Terrible tariffs

Clothing discounter KiK stops US launch, blaming Trump

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An American dream not coming true. Source: AFP.

German discount clothing retailer KiK has shelved its plan to set up shop in the US because of the trade disputes being waged by President Donald Trump. The privately-owned company had planned to start out by opening 10 stores in the Midwest by next year but decided instead to focus on expansion in Europe.

“A launch in the US would have been too risky for us right now because of the current difficult international environment and the looming trade war between America and China but also between America and Europe,” KiK CEO Patrick Zahn told Handelsblatt. “Instead we will accelerate the expansion we had already planned in Europe.”

KiK, Germany’s largest clothing discounter which also sells toys, pans and cutlery, plans to start opening its first outlets in Romania and to have 20 there by the end of the year. In a more significant step, it aims to open stores in Bulgaria and France next year or in 2020 at the latest. France in particular is seen as an important and challenging market. The chain currently has 3,564 stores in 10 European countries and had sales of €2 billion in 2016.

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KiK, a subsidiary of family-owned retail and investment group Tengelmann, didn’t want to risk encountering difficulties in America while tackling the French market. “The US market would be a big challenge in any case. We were well aware of that,” said Mr. Zahn. “The threatened tariffs would hit us full on and largely eradicate our advantage in purchasing.”

KiK, whose name is a German acronym that translates into English as “Customer is King,” buys the majority of its jeans, underwear and t-shirts in China. These products would face a price hike if the Trump administration subjects them to tariffs.

German carmakers are also suffering from Mr. Trump’s trade war. When China retaliated with tariffs on US-made produts, cars made by BMW and Mercedes-maker Daimler in American plants and exported to China became more expensive. The carmakers stand to lose even more if Donald Trump slaps levies on European cars exported to the US.

Mr. Zahn, who has spearheaded KiK’s international growth since he took the helm in 2016, said it was a painful decision to drop the US market. “I deeply regret the temporary halt because I remain convinced that KiK’s concept would be a perfect fit for the US market.”

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Europe first. Source: Jens Kalaene / DPA.

Discount clothing firms like KiK have been booming in recent years, defying a general decline in the fashion market. The German industry, which also includes firms like NKD, Zeeman, Primark as well as food retailers Aldi and Lidl, has increased its sales by more than a fifth in the last five years, according to a study by trade magazine Textilwirtschaft. The budget players now account for 9 percent of the entire German fashion market. The same trend is visible across Europe.

Mr. Zahn had hoped to tap the same growth potential in the US, where discount clothes companies are rare, according to the executive. In January last year, he was still full of beans of his trans-Atlantic move and was undeterred by Donald Trump. “If you let your decision depend on who’s the president, then it was a wrong decision to begin with,” he said at the time.

Eighteen months later, Mr. Zahn’s view clearly got a reset by, guess who, Donald Trump.

Florian Kolf leads a team of reporters covering the retail, consumer goods, luxury and fashion markets. To contact the author: kolf@handelsblatt.com

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