The Wall Street Journal - 21.08.2019

THE WALL STREET JOURNAL. Wednesday, August 21, 2019 |B5

retailers. That has left them op- erating on such thin margins that absorbing even a portion of any costs associated with the new tariffs would be painful. The tariffs would come not long before the start of the holi- day shopping season. Jay Sole, a retail and depart- ment store analyst at UBS, esti- mated that if the administration raised tariffs on China to 25%, it could lead to as many as 12,000 stores closing, about 10% of the stores among the 524 retailers UBS tracks. Even the proposed 10% tariff would pressure hun- dreds of stores throughout the U.S., he added. Some retail landlords are less pessimistic. They suggest it could take years before tariffs si- phon enough cash flow to threaten rent payments of most retailers. “It’s a little far down the line,” said Charles Lanier, direc-

shoes, said it increased imports from China in the spring to stay ahead of tariffs that would affect apparel and footwear. “In May, when the threat again became evident, we had discussions with all the factories in China and just tried to pull everything for that we could,” Weyco CEO Thomas W. Florsheim Jr. said during an earnings call this month. Columbia Sportswear Co. said it may stop offering some products made in China. “When there’s uncertainty, that’s the en- emy of investment,” said Peter Bragdon, Columbia Sportswear’s executive vice president. At least a few retailers already facing tariffs have been able to raise prices without much consumer backlash. In May, Home Depot said it man- aged to pass the tariff costs on imported washing machines to its customers. Sales initially sagged, then recovered.

Steven Madden Ltd., a shoe and fashion-accessory company, said it has already moved some production out of China. If any competitors feel compelled to raise prices after the China tariffs, the company would view that as an opportunity to gain market share. “We’re making a good chunk of the Steve Madden-branded products in Mexico for fall,” CEO Edward Rosenfeld said on a re- cent earnings call. He added that some production was moved to Cambodia “and a number of other countries.” But shifting suppliers isn’t an easy option for most apparel companies. It takes years to build relationships and establish new supply chains. Retailers have built quality-control sys- tems in Chinese factories that can’t be dismantled and reas- sembled in another country overnight.

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BUSINESS NEWS

tor of real estate at Plaza Associ- ates Inc., a private commercial- property landlord that runs Crabtree Valley Mall in Raleigh, N.C. The administration has already imposed 25% tariffs on $250 billion of Chinese goods. With plans for new duties on additional Chinese products, vir- tually all imports from China would be subject to tariffs by year’s end. Most apparel companies are expected to absorb the cost in- crease themselves or negotiate ways to cut expenses with their Chinese manufacturers to avoid antagonizing customers with higher prices. Macy’s Inc., which raised prices on some luggage, house- wares and furniture when tariffs on such items rose to 25% in May, said it was unlikely to re- peat that approach for apparel subject to new tariffs.

“We learned from that expe- rience that the customer had very little appetite for those cost increases,” CEO Jeffrey Gennette said during the company’s earnings call last week. Instead, he said, Macy’s would work with its Chinese partners to absorb the extra costs. Many apparel companies would find it painful to do the same. Fifteen publicly traded clothing, footwear and accesso- ries retailers tracked by UBS have margins of less than 3%. These companies represent $42 billion in sales, and they operate more than 12,000 stores, UBS said. Still, not all apparel firms would suffer equally. Some brands have already taken steps to mitigate the potential impact of new China tariffs, or even to benefit from them. Weyco Group Inc., which sells Florsheim and Stacy Adams

U.S. apparel companies are
bracing for squeezed profits and
potential store closures as a re-
sult of the Trump administra-
tion’s pledge to extend tariffs on
Chinese imports.
President Trump last week
walked back some of his tariff
threat, agreeing to delay new
duties on toys, cellphones and
other electronics until Decem-
ber. But a majority of apparel
and much of the footwear im-
ported from China are still sub-
ject to tariffs starting Sept. 1.
About 40% of all clothing and
70% of shoes sold in the U.S. are
made in China, according to the
American Apparel and Footwear
Association. After China became
a member of the World Trade
Organization in 2001, U.S. retail-
ers increasingly relied on manu-
facturing their goods there be-
cause of cheaper labor and
production costs.
In all, about $33 billion in ap-
parel, shoes and hats are among
the items subject to a 10% tariff
on Chinese imports beginning
Sept. 1, according to a Wall
Street Journal analysis of data
from the Office of the U.S. Trade
Representative and the Census
Bureau.
As fall approaches, the ap-
parel that will be hit by the tar-
iffs includes gloves, mittens,
overcoats and sweaters. More
than 60% of U.S. stockings and
socks are made in China, and
$250 million of them face tariffs
in less than two weeks.
Many apparel companies
have already been cutting prices
to fend off heightened competi-
tion from discount chains, Ama-
zon.com Inc. and other online

BYESTHERFUNG
ANDINTIPACHECO

Apparel Firms Brace for Tariffs’ Impact

Made in China Sept.1tariffswillaffectproductsforwhichChinese importsrepresentlessthan75%ofinternationalimports.

U.S. imports, 2018

Source: U.S. Census Bureau

China Restofworld

Gloves,mittens

Overcoats

Underwear

Babyclothes

Sportswear

Footwear

Sweaters

Suits,dresses

Shirts

53.4%

47.5

43.7

42.4

40.9

39.4

30

27.6

22.4

About $33 billion in apparel, shoes and hats are among the items subject to a 10% levy on Sept. 1.

RICHARD B. LEVINE/ZUMA PRESS

NY

The Wall Street Journal - 21.08.2019

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