Whether it’s rising wages, labor strains or the trade war, Wolverine Worldwide is shrinking its footprint in China, like much of the rest of the industry.
And though the footwear manufacturer’s scale back didn’t start with the trade war, the uncertainty of new tariffs—threatened or real—has certainly fueled it.
“We started migration out of China seven years ago, not so much because we knew that Trump would be the president…but more because it wasn’t sustainable,” Mike Jeppesen, president of global operations for Wolverine Worldwide, said speaking at the Footwear Distributors and Retailers of America’s Sourcing and Sustainability Summit in New York City Tuesday.
The company’s over-heavy investment in one locale, plus wage pressures in China were the leading factors that saw it downsize its production there. “We diversified to 50 percent of what it was, and obviously the more recent developments in the last couple months here has further spurred us to take a more aggressive stance,” he added.
So far, Vietnam has reaped the most benefits from Wolverine’s China retreat.
“In 2011…we were nearly 90 percent China based. Last year Vietnam became the biggest sourcing country we have, so we are below 40 percent China based in 2018.” Jeppesen said. “I suspect by the end of this year we will be somewhere around 25-30 percent China based. Vietnam will be 45 percent.”
Though it’s working right now, Vietnam will only solve sourcing’s ills temporarily, according to Jeppesen.
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“I think that the short-term fix for all of our issues is Vietnam, but Vietnam is unsustainable,” he said. “There’s really no labor availability to be found.”
What’s more, the cost benefit on that already scarce labor, which could come from skirting tariffs on footwear made in China if threatened tariffs materialize, may not turn out to be beneficial enough.
“Labor costs in Vietnam is slightly lower than in China, but it loses out against the productivity,” Jeppesen said.
And that labor cost is expected to climb, too.
“Like any other growing nation, Vietnam will start putting pressure on the government for social benefits, for higher wages, so we’ll see the prices go up in Vietnam,” he added.
When it comes to the question of whether Vietnam has capacity to take on more footwear production—which many footwear brands and manufacturers are concerned about as they consider placing more product there—Jeppesen said the answer lies in the already rising prices coming out of the country.
“When you see the prices beginning to spring up, that’s an indication that you have full orders,” he said.
In the next year or so, Jeppesen said Vietnam could end up accounting for 50 percent of the footwear imports into the U.S., though that may not be in the sector’s best interest.
“I think we need to get that down to a more reasonable level of 30-35 percent,” he said. “I think Vietnam needs to be tapered off.”