The United States footwear industry has always paid unduly high duties for the shoes it sources from abroad, and with trade as tumultuous as it’s been with tariffs flying left and right, those duties could be set to inch even higher. And with imports accounting for 98 percent of retail footwear sales, the ramifications for the sector would be inescapable.
“Duties are rising and your prices are actually decreasing, which is creating huge pressure in the market,” Andy Polk, senior vice president for the Footwear Distributors and Retailers of America (FDRA), told a group of industry executives at the organization’s Footwear Sourcing and Innovation Summit in New York last week. “The reason duty rates are rising is because of the rise in athleisure…athletic is usually imported at a higher duty rate.”
In its Global Footwear Sourcing Assessment for 2018, FDRA said, in short, shoe store sales in 2017 declined for the first time since the 2008 recession, imports have retreated and China—though still accounting for a substantial 71 percent share of global footwear production—is losing market share to surging shipments from runner-up supplier Vietnam.
China’s share of footwear production, according to FDRA, is set to slide for the eighth consecutive year to its lowest in two decades. Looking more closely, the value of Chinese footwear shipments sank $566 million in 2017, while shipments from Vietnam jumped more than $614 million to reach a record-high $5.4 billion.
“This continued evolution of footwear sourcing from China to Vietnam was an overriding theme impacting supply chains last year,” FDRA said. “Looking ahead, we expect these dominant trends will persist over at least the five-year forecast horizon.”
Tariffs on the uptick
In 2017, the U.S. footwear industry spent $2.85 billion on duties for imported shoes, a 5.8% increase over the prior year.
“That’s 833 grande coffees for everyone in Manhattan,” Polk said to illustrate the scope of the duty spend for shoes.
The average duty per pair also rose for the eighth straight year to a record high $1.20. For perspective on how much the footwear industry pays toward the duties the U.S. collects, the average import tariff rate for industrial goods is 2 percent, compared to the 11.2% average duty collected on U.S. footwear imports.
“Both average duties per pair and average duty rates on footwear imports have risen each of the last few years to their current records,” FDRA said. What’s more, the footwear organization added, “Year to date data suggest the average duty per pair will climb again in 2018 to another unprecedented, and unwelcome, high.”
So far, the footwear industry has dodged most of the tariff bullets shot from the Hill, but the FDRA—and the overall sector—are concerned Trump’s “shoot-from-the-hip style” could end up doing more harm than good for the domestic and global footwear industry and its stakeholders.
The five-year forecast
Over the next five years, the U.S. footwear industry will see modest growth and China’s market share will continue to erode as Vietnam steps in to take it—though 60 percent of the shoes sold in the U.S. will likely still come from China. U.S. footwear imports will see slight growth, though as FDRA explained, it will be “constrained by expected weaker economic population growth, a saturation at retail, and evolving consumer behavior.”
“While few see a recession looming for America, the withdrawal of monetary support amid emerging signs of strengthening inflation and the specter of a trade war with key partner China could constrain otherwise-upbeat growth prospects, in turn limited demand for footwear,” the FDRA report continued.
The issues facing the footwear industry are hardly few, and what may or may not be around the bend in trade could add further pressure to an already strained sector, and the status quo won’t be enough to sustain a business.
“No longer are cost, reliable manufacturing and quick turns the only key drivers in footwear sourcing. And no longer does a vanilla ‘one-size-fits-all’ sourcing model, well, fit all,” FDRA said. “While old monolithic stalwarts resting on their laurels may remain in place and slowly erode, the quick and nimble that stay abreast of consumer, market, and political trends stand to capture more share from increasingly diverse and finicky shoppers.”