Dive Brief:

• Japanese apparel retailer Uniqlo threatened to shutter its U.S. stores if faced with the border adjustment tax touted by Republicans and endorsed by President Donald Trump. "If I was directly told to do so, I will withdraw from the United States,” Tadashi Yanai, chairman and president of Uniqlo owner Fast Retailing Co., told Japanese newspaper The Asahi Shimbun, NBC News reports.

• Many retailers are deeply concerned about the tax, which could devastate domestic merchants as well as their overseas counterparts: RBC Capital Markets analyst Scot Ciccarelli found that the earnings risk to six major U.S. retailers could result in a $13 billion blow to retailer balance sheets, while Best Buy alone could see its annual earnings completely wiped out by such a tax. 

• Meanwhile, Bed Bath & Beyond corrected an email from one of its customer service representatives stating that the home goods retailer stopped selling Ivanka Trump-branded merchandise. Bed Bath & Beyond said Saturday on its Facebook page that it doesn’t make merchandising decisions based on politics and that Trump products are still available in stores.

Dive Insight:

The Trump administration is proving to be a complicated and none too positive proposition for retailers, in light of the potentially devastating border adjustment tax that the president has endorsed and the controversy over products affiliated with him and his family.

Even Bed Bath & Beyond’s clarification was rife with controversy, drawing criticism from all sides: Some anti-Trump customers expressed disappointment that the retailer saw fit to remind customers than Ivanka Trump merchandise is available, and though many pro-Trump customers hailed the announcement, others said they wouldn’t buy from the retailer until it sells her products on its website, not just in stores. (As of Monday morning, there were no Ivanka Trump or any other Trump products for sale there.)

But it’s the border adjustment tax that is of particular concern to retailers. The proposal includes a reduced 20% corporate tax rate, a switch to a territorial system and so-called “border adjustments” (taxes on imports but not exports). For most large retailers, the lower tax rate won’t sufficiently make up for lost sales due to the higher prices wrought by import taxes, analysts said.

Even U.S. retailers would be hit hard. Taxing imports and exempting exports (the nut of the plan) appears to target foreign businesses, but because U.S. retailers depend so much on overseas manufacturing, including apparel, home goods, electronics and other products, they too would face the prospect of raising their prices or — if that approach threatens sales — reducing profits. Many economists also contend such a tax would boost the value of the dollar, which is already hurting many retailers by dampening sales from tourists and raising the cost of production in Asia, which trades using U.S. currency.

The proposal is essentially a consumption tax, a notion floated by Republicans for years as a way to make up shortfalls that come from the income tax cuts they also favor, similar to the value-added tax imposed in Europe. By definition, a tax on consumption has the effect of curtailing consumer purchasing by raising prices without raising value; at the moment, consumer spending is the backbone of the U.S. economy.

“[S]ales to U.S. customers are taxed and sales to foreign customers are exempt, regardless of whether the taxpayer is foreign or domestic,” according to the “A Better Way” document from the Republican House of Representatives, which contains the most comprehensive description of how the proposal would work. 

The tax and its effects run “very counter to the way consumers are feeling at the moment,” David French, the National Retail Federation’s senior vice president for government relations, said recently. The NRF earlier this year released its economic forecast for 2017, projecting that retail industry sales (excluding automobiles, gas stations and restaurants) will grow between 3.7% and 4.2% over year-ago totals, but warned that prediction relies on a continued stable economic environment.