As the G20 Summit kicks off in Argentina — and a U.S. trade war with China is again in the spotlight — the athletic footwear market is preparing for the worst.
The U.S. has already placed tariffs on $250 billion in Chinese products, and ahead of the summit, President Donald Trump has threatened that more could come — which would bring the total to $517 billion.
Firms including Brooks Running Co. are weighing options on how to lessen the impact of the tariffs on its business and consumers.
“There are essentially three options for our brand. However, none of them are great solutions,” CEO Jim Weber told FN.
The first path, he said, is to raise prices. “We likely won’t do this because our competitors also won’t, for various reasons,” Weber said.
The company would then eat the cost of the tariffs, but that means any benefit it would have gotten from Trump’s tax reform would be erased. “And the tariff on a running shoe from China [could] be at a staggering 45 percent,” Weber said.
Finally, the CEO said that Brooks could also move its production to another country, a move many firms have been weighing.
While Weber hopes to avoid passing costs to consumers, The NPD Group Inc.’s senior sports industry adviser, Matt Powell, believes it’s unavoidable.
“There’s no way that most of it doesn’t get passed on. These numbers are staggering in terms of their size, and a brand can’t simply not make money [because of the tariffs],'” Powell said. “Most of it is going to have to be handed down or brands are going to have to take something out of the product to keep costs down, so the consumer is getting a lesser-quality product for the same price.”
FDRA CEO Matt Priest believes the best approach for athletic companies to take is to diversify supply chains.
“The industry was already moving out of China, in particular the athletic companies, because of other variables — labor shortage, rising costs and the potential for the [now-defunct] Trans Pacific Partnership,” Priest explained.
Priest said China used to account for 93 percent of the U.S. imports and is down to 69 percent today — and continues to trend downward.
No matter how companies attack the issue, there could be huge implications. “This potentially could put us into a recession, and not just the sneaker prices but the whole idea of tariffs,” Powell said.
Priest fears that the tariff impact could curb the innovation that’s driving the shoe market.
“I don’t see employment being curtailed, but I do see investments curtailed. Companies will be less bullish about investing in technology, digital, all these things that we need to be investing in because consumers are demanding it,” Priest said.
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