Primark, H&M, Harrods, Marks & Spencer, Boots, Tesco, John Lewis, Waitrose, Sainsbury’s, C&A, Pandora, Body Shop, Joseph Joseph, Samsung, Azko Nobel, Blackstone, American Express, Barclays, Unilever, Cushman & Wakefield, Westfield, Coca-Cola, CBRE, and many more…


Boston: 179 South Street, Boston, MA 02111San Francisco: 25 California Street, San Francisco, CA 94104London: 7 Carmelite Street, London, EC4Y 0BSTokyo: Shinagawa Intercity Tower A, 2-15-1 Konan, Tokyo, 108-6028Sydney: Level 2, 63 York Street, Sydney NSW 2000, AustraliaShanghai: Jing'an China Tower, No: 1701, West Beijing Road, Jing'an District, 200040, Shanghai

GlobalData Retail441 Lexington Avenue, New York, NY 10017

Phone: +1 718.708.1476Phone: +1 212.634.7650

Email: [email protected]: www.globaldata.comTwitter: @GD_Retail