No Clear Path on Reciprocal Tariffs Leaves Footwear Firms in The Dark
Vicki M. Young
7 min read
Footwear firms continue to navigate the great unknown.
Shoe manufacturers and others are still grappling with uncertainties over rising costs even though they’re all hoping that potential trade deals can be negotiated during the 90-day pause on reciprocal tariffs, which ends July 9th. The exception is the 145 percent tariffs on Chinese imports, though there are signs that might not stick.
Three weeks after U.S. President Donald J. Trump announced reciprocal tariffs on April 2, the only thing that’s certain is that duties are going up. While there’s at least a 10 percent baseline increase, just exactly how high the new levies can go seems to be a moving target. A few days after April 2, Trump issued a 90-day pause, with the exception of Chinese imports, which saw an even higher increase in tariffs on top of the levies imposed in February and March.
Analysts at TD Cowen’s Washington Group see potential for new trade deals with Japan, South Korea and India — which could be among the first to strike deals with the U.S. prior to July 9.
In an interview with Footwear Distributors of America (FRDA) CEO Matt Priest on April 3, he said the government of Vietnam is also in proactive talks with the Trump administration. Priest sees those talks as a positive as Vietnam has a high proportion of performance athletic footwear production.
U.S. equity markets rose on Wednesday following remarks by Trump on Tuesday that tariffs on Chinese goods would go down. Trump made the comments at the White House swearing in of new Securities and Exchange Commission chair Paul Atkins.
“We’re doing fine with China. We’re doing fine with, I think, almost every country. Everybody wants to have involvement with the United States,” Trump said.
Trump also said that ultimately, China has to make a deal “because otherwise they’re not going to be able to deal in the United States. So we want them involved but they have to — and other countries have to — make a deal and if they don’t make a deal, we’ll set the deal.” He added, “We’ve spoken to many, many countries, and we’re getting their views on things.”
Among footwear firms posting a sea of green in Nasdaq trading Wednesday were On Holding AG, which closed up 4 percent to $44.34; Amer Sports Inc., up 4.3 percent to $23.21; Boot Barn Holdings Inc., which saw shares rise 5.6 percent to $98.55; Genesco Inc., up 3.3 percent to $19.98; Crocs Inc., up 3.1 percent to $96.49; Allbirds Inc., also up 3.1 percent to $5.07; Skechers U.S.A. Inc., up 2.3 percent to $49.14, and Wolverine World Wide Inc., up 1.5 percent to $12.41.
Among the retailers, Dick’s Sporting Goods Inc. rose 2.5 percent to close at $185.40, while Academy Sports and Outdoors Inc. was up 2.4 percent to $37.74 and Foot Locker Inc. rose 1.8 percent to $11.77.
Nike shares declined most of the morning, but closed the trading session up 0.3 percent to $57.23. In contrast, Steve Madden Ltd. was up during the day, but closed down 0.07 percent to $20.50. Two other brands also saw red: Under Armour Inc., down 0.7 percent to $5.48 and Caleres Inc., down 0.5 percent to $15.24. Caleres said in February that it was acquiring Stuart Weitzman from Tapestry Inc. for $105 million. On the retail front, Shoe Carnival Inc. saw its shares decline 1.4 percent to $17.57.
The problem for all companies is that no one is sure how much talking is going on in the background with China, as U.S. Treasury Secretary Scott Bessent is alleged to have told attendees at a closed-door investor summit for JP Morgan in Washington on Tuesday that while he’s optimistic that a deal can be reached, those negotiations haven’t yet begun, according to a Bloomberg report.
Bessent also reportedly said that a rebalanced trade relationship between the two countries could result in a larger trade agreement in the next two to three years, much longer than footwear retailers and brands had hoped. And adding to the complexities for shoe firms and retailers is the possibility that come July 9, Trump could elect to further delay reciprocal tariff implementation for other countries.
For now, S&P Global Market Intelligence (Market Intelligence) said U.S. exporters have seen a rise in Chinese buyers canceling orders. “Exporters also expect they will need to redirect their cargo to other Asian countries to make up for the diminished Chinese market,” S&P said.
Despite an expected slowdown in consumer spending, separate from the so-called doom spending in March as they sought to get ahead of tariffs and related price increases, a Market Intelligence report from last week indicated that footwear is not among the most vulnerable within the U.S. retail sectors.
That distinction goes to consumer electronics at 7.2 percent in March, up from 6.5 percent in the prior month. In comparison, footwear in March was at 2 percent, up from 1.4 percent in February. Apparel retail was higher at 4.2 percent, up from 3.3 percent on the same period.
Goldman Sachs equity analyst Brooke Roach on Monday reduced estimates for companies in her coverage area after lowering the outlook for the U.S. apparel and softlines sector due to tariff backdrop. She said Goldman economists see a 45 percent probability of a recession, while geopolitical uncertainty and higher tariff rates pose a downside risk to companies’ earnings per share. Other risk factors could include “reciprocal” tariff rates beyond the 90-day pause, headwinds from foreign boycotts of American brands, muted tourist-driven demand and inventory imbalances, as well as pricing uncertainty.
And last week credit analysts from Moody’s Investors Service changed their outlook to negative from stable for the global retail and apparel sector. They expect U.S. apparel and footwear firms, big-box retailers and department stores will be the ones most likely to feel the pain, given that higher prices will impact strapped middle- and lower-income consumers.
“Restructuring supply chains pose major challenges with more complex products, including footwear, even more difficult to modify without compromising quality,” the credit analysts noted in a report. “Consumer demand was already tepid, with many discretionary categories struggling.”
The Moody’s analysts also noted that performance sneakers require specialized labor and manufacturing that’s not readily available outside of key Asian countries. Under Armour, Nike and Wolverine, for example, are all heavily concentrated in footwear and technical apparel that are sourced primarily from China, Vietnam and Southeast Asia, with few options for shifting production to countries facing lower U.S. tariffs. And while Crocs has high exposure to Vietnam, the credit analysts said it could see less of an impact due to its “high profit margins, brand momentum and greater ability to shift production.”
Among the retailers, the Moody’s analysts cited Foot Locker as a company with low operating margins and a more vulnerable lower-income consumer base.
In the big-box category, Dick’s Sporting Goods imports much of their apparel and footwear from China and other parts of Asia, but the analysts said it can ease the tariff impact by shifting to its private-label brand portfolio and absorb some of the cost increases. Small retailers such as Academy Sports might be less able to absorb costs since it doesn’t have the scale to garner the same purchasing power or supplier diversification and flexibility, the credit analysts concluded.
