German retailers and the Trump card

Times have just got a lot tougher for Latinos, Muslims, Blacks and all women who don't look like Barbie dolls.

Perhaps they will appear better to unemployed steelworkers in the Rust Belt if they seriously believe that a billionaire businessman, happy to use cheap labour and Chinese steel, is really their best friend.

But times certainly look good for middle-aged men with arresting hairstyles.

As the media debate 'Trumponomics' and the moods of the man the world's most powerful nation intends to entrust with the nuclear attack code, may we ask whether president-elect Donald Trump will be good or bad for German retailers?

Well, it all depends on which side of the pond you are sitting.

German discount giant Aldi has been doing business in the United States for 40 years now and has embarked on an ambitious expansion plan to pre-empt the entry of arch-rival Lidl next year. The Donald's plans to slash corporate taxes from 35 to 15 per cent will benefit all local businesses, and $600bn investment in infrastructure will hardly burden logistics operations.

As Aldi traditionally pays its staff more than average, a possible rise in the minimum wage will not necessarily increase its cost base. If all illegal immigrants are bussed back to Mexico from Texas, where Aldi has around 90 stores and Lidl also intends to put down roots, it is difficult to assess the possible impact because it is not known to what extent, if at all, the discounter relies on casual labour.

Cuts in personal income tax will certainly increase the disposable income of US shoppers, which will benefit Aldi and Lidl, but far less so, if these are skewed towards wealthier Americans.

Currently, Trump's populist ire is directed against international free trade deals such as NAFTA and the Trans-Pacific Partnership (TPP). If his campaign rhetoric is to be believed, the former will be ripped up and the latter renegotiated. Protectionist tariffs of 25 viz. 45 per cent will be imposed on goods from Mexico and China.

TTIP – dead in the water

Although the Transatlantic Trade and Investment Partnership (TTIP) with the EU, which Trump sees as a "job-killer", already looks dead in the water, there is no mention yet of Europe.

However, a knowing comment by European Commission President Jean-Claude Juncker ("In the coming months we shall get to know Donald Trump, and he will get to know us") doesn't bode well for good trade relations.

So, in the event that the US was to embark on a trade war with the EU, what would be the effect on Aldi?

Bill Bishop, 'chief architect' at trade consultancy Bricks Meet Click, points out that "most retail legislation in the US is at state or even local level". But, if we accept his estimate that around 85 per cent of the lines in Aldi's US assortment are own label and that 25 per cent of these aren't made in America, the company could be obliged to find local alternatives for nearly one in four of its products.

On the other side of the Atlantic, German food manufacturers, half of whose sales come from international exports, haven't had to take a currency hit yet. Contrary to expectations, US stock markets have hit new highs and the dollar has gained strength since outsider Trump's surprise election victory. Suppliers would be ill-advised, however, not to expect turbulence in the euro-dollar exchange rate over the coming months.

Big Buddy, Uncle Vlad

At all events, things are looking good at last for retail investors in Russia, including German Cash & Carry giant Metro and hypermarket operator Globus, who have had to endure both a western trade embargo and a weak rouble.

The Donald's penchant for colourful friendships could help the US to hit the reset button with Russia where Obama tried and failed. In God we trust.

(photo: Gerhard Seybert-Fotolia)

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