Outdoor Insight

N E W S / A N A L Y S I S OUTDOOR EYE outdoorinsightmag.com 4 • Outdoor Insight • June 2019 By Bob McGee J une events will have a significant impact on whether new tariffs are levied against China-sourced goods, including all footwear and apparel, as early as July 15 or August 1 that would most cer- tainly impact wholesale and retail prices during the crucial Back-to-School and Holiday seasons and could continue into 2020 and beyond. That possibility is forcing manufacturers, retailers and trade groups to scramble to mitigate any potential financial impact. In some cases, this has meant landing China-produced inventory ahead of schedule. In others, vendors, supply chain partners and wholesale customers are negotiating on how they might lessen the impact of any new tariffs on the final cost of a finished product. Given the time and work involved in shifting a supply chain, moving production to another country on short notice is not a viable solution for most. "Non-athletic footwear companies don't rely heavily on Chinese production and supply chain," Designer Brands CEO Roger Rawlins told analysts. "And while we and our peers have been working to move production out of China for some time now, the fact remains that footwear is a very capital intensive industry with years of planning required to make sourc- ing decisions." Industry observers and published reports suggest that U.S. President Donald Trump is prepared to use trade as a key political plank during his 2020 re-election bid. But the tactic may prove risky if any higher duties have a negative impact on the U.S. economy and consumer purchases ahead of the 2020 elec- tion season. Before June began, the Trump Administration was already playing its hand on tariffs by indicating it will slap a 5 percent tariff on Mexico-produced merchandise entering the U.S. on June 10. Subsequently, the duty will rise 5 percent on July 1 and each month thereafter that Mexico doesn't take significant measures to curb migrant flow into the U.S. from the Mexican border. The new tariff, which would cap at 25 percent on Oct. 1, could hamper passage of the USMCA (U.S.-Mexico-Canada Agreement) trade deal that was signed Nov. 30, 2018 and was expected to replace the NAFTA free trade agreement. What does it mean for retailers and consum- ers? Thus far, retailer Dick's Sporting Goods reports that it has seen minimal impact from the 10-percent higher tariffs implemented to date on products it carries. Most of the items, such as hunting prod- ucts, camp furniture like folding chairs and team gear, are being addressed by Dick's through negotiating better deals with vendors. "We're going to try not to have to take much of that. Can we pass some on from a price standpoint? And what's going to happen to the consumer?" Dick's SG CEO Ed Stack asked analysts last month. "The consumer is going to go into sticker shock on some of the stuff and kind of take a pause for a minute. So, we don't know. We wish we did." Industry trade groups are hugely con- cerned about the potential impact of any new Section 301 tariffs on footwear and apparel, which could be implemented sometime this summer at either a 10 percent or 25 percent rate after a likely two-week hearing that commences June 17 at the offices of the International Trade Commission. Five orga- nizations—the American Apparel & Footwear Association (AAFA), Footwear Distributors and Retailers of America (FDRA), Outdoor Industry Association (OIA), Plastic Footwear Manufacturers Association (PFMA) and Sports & Fitness Industry Association (SIA) dispatched a letter to the president late last month opposing any proposed punitive tariffs on footwear equipment, inputs and finished footwear imports into the U.S. from China. "This would be catastrophic for the footwear industry," proclaimed the FDRA's Andy Polk during the trade group's live YouTube webinar late last month. "And people have talked about closing their businesses over this (higher tariffs)," piped in Matt Priest, FDRA CEO. While warning that higher duties on footwear "could peel back people's appetite to buy mul- tiple pairs," the FDRA is continuing to rally its members and others in the footwear community to speak out against additional duties on China- made footwear. As of late May, an estimated 8-10 footwear company senior executives had submitted statements for the hearing, and others were being urged to submit their comments via regulations.com on company letterhead. The FDRA was slated to launch a portal on June 10 that enable footwear company employees to engage directly with the government. But in the end, the angst about existing and potential new tariffs could all be for naught if talks between the Trump Administration and Chinese officials yield a trade deal that is sat- isfactory to both countries. Treasury Secretary Steven Mnuchin is expected to travel to Beijing sometime this month to resume negotiations, and Pres. Trump will be attending the G-20 Summit in Osaka, Japan on June 28-29 along with Chinese Pres. Xi Jinping. There, the two leaders could agree to pause or slow the tit-for- tat punitive tariff actions by both nations if negotiations on a new trade pact are making progress. And that development would undoubtedly enable most to breathe easier, enjoy their summer and not brace for any catastrophic consequences. l Uncertainty Persists as More Tariff Pressure Looms "This would be catastrophic for the footwear industry." Andy Polk, FDRA

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