Why Nike, Ugg & Michael Kors Should be Worried About Trump’s Trade War

President Donald Trump’s escalating trade war has caused widespread fear over the impact of rising tariffs on the cost of goods. But some experts suggest Americans should be more worried about something else: an upsurge in anti-American sentiment in countries from which U.S. brands profit most.

In a note today, Canaccord Genuity Inc. analyst Camilo Lyon said brands and retailers should pay greater attention to “the potential backlash from the Chinese government and consumers toward U.S. brands” as well as “the spillover that might manifest in the form of anti-American sentiment on the mainland.”

Lyon said China has been — and continues to be — the “most important growth market for many U.S. brands,” with Tapestry, Michael Kors and Steve Madden among the footwear and apparel makers with a sizable business in the region.

For perspective, he estimates 5 percent (or $200 million) of Michael Kors sales were generated in China last year. Meanwhile, Tapestry — owner of Coach, Stuart Weitzman and Kate Spade — made about $600 million (or 13 percent of total sales) in the region in 2017. Steve Madden is estimated to have earned 3 percent (or $39 million) of its revenues from China. Nike last year generated $5.1 billion (or 14 percent) of its sales in the mainland.

Meanwhile, Ugg parent firm Deckers Brands earned $122 million, or 6 percent of its revenues, in the world’s most populous country. Meanwhile, VF Corp. — owner of Timberland, Vans and The North Face — brought in $634 million (or 5 percent of total sales) there.

Indeed, as China continues to reimagine itself as a consumption-based economy, an increasing number of U.S firms are targeting the mainland — especially its burgeoning middle class and its growing appetite for luxury goods.

For now, Lyon said he has not seen any evidence to suggest anti-American sentiment is brewing in the region, but “if the tariff rhetoric takes a decidedly more negative turn, the risk of a backlash could gain momentum.”  (HBC last week confirmed it was phasing out the Ivanka Trump brand from its Canada-based Hudson’s Bay stores, citing dimming sales. However, insiders have speculated that the firm faced pressures to ditch the first daughter’s eponymous line after her father targeted Canada with new tariffs.)

So far — on the lists of thousands of products from the U.S., China, Mexico, Canada and Europe threatened with or affected by new tariffs — footwear and apparel have been largely spared. But last week, the Trump administration said it identified an additional $200 billion worth of U.S. imports from China to be hit with a 10 percent tariff — and that list included handbags.

If the tariffs go into affect, Lyon estimates that Michael Kors’ fiscal year 2019 earnings would take a 0.7 percent hit, Tapestry could be dented by 1 percent, and Steve Madden would take the greatest dip at 5 percent.

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