Tar­iffs nip­ping at shoe biz’s heels

In­dus­try fears the worst since most footwear sold in U.S. for­eign made

South Florida Sun-Sentinel (Sunday) - - Money - By Abha Bhat­tarai The Washington Post

Vans, the 52-year-old brand best known for its unas­sum­ing slip-on sneaker, is on a tear. Vans’ an­nual rev­enue topped $3 bil­lion last year, up nearly ten­fold from a decade ear­lier, pro­pelled in part by cheap and plen­ti­ful man­u­fac­tur­ing in Asia.

But loom­ing tar­iffs could ground Vans and other footwear brands. Nine­tyeight per­cent of shoes are man­u­fac­tured abroad, with nearly three-quar­ters of those im­ports com­ing from China, ac­cord­ing to the Amer­i­can Ap­parel & Footwear As­so­ci­a­tion, mak­ing footwear one of the most heav­ily im­ported prod­ucts. Shoes are not on the list of goods ex­pected to be hit by the lat­est round of tar­iffs, but the in­dus­try is on high alert af­ter Pres­i­dent Don­ald Trump said last week he was pre­pared to ex­tend tar­iffs to all $500 bil­lion worth of im­ports from China. “I’m ready to go to 500,” he told CNBC.

“We would be asleep if we weren’t con­cerned about it,” said Scott A. Roe, chief fi­nan­cial of­fi­cer of VF Corp., the par­ent com­pany of Vans, as well as a dozen other brands in­clud­ing Timberland, Reef and the North Face. “We are watch­ing this very care­fully.”

Ear­lier this month, the United States im­posed tar­iffs on $34 bil­lion worth of Chi­nese im­ports in­clud­ing cars and in­dus­trial machin­ery. Shortly af­ter that, Pres­i­dent Don­ald Trump said he would pur­sue fur­ther tar­iffs on an ad­di­tional $200 bil­lion worth of Chi­nese goods.

Shoe com­pa­nies rely heav­ily on Chi­nese-made goods, de­spite ef­forts to move more of their op­er­a­tions Vans sales soared 35 per­cent in the most re­cent quar­ter, mak­ing it one of the fastest-grow­ing shoe brands in the coun­try.

to coun­tries such as Viet­nam and Cam­bo­dia in re­cent years. Last year, the United States im­ported

$14.8 bil­lion worth of shoes from China, mak­ing footwear the fifth-largest cat­e­gory of Chi­nese im­ports, ac­cord­ing an anal­y­sis of Cen­sus data by the Amer­i­can En­ter­prise In­sti­tute, a con­ser­va­tive think tank. (Other top im­ports: cell­phones, $84 bil­lion; com­put­ers, $67 bil­lion; toys,

$28 bil­lion; fur­ni­ture and bed­ding, $27 bil­lion.)

The shoe in­dus­try al­ready pays nearly $3 bil­lion a year in tar­iffs, much of it dat­ing to leg­is­la­tion from

1930 that was meant to pro­tect Amer­i­can man­u­fac­tur­ing dur­ing the Great De­pres­sion. Can­vas shoes, like the ones Vans sells, come with par­tic­u­larly hefty tar­iffs — as high as 68.5 per­cent, ac­cord­ing to in­dus­try

groups.

“Footwear tar­iffs tend to be among the most re­gres­sive,” said Nate Her­man, se­nior vice pres­i­dent of sup­ply chain at the Amer­i­can Ap­parel & Footwear As­so­ci­a­tion. “The low­est-priced shoes — chil­dren’s fab­ric ten­nis shoes you’d find at Wal­mart — have the high­est tar­iffs, while higher-end men’s leather dress shoes are taxed a lot less,” at about 8.5 per­cent.

(One rea­son for that dis­crep­ancy: When the tar­iffs were orig­i­nally ne­go­ti­ated in the last cen­tury, Con­verse, then a lead­ing U.S. man­u­fac­turer, lob­bied to levy the high­est du­ties on com­pet­ing cloth shoes, Her­man said. There are other decades-old holdovers too: Women’s and chil­dren’s shoes of­ten come with much higher tar­iffs than shoes for men.)

