Producers and sellers of footwear in the U.S. warned tariffs threatened by the Trump administration in recent weeks will ultimately mean higher prices for consumers in an industry already burdened with heavy tariffs on imports.
Andy Gilbert, the president of licensed brands for Genesco Inc., which operates brands and retailers including Johnston & Murphy, Dockers and Lids, said the industry has long maneuvered around tariffs, but rising labor costs in China, long the dominant producer of footwear shipped into the U.S., coupled with other trade uncertainty, means higher prices in stores in the near future.
"One of the ways we've been able to navigate tariffs has largely been because we've been able to ... chase cheap labor around the globe by and large," Gilbert said at a footwear CEO roundtable before the start of the Footwear Distributors and Retailers of America's annual executive summit on May 3. "It allows you to minimize the impact on pricing. ... We've reached that point where consumers are going to see taxes and duties passed on to them in the form of price increases."
The fact that shoe prices have largely remained more or less the same over the past 10 to 15 years has made it even more difficult for footwear retailers to turn a profit, Cliff Sifford, the CEO of Midwest shoe chain Shoe Carnival Inc., told reporters.
"As prices go up in the factories and that gets passed on to us, we're not able to pass all those increases on to the consumer," Sifford said.
According to the Footwear Distributors and Retailers of America, the average duty rate for footwear is 11%, including 20% for boys' sneakers, 37.5% for hiking boots and 48% for girls' sneakers. A total of 2.39 billion pairs of shoes were imported in 2017, according to the group, with 1.7 billion pairs, or 71% of those coming from China.
For Wolverine World Wide Inc., the producer of the Saucony and Sperry brands among others, that meant paying $84 million in duties on about $750 million in imported shoes in 2017. Mike Jeppesen, president of global operations for the Michigan-based producer, said the company has considered moving its production out of China stemming from the United States' Section 301 investigation into Chinese trading practices and the ensuing threatened tariffs on imports from the country.
Several of the executives said there has been a gradual shift out of China to other Asian countries, including Vietnam and Cambodia in recent years, due in part to cheaper labor costs, especially for athletic shoe producers. However, producers of work and other nonathletic shoes are not afforded quite the flexible supply chains, some said.
"It's the notion of the value of the imports in footwear and apparel that can be very tempting to the administration," Jeppesen said. "And that's probably what our fear is."
"That would be passed on to the consumer because we as an industry wouldn't find another sourcing country in the foreseeable future," he added. "We don't have another choice."
The industry has been on edge, believing it could be included on a list of $100 billion worth of Chinese imports the Trump administration is considering for tariffs.
U.S. imports of footwear from China, however, were spared in the first batch of 25% tariffs aimed at $50 billion in imports from the Asian nation, stemming from a U.S. intellectual property case.
The footwear executives' comments came as several members of the Trump administration's economic policy team met with Chinese counterparts in Beijing to discuss the tit-for-tat tariffs that have put both nations on the edge of a full-fledged trade war.
During two days of talks May 3-4, the U.S. reportedly asked China to reduce its trade deficit with the U.S. by $200 billion by 2020 and lower tariffs, according to The Associated Press. How China responds and what the Trump administration's next move were both uncertain as of May 4.
Peter Bragdon, executive vice president for Columbia Sportswear Co., said this uncertain waiting period could ultimately affect how footwear companies make investments.
"There's a real cost to the uncertainty," Bragdon said. "People make investments based on uncertainty, and not knowing week to week what the rules are makes it tough to invest."