Economic Growth: Interest Rate

ECONOMIC GROWTH
The global economy is projected to contract sharply by –3 percent in 2020, much

worse than during the 2008–09 financial crisis.” The U.S. economy is projected to
shrink this year by 5.9 percent
Federal Open Market Committee meeting on June 10, 2020.8
while the reaching of the “phase one” U.S.-China trade deal was a relief to U.S.
fashion companies, the unexpected outbreak of the coronavirus in China since
January and its fast spread had cast a new shadow on the outlook of the world
economy. U.S. Fed Chairman Jerome Powell recently cited the prospect of a hit to
tourism, exports and financial markets as ways the coronavirus could dent U.S.
economic growth. As a consequence, the value of U.S. textile and apparel
imports in 2020 could grow at a more modest rate than previously
expected.
United States is no longer a major apparel manufacturer but one of the largest apparel
consumption markets in the world,

Consumption demand remains the most significant factor in shaping the
volume of U.S. apparel imports. Between 2010 and 2019, the value of U.S.
apparel retail sales always stayed at around three times as much as the value of U.S.
apparel imports. Over the same period, the amount of U.S. apparel retail sales and
apparel imports also changed in the same direction, and both enjoyed a roughly 3.0%
annual growth on average. Such a synchronized move reminds us about the buyer-
driven nature of the apparel business today and explains why this industry is so
sensitive towards the health of the national economy.
https://shenglufashion.com/2020/02/16/patterns-of-u-s-textile-and-apparel-imports-
updatedfebruary2020/#:~:text=Because%20the%20United%20States%20is,and%20yarns
%20(1.2%20percent).
interest rate
The lower the interest rate, the more willing people are to borrow money to
make purchases. When consumers pay less in interest, this gives them more
money to spend, which can create a ripple effect of increased
spending throughout the economy. Businesses also benefit from lower interest
rates, as it encourages them to make large equipment purchases due to the
low cost of borrowing. This creates a situation where output
and productivity increases.
The Fed lowers interest rates in order to stimulate economic growth, as lower financing costs can
encourage borrowing and investing and spur excessive growth. Which is the need of the US economy right
now as GDP is forecasted to shrink this year. However, when rates are too low, it also leads to subsequent
inflation, reducing purchasing power and undermining the sustainability of the economic expansion.
https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-
markets.asp#:~:text=Interest%20rates%20affect%20the%20economy,spending%2C%20inflation%2C
%20and%20recessions.&text=By%20adjusting%20the%20federal%20funds,balance%20over%20the
%20long%20term.
https://tradingeconomics.com/united-states/interest-rate#:~:text=Interest%20Rate%20in%20the
%20United,percent%20in%20December%20of%202008.
Deflation
In an effort to avoid heavy discounting later in the season, producers such as Coach and
Lacoste are planning to cut prices. Retailers, likewise, will add less expensive goods to their
offerings. Herewith, a sampling of brands and stores likely to offer lower priced goods.
“The gap between online sales and lost brick and mortar is not easily made
up. Right now, only one third of all lost store sales across retail is coming
from online. Pre-crisis, apparel had 26% of its business from online. So
even boosting it to 33% right now, given the challenges of consumers being
faced with the loss of jobs and shifts in their spending priorities, fashion is
going to be the most challenged of all retail products.”
While brick and mortar stores were closed, we all saw the onslaught of
promotional activity online between 25-30%. Once physical stores open,
promotions will need to be much deeper, think 50-70%, to get the
consumer's attention, and get them into the stores. Making their way out of
COVID-19 will be more difficult for apparel retailers than the 2008
recession. With so many people out of work, their needs and priorities have
changed. Prices will need to be slashed.”
The silver lining, at least for apparel, may be that supply and demand
disequilibrium could balance out. Currently, the U.S. market is over-stored
and saturated with products. The final fall-out for apparel brands could be
a consolidation of retailers, closing of underproductive stores and
continued growth of online markets.
https://www.forbes.com/sites/shelleykohan/2020/04/16/apparel-and-accessories-suffer-a-
catastrophic-52-percent-decline-in-march-sales/#149ab6f01b5b
Exchange rates
The increase of textiles and apparel imports has often been attributed to the appreciation of the U.S.
dollar.
Depreciation
This will effect apparel industry as Weakening value of dollar increases the cost of import price and
results in the price inflation of apparels. Most retailers will raise the price of their apparels to sustain
their profitability.
Disposable Income
This all can be due to low interest rate, increasing the purchasing power of consumers hence
stimulating the economic growth.
Taxation
Most U.S. businesses are not subject to the corporate income tax. Instead,
most U.S. businesses are pass-through businesses, such as partnerships, S
corporations, LLCs, and sole proprietorships. These businesses “pass” their
income “through” to their owners, which is reported on the owners’ individual
income tax returns.
Age distribution
Major population of US consist of millennial and Gen X. Millennials are the most diverse
generational cohort in US history. In US, 68 percent of Millennials demand the convenience of
omnichannel accessibility during their shopping journey.
Timberland & Nordstrom are two US based fashion & Accessories retailers who recognised the need
of customer convenience and started investing in omnichannel strategy.
Retailers should also recognize that social media is extremely important to Millennials in their
purchasing journey.
Gen Xers produce 31% of total US income despite representing a mere 26% of the population.
Gen X and Gen Y is also skeptical of overbearing marketing tactics.
Generation X is less prone to moving in the waves of trends, and is more likely to buy a service or
product that somehow benefits society or the environment.
Toms is a good example of this—though not the most attractive type of shoe, their simple message of
“one for one” bolstered this brand to success.
Nike is a powerful brand and with its ownership of Jordan and Converse, they are definitely a hit for
Millenials and Gen Xer’s. Nike is described as stylish, well designed, good value for money, good
quality and reliable.
Nike starts with an honest and authentic set of core values and strives to communicate those in an
open conversation across a broad range of media.
Like its customers, Nike’s marketing strategy has evolved.

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ECONOMIC GROWTH

The global economy is projected to contract sharply by –3 percent in 2020, much

Federal Open Market Committee meeting on June 10, 2020.8

Gen X and Gen Y is also skeptical of overbearing marketing tactics.

Like its customers, Nike’s marketing strategy has evolved.

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