US Apparel And Footwear Firms Will Face Negative Impact For Trump’s Tariff

- Oct 09, 2018 -

President Donald Trump imposed 10 percent tariffs on $200 billion worth of Chinese imports, beginning from September 24 and those duties will rise to 25 percent on January 1, 2019. US apparel and footwear firms will face negative exposure, if President Trump follows through on threats to impose tariffs on all goods imported from China.

US apparel and footwear firms will face negative impact for Trump’s tariffFigure: Next tariff threat would hit US apparel and footwear firms hard. Courtesy: The White House official Facebook page

A new Moody’s report analyzed that the most recent round of tariffs mostly excludes apparel and footwear, but does include certain apparel accessories such as handbags and leather gloves, textiles and yarns, leathers and cotton.

The report stated that, large, rated apparel manufacturers derive more than half of their revenue from the US; therefore, these additional tariffs, if imposed, would be credit negative for the US apparel and footwear sector because of the higher cost of goods sold for the US divisions of companies that import goods from China.

The report noted that the impact of the new tariffs will vary company to company and the effect will depend on how much they source products from China, the degree they can diversify away from China, their pricing flexibility and how they adjust product designs or cut costs elsewhere in their businesses.

For example, it noted that G-III Apparel Group generated around 88 percent of its 2017 revenue in the U.S and purchased around 65 percent of its 2017 inventory from China. Other companies that could be set to take a hit include footwear companies Caleres Inc., Payless Inc. and Wolverine World Wide. On the other hand, Levi Strauss & Co. and V.F. Corpare well positioned from a diversity standpoint, with less than 20 percent of their products sourced from China.

The report said that, “Most companies will look to pass along at least some of the additional cost to consumers, including on premium products where there is less price sensitivity.”

“Larger companies with stronger margins and balance sheets, such as Wolverine and PVH Corp. could decide to absorb higher costs in an effort to gain market share. In addition, some firms will try to save on costs by adjusting product designs to achieve a cost or product pricing level or could cut costs within their organizations,” the report added.

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