Footwear brands and retailers are being hit with millions of dollars in tariffs on certain imported shoes since Congress let legislation that suspended the duties expire at the end of the year.
The duties, imposed since Jan. 1, could potentially lead to price increases or the unavailability of some styles.
There has been no signal yet from the House or Senate that it will act on renewing the temporary duty breaks, or if the tariffs will be reimbursed retroactively, which has many executives nervous about the fallout from rising production costs.
Lobbyists have said lawmakers could potentially act on a bill by the end of March. The House introduced a so-called “Miscellaneous Tariff Bill” in late December that would renew the expiring tariff suspension for three years on more than 600 imported products, but the Senate has not yet introduced a bill.
“What we have heard back from some of our member companies is they have had to stop the production of new lines that they wanted to get into or were ready to introduce,” said Alex Boian, director of trade policy for the Outdoor Industry Association, which counts such companies as The North Face, Columbia Sportswear and Patagonia among its 1,200 members. “They are cutting back in production areas, and they are also looking at operating costs that have now risen because of the lack of the bill’s passage.”
Boian said that when the duty suspension bill passed in 2006, it allowed recreational performance outwear companies making footwear to invest in new product lines, hire more employees and even helped new companies form.
The expiration of the bill and reinstitution of duties has had “a really negative impact,” he said.
Outdoor companies and consumers have derived a total savings of $21 million over three years from the duty breaks in the legislation, according to an OIA analysis. The failure by Congress to extend the duty breaks is chipping away at those collective savings.
“Companies are in a holding pattern,” said Matt Priest, president of the Footwear Distributors & Retailers of America, whose footwear retail members include Brown Shoe Co., Collective Brands Inc. and Zappos.com. “Our members are holding steady on pricing, but if we slip, one, two or three more months, that can’t last forever.”
Many companies are trying to find ways to absorb costs or avoid them altogether by putting production on hold.
Rocky Brands Inc., a work and outdoor footwear company based in Nelsonville, Ohio, has already felt the impact of the duty increases.
Sonya Linger, international customs compliance manager for Rocky, said 100 styles of the company’s footwear received duty breaks and could potentially be impacted by the duty increases.
She said Rocky Brands is currently “buying time” and holding off on ordering several of the styles to avoid paying the duties. The two categories being affected are men’s and women’s leather, below-the-ankle work shoes and textile waterproof outdoor shoes.
The wholesale cost of the waterproof outdoor shoes is $35 to $40. Before the duty break expired, Rocky paid a 12.8 percent tariff on the shoes. Now, the company will have to pay a 37.5 percent duty, or about $15 a shoe.
“We really haven’t had many shipments come in because typically it is a slower period for us,” said Linger. “But in a couple months, it will start picking up and at that time if the trade bill has not been passed, it will definitely affect us more.”
The so-called duty suspensions, which must be renewed periodically by Congress, are meant to help domestic manufacturers compete by giving them tariff breaks on components such as certain yarns, fibers and footwear that are no longer made in the U.S. and must be imported.
Lawmakers granted three-year duty suspensions on an estimated 500 imported categories in 2006, but those breaks expired on Dec. 31. The list of products affected by the reimposition of duties is diverse, including a wide variety of yarns, such as combed cashmere and camel hair, rayon and acrylic fibers, and finished footwear.
“The bottom line is if this is not resolved soon, or if there is not an obvious indication that it will be resolved this spring, there will be real damage across the board, from textiles to footwear,” said Nate Herman, senior director of international trade for the American Apparel & Footwear Association. “Footwear companies are holding off on pricing decisions for fall now, but they have to price three to six months ahead of time, and that is why they need to know soon because it will ripple through the supply chain.”
The key industry trade groups are involved in an industry lobbying effort to pressure Congress to move a bill soon and include a retroactive provision, which would reimburse companies paying duties.
“Hopefully we will get an extension passed relatively soon,” said Priest. “The longer it takes to get an extension passed, the harder it will be for [lawmakers] to make it retroactive, and these duties need to be recouped.”