Will Trump’s Tax Reforms Benefit the Retail Sector?

The U.S. retail sector may benefit from U.S. President Donald Trump’s tax reforms, as it proposed certain changes to the corporate tax rate.

Real estate and banking firms could also find themselves at an advantage due to the tax framework, which also calls for at least five years on full and immediate expensing on certain assets and a lower net interest for corporate loans.

Tax Incentives

White House officials and Republican lawmakers have been at work on the new tax legislation, and despite the supposed benefits, most of the language of the proposal remains uncertain. For retail businesses, a lower corporate tax rate to 20% from the existing 35% would be the most beneficial, according to Rachelle Bernstein, vice president and tax counsel at the National Retail Federation.

Poonam Goyal, Bloomberg Intelligence senior U.S. retail analyst, said that lower corporate tax would allow retail companies to increase earnings and cash flow. Based on a Bloomberg Intelligence analysis, a 15% tax rate would provide an increase in average 2017 earnings by up to 35%. The analysis covered 15 companies that paid a 35% tax rate in 2016.

Diverse Plans

Trump’s tax reforms take place at a time when retailers diversify their approach on market strategies. The industry has borrowed a page from the marketing books of their European counterparts. Some retailers such as Publix and Wegmans have realized that customized product offerings and services are an efficient addition to a store manager training program.

Their success lies in understanding that the U.S. is not just a single market that only requires a one-size-fits-all solution. By focusing on the individual preferences of customers in their respective area of operations, they can generate stable business that could grow even bigger if the tax changes take effect.

Conclusion

Whether or not the tax proposal becomes law, any changes to the corporate taxes arguably benefit the retail sector amid the challenges facing the industry.