Footwear Insight

a white-knuckle ride with the tariff threats coming to fruition as soon as January 20th." Mitigation Options for Footwear Brands? Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA), told Footwear Insight that with 99 percent of shoes imported into the U.S. market, including about 95 percent from China, Vietnam and Indonesia, the footwear industry has limited mitigation strategies other than to raise prices to offset the cost of tariffs. Sourcing out of China has already been slashed from 87 percent of volume (70 percent in dollar value) in 1989 to 57 percent in volume (36 percent in value) currently, according to Priest. However, China remains the largest footwear importer to the U.S. and appears most at risk of tariff actions given the trade disputes and geopolitical tensions between the two countries. Should accelerated tariffs on China arrive, more sourcing may shi to Vietnam, which has become the largest U.S. importer of ath- letic footwear. However, Vietnam could also face tariffs moving forward — it ranks among the top three countries with the highest trade imbalance with the U.S. Other countries generally don't have the infrastructure to handle the footwear volume. Lamar said, "ere simply isn't the capacity in other parts of the world that we have in China and Vietnam, and it will take decades for that to be replaced at scale." Also, while some brands are exploring near- shoring, or working with factories in Latin America and the Caribbean, to be closer to market, the uncertainty about new "surprise" tariffs popping up might give pause to such experiments. More U.S. Production? e only safe haven from tariffs is U.S. produc- tion, but industry participants aren't anticipating a trade war to fuel a revival in U.S. footwear production. Said Priest, "We import 2.5 billion pairs every year into the U.S. and we only make 25 million pairs. So, it is literally like a rounding error on a very, very, small percentage. And it's because we have an insatiable appetite for footwear here in the states, and we just cannot produce at the volumes that are necessary for that for our consumers." Lamar said that while footwear vendors are exploring a wide range of mitigation tactics, the primary offset for footwear as well as apparel tariffs has been to raise prices. "Ultimately, higher tariffs will be passed along to the consumer, either as higher prices, reduced product selection (such as phasing out low price offers), or reformulating products so they have fewer features and less functionality for the same amount of money," said Lamar. "Because you can't simultaneously have widespread tariffs and low prices, if the Trump campaign proposals are fully enacted, Americans should indeed expect to see price increases across the board." For the footwear industry, the threat of tariffs "is just creating more uncertainty" that impedes planning, according to Priest. "We need certainty," said Priest. "If you're designing a pair of athletic shoes, you need like a year and a half, two years, from basically CAD file to the retail store. And if you throw in these costing fluctuations, it's really hard to plan." Challenges Around Long Lead-Times In interviews with Footwear Insight and on recent quarterly analyst calls, vendors likewise discussed the challenges of avoiding price hikes and managing the unknowns from potential tariffs. Dan Sheridan, CEO at Brooks Running, told Footwear Insight, "It's a difficult puzzle to solve, as the footwear industry already has high tariffs. Additional tariffs would be a significant headwind not just for Brooks, but the entire category. To absorb these costs as a business, we would have to reduce investments in R&D, product creation, consumer demand creation, and other critical areas. Most likely, we would have to pass along these penalizing tariffs to the consumer in the form of price increases." U.S. footwear importers pay 4.5 times the average duty-rate paid on most other U.S. im- ports, according to AAFA. On Steve Madden's third-quarter analyst call, CEO Edward Rosenfeld said the brand has been "planning for a potential scenario in which we would have to move goods out of China more quickly," having developed a factory network in Cambodia, Vietnam, Mexico and Brazil for several years. Steve Madden's goal is to have just roughly one-quarter of its business be subject to potential tariffs on Chinese goods. Amer Sports, the parent of Salomon, Arc'Teryx, Wilson and other sports and outdoor apparel brands, indicated it would likely explore price hikes should adverse tariffs arrive. "We have some degree of flexibility to adjust our supply chain," Amer Sports CFO Andrew Page said on the company's Nov-19 third-quarter earnings call, "but price increases will be the primary tool we utilize should tariffs occur." Peter Sachs, U.S. general manager of Germany- based Lowa Boots, told Footwear Insight, "Tariffs are simple. Tariffs are a tax hidden in the cost of goods which increases the price a consumer will ultimately pay. e higher the tariff, the more a consumer will ultimately pay. ey cannot in any way be considered an added value to a product or brand. Lowa produces 98 percent of our boots and shoes in EU countries and 2 percent in Vietnam. We already pay $1 million plus in duty and tariffs so anything additional will only increase prices. We don't plan to do anything until the new administration takes office and we see reality versus all the hot air talk of a campaign." Tim Boyle, CEO at Columbia Sportswear, said his company strategically reduced its exposure to China sourcing well before the arrival of Trump's first administration. About 20 percent of its footwear and a low-single digit percentage of its apparel comes from China. However, Boyle told analysts on an Oct.-31 call that he was still "very concerned" about the imposition of tariffs. "e products that we make, the commodi- ties that we engage in footwear and apparel are among the most highly tariffed in the United States," said Boyle. "Some of the product carry nearly 40 percent duties and that has not trans- lated into increased investment in domestic production. So, we believe that the argument about tariffs improving the domestic produc- tion of items such as footwear and apparels are fallacious… But we consider ourselves to be very adept at managing tariffs and duty rates globally, showing that we're very successful at that international business." "At RG Barry, we are dedicated in our com- mitment to putting consumers and our retail partners first," Bob Mullaney, CEO at RG Barry Brands, the parent of Dearfoams, told Footwear Insight. "As an industry, we must navigate these tariffs thoughtfully and running to another country isn't necessarily the only answer. is is a time for measured responses, not overreactions. Ultimately, earning and maintaining consumer footwearinsight.com November/December 2024 ~ Footwear Insight • 17

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