Time’s up for footwear firms trying to front-load shipments ahead of tariff increases to hold costs down for consumers.
“We’re in unprecedented times where everything’s going to be more expensive because of these tariffs that are so broad-based,” Footwear Distributors and Retailers Association president and CEO Matt Priest said in a conference call on Monday.
Priest said companies from importers to wholesalers and retailers have pulled “tricks out of their bags to try to hold off” on hitting consumers with price increases. They’ve also front-loaded some shipments to get ahead of some tariff increases. But most of those shipments for women’s fashion shoes have sold, while there’s still some items left in men’s as that category has a lower turnover rate. That means anything coming in now will see price increases due to tariffs.
“We’ve had two months of increases prices for footwear under the CPI (consumer price index). And if those trends continue, as prices go up, [demand] will go down. It’s inevitable,” Priest concluded. He added that if the unemployment rate ticks up, the softening labor market will see consumers pull back on spending just as groceries and other items get priced higher across the board.
Among the data points cited by Priest, the ability for the industry to source product is critical as 99 percent of shoes sold in the U.S. is brought it from overseas. And in a typical year, that’s nearly two-and-a-half billion pairs of shoes, or seven pairs of shoes for each person in the U.S.
The tariff burden is already high, at about $3 billion each year. “That number is tracking now to be about $5 billion at the end of the year,” he said. From a collection standpoint, tariffs doubled in July to $635 million, or up 108 percent. “We are heading into these later months of the year pretty concerned about how the consumer will respond to these higher prices now that this tariffed product is making its way through the footwear retail ecosystem,” the FDRA president said.
Pat Mooney, CEO of Footwear Unlimited, described the tariff rates as “brutal,” noting that the average 10 percent duty rate is now closer on average to 25 or 30 percent. And because the rates change so quickly, one doesn’t always know what the rate will be. For now, the three biggest countries of origin are China, India and Mexico, where there is no trade deal.
“It’s really a difficult way to navigate a business and know what your margins are going to be,” Mooney said. “Needless to say, it’s interesting times.”
Mooney also said he’s not aware of any retailers that are “planning for sales to be up for next season,” noting that “everybody’s planning for units to be down [because] the price increases are real.” He also said he’s hearing that brands are passing on about 10 percent of the increases onto consumers, with the company and the factory each digesting five percent, and maybe the retailer also at five percent.
Looking ahead, what’s also unclear is how the U.S. Supreme Court will rule on President Trump’s legal authority to enforce the newly imposed tariffs. It’s also unclear if tariff refunds might come into play.
According to Priest, there could be three possible outcomes if refunds were to be issued. Companies could use some of that capital to maintain or even increase headcount. Because refunds have the impact of restoring margins, firms could also lower prices, which would drive savings back into the American consumers’ pockets. Or consumers could see better product because firms won’t need to find ways to cut costs to make their margin target, whether that’s via lower-grade materials or fewer features.