Trade War Trade-off: Some Footwear Firms Are Striking Favorable Factory Deals in China

For many, it’s the worst of times when it comes to sourcing in China. But for one footwear manufacturer, it’s quite possibly the best of times.

Talk has surfaced among apparel and footwear manufacturers about Chinese factories offering double-digit discounts on product, lowering prices by 25% to cover the equivalent threatened U.S.-China trade war tariffs, bending on payment terms — in other words, whatever it takes to retain sourcing orders for U.S.-bound shoes.

And if you ask Matt Brown, vice president of sales for Hong Kong-based Richlife Footwear, which manufactures hiking boots for several brands, much of that is true.

“This is the greatest time in the history of sourcing from China,” Brown said on a panel at the Footwear Distributors and Retailers of America’s Sourcing and Sustainability Summit in New York City earlier this week. “We have factories we’ve dealt with for years who are calling us up begging us not to lose the customer.”

One factory owner, Brown said, was willing to fly buyers to the facility, lower the price of a pair of shoes by $2 and agree to let the customer pay 15 days after putting the product in the warehouse.

“If you’re not taking advantage of the weakness in the Chinese factory operation right now, you’re leaving money on the table,” Brown said. For the last 25 years, he said, prices inched up a little bit each year and only volume, stability and time commitments could make factories give in to a deal. “The way I see it is, the companies and the factories you work with in China, make sure you don’t leave any money on the table with them. Make sure you get a commitment for time. And this could be some of the best times we’ve had.”

The benefits of these possible price breaks, however, could be short-lived.

Looking at it from a slightly different viewpoint, Mike Jeppesen, president of global operations for Wolverine Worldwide, said while he’s heard that Chinese factories are making such concessions, he wants no part of it.

“It’s not something we’ve pursued to a large extent on our part,” he said. “I hope that my costing team is strong enough not to leave too much on the table when they negotiate prices in the first instance, so if there truly were a 25% price reduction coming out of footwear, I would probably not be very happy about that.”

Regardless, Jeppesen said, “It’s not a sustainable situation. [It’s more like] a gun to the temple of the Chinese factory owner that, ‘you either drop your trousers or we’re going to move the production.’ ”

Wolverine works with four factories in China, two smaller and two larger — the latter of which has proposed similar price breaks on production. But Jeppesen won’t be swayed.

“I don’t think they can sustain it for more than a year or two,” he said. “If you have to set up a production run in China that’s losing money, no one’s going to have any interest in that in two or three years.”

Editor’s Note: This story was reported by FN sister magazine Sourcing Journal. For more, visit Sourcingjournal.com.

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