As the pandemic drives price-conscious consumers to seek deep discounts, President Donald Trump’s tariffs are pushing supply chains costs higher for brands — a “perfect storm” for shoe players, according to the FDRA.
“The problem facing the shoe industry is historic,” said Matt Priest, president and CEO of the National Footwear Distributors and Retailers of America. “This sort of divergence has never been this dramatic and impactful as 99% of all shoes sold in America are imported.”
Typically, Priest said, supply chain and retail prices rise and fall together, but not in 2020, according to new FDRA predictions.
The chart below tells the story — the retail price index on the right mirrors the formula used to derive the monthly Consumer Price Index. The average import cost, or landed duty-paid value, on the left is the the sum of the cost, insurance, and freight value plus calculated duties.
Priest said dozens of executives have expressed they have tighter margins than ever before. In addition, the the duty spike is fueling supply chain cost increases, and not just from China. “President Trump’s tariffs have caused average import costs on shoes from the entire world to surge, while fallout from the coronavirus is weighing on retail footwear prices as consumers demand discounts of 30% or more.”
Not surprisingly, the overall forecast for the industry is “bleak” in 2020, Priest said. The FDRA called on U.S. leaders to help eliminate consumer burdens, such as tax hikes.”If we cannot eliminate the source of these increased costs, consumers will eventually see fewer companies selling shoes and less innovative and dynamic footwear in the marketplace,” Priest said. FDRA estimated that companies paid $3.3 billion in duties in 2019, with the footwear category one of the most heavily taxed segments.
Over the past four years, tariffs have been a significant focus for President Donald Trump, who has promised to resurrect U.S. manufacturing by slapping steep tariffs on foreign competitors, principally China.
Last year, the president announced multiple tariff increases on imports from China, which experts said would hit consumers’ wallets. In fact, the Footwear Distributors & Retailers of America estimated in May 2019 that shoppers would pay $7 billion more for shoes annually if all of the proposed tariff hikes went forward.
In a bid to boost the economy amid the COVID-19 pandemic, the Treasury Department and the Customs and Border Protection announced in mid-April that they will afford American businesses a 90-day delay in payments on a range of import tariffs. However, the partial reprieve does not cover duties on the more than $360 billion worth of Chinese goods that were taxed during the protracted financial dispute between Washington and Beijing.