On May 20, more than 170 shoe companies came together to pen a letter urging President Donald Trump to remove footwear from his latest tranche of tariffs.
It became the latest showing of disapproval from the retail industry — less than two weeks after the United States imposed a rise in levies, from 10% to 25%, on $200 billion worth of Chinese products. (The move led Beijing to retaliate with new duties of 5% to 25% on $60 billion of U.S. goods.) Days later, the Office of the U.S. Trade Representative released a list of Chinese imports that could be hit with a proposed 25% increase in tariffs, and footwear was among the targeted products.
But retailers aren’t the only ones that will bear the brunt of such hikes. As costs grow within the supply chain, trade groups and industry leaders have lamented that companies may be left with no choice but to raise prices for American consumers.
Here’s what top executives are saying about the impact of Washington’s tariffs within their own houses and the market beyond.
CEO Diane Sullivan: “As a reminder, we have been actively diversifying production away from China over the last five years and now source approximately 60% of our products from there. And our powerful sourcing base gives us a competitive advantage in the footwear space. While nothing is final yet, and we are certainly hopeful for a positive resolution, we are actively working through contingency plans, which includes potentially shifting additional production out of China, working with our factory partners to reduce costs and exploring price increases. While we are treating these issues with the same sense of urgency we’re applying across our entire business, we are taking nothing for granted.”
Columbia Sportswear Co.
CEO Tim Boyle: “We will pass on the prices if we have to. Again, this is a tax on commodities that American consumers are going to be consuming — so, yes, these taxes will be passed on … This is a very disruptive event for us. The big issue is really the uncertainty we face in trying to grow our business; we’re spending way too much time worrying about Mr. Trump’s trade war as opposed to selling our products.” (In an interview on Bloomberg TV)
Deckers Outdoor Corp.
CFO Steven Fasching: “We are aware of and continue to monitor tariff decisions and work closely with our supply chain operations to identify risk-mitigation strategies. This includes the potential to adjust shipment timing, which could have abnormal effects on the timing of inventory level … We have been actively shifting production outside of China, and less than 20% of our global total would be subject to tariff[s].”
Dick’s Sporting Goods Inc.
CFO and EVP Lee Belitsky: “For us, these tariffs were mostly concentrated in our hard-lines categories and were factored into our original 2019 guidance. Effective May 10, this tariff was increased to 25%. We’re still working through the impact of this increase with our manufacturing and brand partners and how this may influence our overall pricing strategy … I would say it’s more a little bit of general concern around where the consumer will be through the back half of the year, particularly if the tariffs ramp up going forward.”
J. C. Penney Co. Inc.
CEO Jill Soltau: “There is a minimal impact on our business resulting from the three tariff tranches that went into effect last year, including the recent increase on the third tariff tranche that went into effect on May 10, which increased tariffs from 10% to 25%. However, in looking ahead, we do anticipate a more meaningful impact on both our private and national brands if the potential fourth tranche of tariffs does go into effect on all Chinese imports.
“Having said that, our teams will continue to work through, where possible, de-risking efforts with key partners. Of particular note, and given our sourcing capabilities, we have been proactive in developing contingencies for sourcing our private brands for the better part of the last several years and meaningfully diversifying our country of origin. This has allowed us to significantly reduce our exposure to China, which is already lower than industry averages. We will continue to monitor the situation and will provide updates going forward if necessary.”
CFO Bruce Besanko: “Our team is working hard to mitigate the impact of the tariffs while we seek to remain competitive by putting our customers first. … It’s important to note that our merchandise margin continues to be at all-time highs. However, given the tariffs and our actions to drive the top line, it’s becoming more difficult to offset the cost of shipping headwinds.
“We’re obviously disappointed to see the increase in tariffs from 10% to 25%. Right now, these tariffs primarily affect our China-sourced merchandise in our home and accessories business. Of course, apparel and footwear at this point are not impacted. … China is not our largest source of merchandise, but it is a big one. It’s a little over 20% of our goods.
“We know that our customers are driven by our value equation, and so we want to make sure that our pricing is right for the customers and for Kohl’s. The actions that we’re going to take going forward are to be sure that our customers receive that value and that they come into our stores. We’re going to take a prudent approach in terms of modeling these tariffs, which is what we’ve done, so we can have maneuverability with respect to our pricing behaviors.”
CEO and chairman Jeff Gennette: “The three tranches of tariffs that were enacted in 2018 have no meaningful impact on our business and were factored into our 2019 guidance. The increase of the third tranche from 10% to 25% on May 10 does have some impact, particularly on our furniture business. However, the team anticipates that this can be mitigated.
“If the potential fourth tranche of tariffs is placed on all Chinese imports, that will have an impact on both our private and our national brands. We would work with our manufacturing and brand partners to minimize the impact to our customers. This potential fourth tranche of tariffs was not contemplated when we provided annual guidance. We are hopeful that trade talks between U.S. and China will continue productively and the trade actions between the two countries will deescalate.”
Shoe Carnival Inc.
CEO, president and director Clifton Sifford: “We are working very hard to try to make sure these tariffs don’t go through. We are already the highest tariffed apparel industry, and it just makes absolutely no sense. We can’t just sit back and hope that it doesn’t happen, so we are making changes. We have begun to move product away from China and then into other countries in Southeast Asia, and the good news is that much of our athletic product has already been moved out of there by the brands. So we’ve taken a very proactive approach through FDRA and through our vendor community.”
CEO and chairman Brian Cornell: “As a guest-focused retailer, we’re concerned about tariffs because they lead to higher prices on everyday products for American families. Our team continues to monitor trade negotiations and develop contingency plans to help mitigate the impact of tariffs on our guests and on our business. … As always, we remain focused on being priced competitively every day, delivering value for our guests while judiciously managing our margins.
“Our current actions are not reactive. They’re responsive, and we’ve been planning these for some time, looking at the level of potential change and working with our deep vendor base — we have trusted partnerships — and leveraging our current strength of performance to build opportunities to diversify, to work through price changes. … When you look at our Q1 results, where we’ve been able to effectively mitigate those risks from prior announcements, it bodes well for how we look to manage this moving forward.”
CEO, president and executive chairman Steve Rendle: “While current events have the potential to disrupt our business and our consumers around the globe, to date, the impact to our business has been minimal. While we’re more closely monitoring conditions in certain markets — such as China and the U.K. — for our businesses, the overall consumer backdrop remains quite solid. As it relates to trade, the impact of tariffs to date has been de minimis. We continue to monitor this situation closely and are developing contingency plans for potential outcomes. For context, post our spin-off of Kontoor Brands, our total cost of goods sourced directly from China to the U.S. is 7%, and we will continue to implement mitigating actions to dampen the financial impact of incremental tariffs.”
Original published May 22, 2019. This story will continue to be updated with more comments.
Watch the highlights at the 2018 FNAAs.
Trump China Tariffs: Americans Would Pay $7 Billion More for Shoes Annually, FDRA Says