Tariffs Impact Footwear and Apparel Industry

Key Points:

* Tariffs of 25% on Canada and Mexico and 10% on China have been imposed.
* Nearly all footwear and apparel sold in the US is sourced internationally.
* Companies most affected include Kontoor Brands (KTB), Warby Parker (WRBY), Skechers (SKX), and Crocs (CROX).
* Retailers anticipate challenges in passing tariff costs to consumers.
* Companies are exploring strategies to mitigate the impact, including diversifying production and using artificial intelligence.

Impact on Footwear Brands:

* Skechers and Crocs source significant portions of their products from China.
* Skechers estimates a 9% impact on EPS, while Crocs anticipates a 4% hit.

Industry Challenges and Responses:

* Footwear importers face a difficult road ahead due to the high reliance on foreign sourcing.
* Companies are considering moving production out of China to mitigate tariffs.
* Retailers are convening "tariff war rooms" to strategize and explore mitigation tactics.
* Artificial intelligence is being employed to optimize processes and protect margins.

Companies Most Affected:

* Kontoor Brands (KTB) sources 30% of materials from Mexico and Canada.
* Warby Parker (WRBY) sources 20% of products from China.
* Skechers (SKX) and Crocs (CROX) source 40% and 28% of products from China, respectively.

Analysts' Perspectives:

* Analysts believe companies have less room to raise prices due to consumer resistance.
* Tariffs will disrupt supply chains and impact consumer spending.

Diversification and Mitigation Strategies:

* Nike (NKE) has diversified its supply chain outside of China.
* On Holding (ONON) is well-positioned to manage tariffs due to its reliance on Vietnam.
* Companies are exploring artificial intelligence to automate processes and reduce costs.