In the wake of massive coronavirus-induced disruptions to the global supply chain, the Footwear Distributors and Retailers of America is calling for the White House to address the lingering issue of tariffs on Chinese-made goods.
On Tuesday, the group sent an open letter to director of the U.S. Economic Council Larry Kudlow, expressing its members’ desires to see a freeze on duties across the board.
Such an action could help mitigate the pandemic’s impact on shoe companies and their workers, and the White House could make the move without Congressional approval, the group stated.
The FDRA’s request was couched in a show of support for the Trump administration’s proposed payroll tax cut, which would provide an additional $250 each month to shoe store employees across the country.
“There’s been a lot of conversation nationally about what the administration and Congress can do to stimulate and to backstop the American economy under the stresses we currently find it in,” FDRA president Matt Priest told Sourcing Journal.
Senate and House Republicans have already been pressing the administration to remove duties on other imports, like steel and aluminum, coming in from across the globe, and Priest is pushing for footwear to become a part of those talks.
Based on the section 301 tariffs and other duties that are currently in place, the U.S. footwear sector is on track to rack up a bill of $3.85 billion during 2020 alone. In 2018, that number was much lower, at $2.9 billion. Last year, in the midst of growing tensions with China, it reached $3.3 billion.
“This is a trajectory that’s worrisome to us because of the additional cost it adds to products for consumers,” Priest said.
Easing up on any or all of the duty enforcement actions that the White House has enacted over the past three years could free up some capital to fuel the economy, Priest said. It would help blunt the negative impact that the pandemic is having on the markets, bolstering consumer confidence.
Priest likened the industry’s current conundrum to being caught in the center of a tropical storm.
“There are two stories emerging,” he explained. “Firstly, in Asia, there’s a return to normalcy in some regard, with factories up and running.
“But now that we’ve faced that, it’s like we’re leaving the eye of the hurricane and we’re about to enter into the wall on the other side,” he continued. That wall is characterized by declining consumer demand as the virus flares up internationally, coupled with the continued nosedive roiling financial markets.
Footwear import numbers for January were released on Tuesday, and Priest cited a 15.7 percent drop year-over-year, representing the lowest January number in four years and the lowest overall volume in 10 years.
The industry is beginning to see the virus’ impacts on the supply chain, he said, and is now examining how tightening inventory levels will collide with demand.
According to Priest, footwear brands and retailers should look to recent history as they craft their contingency plans.
“We’ve seen this happen before, after the recession of 2008. Everyone got really bullish on bringing product in in 2009, thinking there would be a quick rebound, but it didn’t happen,” he said.
Imports outpaced demand in that scenario, leaving brands saddled with inventory that went unsold.
Last year, the emotional rollercoaster of tariff drama had brands similarly stockpiling. The added stressor of the coronavirus has raised new anxieties not only about the availability of goods from overseas—but also over whether shoppers are in the mood to buy.
Rolling back tariffs and enacting a payroll tax cut wouldn’t be a silver bullet for either issue, but it would be a start, Priest said.
“We want to make sure that the White House understands that from an industry perspective, providing more money in the short term for employees and the broader consumer base as a whole would be a good thing to spur the economy during this challenging time,” he said, adding that Tuesday’s letter to Kudlow was “an opening salvo.”
It’s an issue that must be addressed—and soon, Priest said. As companies release their quarterly earnings reports, a consistent narrative is taking shape.
“You hear some of these big brands talking about multi-billion-dollar hits to their bottom lines in their public releases,” he said. Just Monday, footwear firm Weyco (which owns Florsheim and Bogs, among other brands) released its Q4 results. They showed a decrease in year-over-year net sales of 3 percent, and an 8 percent reduction in net earnings.
Similar results are cropping up across the industry, Priest said, and brands are bracing for further impact.
“We’ve seen a lot of heads-up notes out on the street, and CEOs making comments outside of the normal cadence of their releases,” Priest said. The administration should be heeding those warning signs.
“It’s one thing to withstand the hits that come from natural causes or biological threats that are out of our control, but it’s another to have brands taking multi-million-dollar hits because of U.S. government actions,” he said, referencing current tariff policy. Eliminating duties is a lever that the administration could easily pull to steady the ship during this time of turbulence, he said.
When asked about his outlook for 2020, Priest was hopeful that the industry would right its course.
“Our companies are resilient—they’ve been through a lot of things,” he said. “One of the silver linings of this is that hopefully, we’ll create business processes and procedures that make us more efficient—that digitize our supply chain and keep us nimbler. My hope is that this strengthens us.”