Footwear Insight

12 • Footwear Insight ~ May/June 2018 footwearinsight.com Already Squeezed Industry Wants Relief, Not More Duties By Bob McGee T he nearly $3 billion annual impact of 400 tariff codes on U.S. footwear imports, many dating back to the Hoover Administration, are already pinching margins and constricting the industry's ability to design and develop some of the styles Americans want. So the pos- sibility of being caught in the crosshairs of the Trump Administration's cur- rent trade negotiations with China and slapped with possible additional duties has footwear industry leaders on edge and warning consumers. The cost of any more tariffs will certainly be passed on to shoppers. "There have been attempts (to lower or outright eliminate tariffs)," Matt Priest, president and CEO of the Footwear Distributors and Retailers of America, told a dozen senior footwear executives recently ahead of the trade group's annual Executive Summit. "But at the end of the day, there hasn't been the silver bullet we need to wipe the duty structure out." Already faced with anxiety over how currency fluctuations against the U.S. dollar, higher interest rates in the U.S. and elevated raw material costs might impact profit margins and how much is paid for imports, industry leaders contend any additional duties could be crippling. "When we are hit with tariffs, we are not cost competitive," said Tsering Namgyal, group president for Los Angeles-based Cels Enterprises, parent of the Chinese Laundry brand. "The costs associated with duties impacts design and the quality of materials." Rick Muskat, FDRA's chairman and the principal of family-owned Deer Stags Concepts, concurred. "We have to design and engineer shoes away from certain quality and style for the purpose of keeping costs down." Nearly 100 percent of the 2.3 billion pairs imported into the U.S. annually, enough for 7.5 pairs per man, woman and child, are hit with a duty, with the highest rate being 37.5 percent on certain classifications and 30 percent or more on canvas styles. And the tariff structure discriminates by levy- ing higher duties on women's models. Mike Jeppesen, president of global operations for Wolverine Worldwide and FDRA vice chairman, said his company was the 46th highest payer of duties in 2017, paying $84 mil- lion on about $750 million worth of imported footwear for its various brands. The cost of such tariffs tacks on 10-11 percent to the cost of land- ing shoes in the U.S. For example, a pair of shoes that costs about $20 to produce in India, Vietnam or China will end up costing a consumer $90 to purchase at retail after factoring in duties and wholesale and retail mark-ups. Cliff Sifford, president and CEO of the 400-door Shoe Carnival chain, and Peter Barr, general counsel for the 500-store Rack Room Shoes/Off Broadway, concurred that tariffs put a strain on profits and impact what their respective customer bases are able to purchase. From a brand perspective, the cost of tariff payments limits com- pany investments in new, advanced technologies and manufacturing techniques, pointed out Ed Rosenfeld, FDRA chairman and CEO of Steve Madden, Ltd. Peter Bragdon, EVP and chief administrative officer for Columbia Sportswear pointed out that "there is a cost to the uncertainty" around the tariff landscape and possible additional financial costs to Chinese imports. Tariffs may hit smaller footwear brands particularly hard reminded Jeppesen, as those brands may not have the resources to establish sourcing offices in other countries. Jeppesen also suggested that no other country has the ability to absorb China's current volume of manufactured footwear. O "At the end of the day, there hasn't been the silver bullet we need to wipe the duty structure out." Matt Priest, president and CEO of the Footwear Distributors and Retailers of America Industry execs gathered at the Footwear Distributors and Retailers of America Executive Summit. FDRA

• Cover