LVMH’s Trump Visit Marks Paralyzing Moment for Fashion CEOs

  • Apparel companies have frozen overseas expansion plans
  • Clothing makers face pressure to bring jobs back to the U.S.

Bernard Arnault and Donald Trump at the Trump Tower on Jan. 8.

Photographer: Albin Lohr-Jones/Pool via Bloomberg

When LVMH’s chief executive officer was seen striding through the Trump Tower lobby on Monday, the fashion industry held its breath.

Bernard Arnault runs the world’s largest luxury-goods company -- a sprawling empire that includes Louis Vuitton, Fendi and Dior -- and here he was meeting with a president-elect who has threatened to roil the industry with trade restrictions. Following Arnault’s sit-down with Trump, LVMH said the French company was considering expanding its production in the U.S.

The encounter underscores an agonizing moment for apparel makers, most of which had written off America as a major source of production. A whopping 97 percent of clothes sold in the U.S. is manufactured in other countries, but Trump has threatened to rip up trade agreements and impose tariffs in a bid to bring domestic jobs back.

That’s led many clothing giants to freeze their overseas expansion plans -- and at least pay lip service to the idea of making more of their wares in America.

“You’re not going to have a big expansion until you know what’s going to happen,” said Julia Hughes, president of a fashion industry association that represents names such as Ralph Lauren Corp. and Under Armour Inc.

LVMH already has a factory in San Dimas, California, where it has made Louis Vuitton products for 25 years. The company is considering expanding that plant, as well as opening another facility in the South or Texas. But the decision has more to do with meeting local demand, said Sonia Fellmann, a Paris-based spokeswoman.

“The success of Louis Vuitton in the American market makes it necessary to increase production capacity,” she said. “The location has not been decided.”

Feeling Nervous

PVH Corp. CEO Manny Chirico, whose company makes Tommy Hilfiger and Calvin Klein clothing, acknowledged in a recent interview that industry executives are nervous. So too are stockholders. Despite a market rally, PVH and Ralph Lauren are both down more than 13 percent since Trump’s victory -- though slow retail sales have contributed to the slump.

“It causes volatility that you have to deal with,” Chirico said. “But on balance you try to do the same thing, try to take a long view.”

The concern is that Trump’s rhetoric and tweet storms will escalate into a trade war with China and other countries. That would leave apparel makers with a dilemma: continue to produce in those countries -- and pay margin-squeezing tariffs and other penalties -- or attempt to rebuild the U.S. clothing infrastructure.

The early signs from the president-elect point to some kind of confrontation with China. He has hired Peter Navarro, a frequent critic of China’s trade practices, to lead a newly formed White House National Trade Council. He also chose Robert Lighthizer, another China trade critic, to head the U.S. Trade Representative office.

Trump’s Label

Trump’s own history with the apparel industry spotlights the challenges of making clothing domestically. The 70-year-old relied on offshore manufacturing to produce his line of businesswear, which was sold in Macy’s until a split in 2015. And his daughter Ivanka’s clothing line, made by G-III Apparel Group Ltd., comes from China.

In all, the U.S. imported about $82 billion worth of apparel during the 12-month period that ended in September, according to data from the Commerce Department. More than 40 percent of clothing shipped to the U.S. is made in China, with seven of the top 10 importers located in Asia.

Ascena Retail Group Inc., the women’s apparel seller that owns the Lane Bryant and Ann Taylor brands, has been assessing its operations in the wake of Trump’s victory. That includes holding off on expanding overseas sourcing agreements, according to Linda Heasley, CEO of the company’s plus-size division.

“We’ve been positioning ourselves to take advantage of whatever might happen,” Heasley said during a recent interview on Bloomberg Television.

Sticker Shock?

Americans do say they want more domestically manufactured clothing, but they may not be willing to pay the higher prices. Made-in-the-USA products could double retail costs and potentially hurt the economy, said Hughes, president of the Fashion Industry Association.

But domestic-manufacturing advocates are more optimistic. By investing in U.S. factories -- and relying on automation -- the clothing industry could make 30 percent of its products at home within the next 15 years, said Harry Moser, founder of the Reshoring Initiative. He points to the hidden expenses and hassles of Asian-made clothing, including shipping, duties, extra inventory costs and having to travel across the world to check on suppliers.

Of course, using factory robots wouldn’t require an army of workers, but a resurgent U.S. apparel industry could still bring plenty of dollars and jobs, he said.

“We are talking about hundreds of billions of dollars,” said Moser, who consults with Wal-Mart Stores Inc. on its Made-in-the-USA program. “And maybe a million jobs.”

What could happen is that big brands will avoid Asia and shift production to Mexico and Central America, where there is already a robust apparel industry, said Augustine Tantillo, president of the National Council of Textile Organizations.

Textile Jobs

That would still help boost employment at U.S. textile companies, which make the yarn, fabrics and fibers purchased by clothing producers. The American textile industry has 580,000 workers, down from about 1.8 million in the late 1990s when production shifted to Asia, according to the trade group. 

Dov Charney knows as much about domestic clothing manufacturing as anyone. He founded American Apparel, which sewed its wares in a Los Angeles factory and touted that fact in a chain of stores nationwide.

Charney was forced out of the company, which then went bankrupt twice, but he’s now working on a new L.A. clothing startup. Apparel production in the U.S. is becoming more feasible because of the advances in automation and technology, he said in an interview.

The U.S. doesn’t offer the same kinds of financial incentives as China, Charney said. But he thinks companies could make a lot more stuff at home if they had the right know-how -- and perhaps a bit of a push.

“It’s highly efficient to make clothing here, but a lot of people don’t understand how to do it,” Charney said. “American manufacturing is underrated.”

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