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Chinese Manufacturers at Footwear Sourcing at MAGIC Say Orders Are Dropping Amid Trade War

Across a vast showroom floor at Footwear Sourcing at MAGIC in Las Vegas this week, an aura of tension surrounded the show’s normally lively proceedings.

Exhibitors from countries across the globe still made the trek to showcase their wares, but activity on the first day of this year’s show was less animated than usual, according to some attendees. A number of Chinese manufacturers openly worried that the impending 10 percent tariff increase on Chinese goods, set to take effect on Sept. 1, was to blame for buyers’ anemic attendance.

Additionally, a currency devaluation in China sent markets into a brief bout of mania last week, further stoking economic uncertainties. China’s renminbi (RMB) dropped by 2 percent last Monday, as a result of the People’s Bank of China setting the official midpoint reference at 6.97 yuan per U.S. dollar—the weakest assessment the currency has received in more than a decade.

“The tariff is really the straw that broke the camel’s back, because the market has been really shaky for the past few years already,” said Laurence Tseng of Chinese footwear manufacturer Beluga Shoes.

Tseng, who designs and produces casual lace-up and slip on sneakers, said that despite that uncertainty, he’s not looking to make changes in his strategy just yet.

“I’m not ready to offer discounts,” he said of his relationships with U.S. brands, which make up about 10 percent of his business. “Right now, nobody knows what’s going to happen.”

Tseng acknowledged that brands and retailers are looking to diversify from their Chinese suppliers by “splitting the production to different places,” and some have told him outright that they’re “afraid to commit to anywhere, because they just don’t know what could happen.”

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The trade war could rage on for months to come, which would further destabilize relations between Chinese manufacturers and their American customers. But China also knows it lacks a true competitor when it comes to production capacity, Tseng said.

And as brands and retailers are re-evaluating their sourcing choices, manufacturers are also weighing their options and chasing down new business elsewhere.

Beluga Shoes used to do most of its business—up to 80 percent—in the U.S., but Tseng said he had trouble working with large American brands who wanted sustainable, compliant products, and still at a low price. In recent years, he has focused more on building out accounts in Europe, where he feels his designs resonate more with consumers.

For other Chinese footwear manufacturers, the U.S. represents an irreplaceable lifeline.

“The 10 percent increase is significant, and we are absolutely worried about more tariffs because it’s out of our control,” said Peter Huang of Wayson Footwear Company Limited, which produces contemporary styles for men and women.

“The U.S. makes up to 90 percent of our orders,” Huang told Sourcing Journal. “It’s our main market, and that’s not likely to change any time soon.”

Wayson Footwear has seen a decrease in orders since last year, Huang explained, adding that the manufacturer began making pricing adjustments around that time to try and accommodate its U.S. clients. Now, he said, the company is in a holding pattern, waiting to see how things shake out before offering further discounts.

“Most of our customers we’ve worked with for a long time,” he explained. “It’s not like they can switch to another country easily. We’re still getting orders but they’re pending because everyone is waiting to see how the situation will turn out,” he said.

That reticence about spending does have Huang worried, but he’s still hopeful the U.S. and China will come to a resolution. “From an objective point of view, it’s better to look for benefits on both sides,” he said.

For trading companies that design product and manage relationships with Chinese manufacturers, the current trade climate has considerably upped the appeal of other countries’ manufacturing sectors.

In a popular refrain, Meni Kanam, CEO of Gagier Industrial Limited, told Sourcing Journal his orders have also decreased this year. “The orders are coming less and less. People are afraid,” he said.

Kanam’s company specializes in contemporary women’s casuals and athleisure-inspired silhouettes, and sells to U.S. brands like Wanted Shoes, Liliana Footwear and Bronx Diba. The company is looking at forging new relationships in Cambodia, India and possibly Vietnam.

Some Chinese manufacturers have already opened operations in those countries, he said, and other trading companies like his have started to make moves. He wouldn’t switch all of his production to new factories—just certain styles, like casual sneakers.

“I think this is the only way to survive,” he said of diversifying the company’s roster of manufacturers. “It will be less convenient for sure, but we must start to move outside, maybe by 10 percent or 15 percent.”

Gagier Limited has offered discounts to American customers over the past year, but Kanam knows it’s not a sustainable strategy.

“We’ve already squeezed the factories profits, and ours as well, so that they can get the same price,” he said. “They’ve already started to look outside [China], and we’re telling them, ‘don’t look elsewhere, how much more discount do you need?’”

Kanam’s biggest concern is that his mid-sized trading companies and manufacturers will be engulfed by bigger, stronger players that can weather the trade storm as long as it lasts.

“The small and medium sized businesses will disappear,” he said. “The bigger companies will eat them up. This is my biggest fear right now.”