Nike, Sau­cony and Un­der Ar­mour wrote a let­ter to Trump ear­lier this year, ar­gu­ing against more shoe tar­iffs. “Adding even more tar­iffs on top of this heavy bur­den would mean higher costs for footwear con­sumers and fewer U.S. jobs,” the let­ter said. “Any ac­tion taken to in­crease du­ties on Chi­nese footwear will have an im­me­di­ate and long-last­ing ef­fect on Amer­i­can in­di­vid­u­als and fam­i­lies.”

Even if footwear im­ports es­cape ad­di­tional tar­iffs, an­a­lysts say con­tin­ued un­cer­tainty could fur­ther roil an in­dus­try that has had tepid growth in re­cent years. Spend­ing on shoes rose just 1 per­cent last year, to $80.2 bil­lion, ac­cord­ing to the U.S. Bureau of Eco­nomic Anal­y­sis.

“This is all in­ter­re­lated: Even if we’re not on any tar­iff lists go­ing for­ward,

we’re still go­ing to see con­sumers cut­ting back on items like shoes be­cause of price in­creases else­where,” said Matt Priest, pres­i­dent of the Footwear Dis­trib­u­tors and Re­tail­ers of Amer­ica.

That could be bad news for brands like Vans, which has rein­vented it­self af­ter fil­ing for bankruptcy in the

1980s. Com­pany ex­ec­u­tives would not dis­close what per­cent­age of its shoes are man­u­fac­tured in China, but said Vans has “a very di­verse sup­ply chain.”

Vans got its start in 1966 as a Cal­i­for­nia-based man­u­fac­turer. Em­ploy­ees made rub­ber-soled shoes each morn­ing and sold them straight out of the com­pany’s Ana­heim fac­tory in the af­ter­noon. But by the late

1990s, Vans had shut­tered its Cal­i­for­nia fac­to­ries and moved all of its man­u­fac­tur­ing to Asia, in part to com­pete with lower-priced ri­vals.

To­day, an­a­lysts say Vans’ laid-back style and low prices — typ­i­cally about $50 — set it apart from com­peti­tors such as Nike and Adi­das. The com­pany has also teamed up with a num­ber of col­lab­o­ra­tors, from A Tribe Called Quest to Mar­vel comics, in re­cent years, help­ing drive up sales with ex­clu­sive part­ner­ships and lim­ited-time of­fers.

Sales soared 35 per­cent in the most re­cent quar­ter, mak­ing Vans one of the fastest-grow­ing shoe brands in the coun­try. Its can­vas shoes — once pop­u­lar mostly among surfers and skaters — have gar­nered wide­spread ap­peal in re­cent years. Among its fans: celebri­ties Kris­ten Ste­wart and Frank Ocean (who wore them to the White House for a state din­ner).

A rise in main­stream “streetwear” has also helped re­vive the brand, said Jane Hali, a re­tail an­a­lyst for Jane Hali & As­so­ci­ates in Boca Ra­ton, Fla. Amer­i­cans are in­creas­ingly look­ing for com­fort­able shoes that are ca­sual but unique, she said, help­ing boost Vans, as well as ri­vals such as Supreme, which last year sold a stake to the Car­lyle Group.

“When you look at streetwear cul­ture, the sneaker is al­ways the fo­cus,” she said. “That’s where com­pa­nies like Vans are com­ing in and dom­i­nat­ing.”

Vans’ par­ent com­pany, ex­ec­u­tives said, is al­ready see­ing an in­crease in the cost of belts and other ac­ces­sories.

“There’s a real cost to the un­cer­tainty,” said Peter Brag­don, chief op­er­at­ing of­fi­cer of Columbia Sports­wear. “A lot of th­ese things have un­in­tended con­se­quences — the cur­rent sys­tem of tar­iffs is bad, but it’s pre­dictably bad. Not know­ing week-to-week what the rules will be makes it dif­fi­cult to in­vest.”

PA­TRICK T. FAL­LON/BLOOMBERG

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