Tariffs Impact on Footwear and Apparel: A Deeper Exploration

Increased Duties Under Trump's Executive Order

President Trump's recent executive order has imposed tariffs on goods imported from China, Mexico, and Canada. This move could significantly impact the footwear and apparel industry, which heavily relies on international sourcing.

Impact on Leading Brands

* Kontoor Brands (KTB): Sources 30% of materials from Mexico and Canada, facing a potential 23% decline in earnings per share (EPS) without mitigation.
* Warby Parker (WRBY): Sources 20% of products from China, with an estimated 14% drop in EPS.
* Skechers (SKX): Sources 40% of products from China, potentially leading to a 9% EPS impact.
* Crocs (CROX): Sources 28% of products from China, facing a possible 4% hit to EPS.

Challenges in Passing on Costs

Unlike in 2018, companies have limited ability to raise prices to offset tariff costs due to:

* Reduced consumer spending power after recent inflation
* Difficulty in absorbing increased costs

Diversification Efforts and Long-Term Implications

Some companies, such as Skechers, are pursuing diversification of production outside of China. However, China remains a major manufacturing hub.

Retailers and industry experts anticipate further shifts in manufacturing locations to Southeast Asian countries. Early movers will have an advantage in securing capacity.

Mitigation Strategies

Retailers are actively strategizing in "tariff war rooms" to mitigate the impact:

* Forming cross-functional teams
* Reviewing and refining scenarios
* Prioritizing potential levers and mitigation strategies

The use of artificial intelligence (AI) to automate processes and reduce costs is also being recommended to protect margins.

Conclusion

The implementation of tariffs is poised to reshape the footwear and apparel industry. Companies with significant exposure to imported goods face financial challenges. Retailers and manufacturers are exploring various mitigation strategies to navigate the evolving landscape.