Any American who has made his or her way down the shoe section of a Walmart (WMT) or Target (TGT) has probably stumbled across a pair of Deer Stags.
The brand specializes in moderately priced family footwear for men and boys with prices ranging around $20 to $25 for boys’ shoes and around under $50 for men’s. One of the reasons why Deer Stags can keep prices low is because it keeps profit margins tight and costs low by having their shoes 100% manufactured in China. And so if the proposed increase on tariffs on $300 billion of Chinese goods were to go into effect, American shoppers could find themselves paying more for a pair of Stags and many other footwear brands.
Deer Stags President Rick Muskat spoke to Yahoo Finance about how extra duties on footwear could affect the company and the American consumer.
"Think of the average family of four with two working parents, or with a single mom who has to buy her boys’ shoes, on average, three to four pairs a season twice a year because they grow through their shoes,” Muskat said.
“Every time spring rolls around, they need sandals in summer and sneakers for back to school, boots in the winter and a pair of dress shoes for church or for whatever it is,” he added. “So you're talking about with two kids, that's 16 pairs a year going up $5 to $10 a pair. That's a dramatic increase in their budget."
On May 20, over 170 footwear companies which included footwear heavyweights including Nike (NKE), Adidas (ADDYY) owned Reebok, Crocs (CROX) and Under Armour (UA) signed a letter urging President Trump to reconsider a proposal to implement tariffs on $300 billion of Chinese goods.
"This significant tax increase, in the form of tariffs, would impact every type of shoe and every single segment of our society,” the letter stated. Deer Stags also signed the letter.
The Footwear Distributors and Retailers of America (FDRA) estimates that 72% of footwear sold in the U.S. is produced in China. FDRA CEO and President Matt Priest reiterated to Yahoo Finance that added tariffs on footwear would have a substantial effect on the American consumer. Footwear already carries a relatively high average tariff of 11.3%, while most other consumer goods carry tariffs in the low single digits.
Smaller footwear companies are under greater pressure
Some larger companies have had the means to diversify or even shift their production outside of China to avoid the brunt of these potential tariffs. For example, Nike already produces over 45% of its shoes in Vietnam.
Unfortunately, not every company can do this in a cost-effective way.
"There have been suggestions that industries should quickly shift sourcing to countries other than China in the wake of these new tariff threats,” Muskat said. “While our industry has been moving away from China for some time now, footwear is a very capital-intensive industry, with years of planning required to make sourcing decisions, and companies cannot simply move factories to adjust to these changes."
Muskat says that the reason why 100% of Deer Stag shoes are manufactured in China is because of necessity. He tells Yahoo Finance that all of the input and raw materials that go into Deer Stags are not readily available in any other shoe manufacturing country outside of China.
American Apparel & Footwear Association Senior VP, Supply Chain Nate Herman tells Yahoo Finance that If the proposed tariffs go into effect prices will go up, sales will go down, and jobs are going to be lost.
Uncertainty
Many companies in the footwear industry will have to make major adjustments if the threat of added tariffs becomes a reality. However, there might be one aspect of the ongoing U.S.-China trade war that wreaks havoc like no other, and that is uncertainty.
"We are trying to plan production and have to commit our production 3 to 4 months in advance,” Muskat said. “All of our fall goods are currently in production, are they going to come in at a higher duty? We don't know."
Muskat made it clear that he does not oppose the Trump Administration's trade philosophy when it comes to China. He agrees that China has not been playing fair with its global competitors.However, he finds the execution troubling.
“We agree with the president’s and the administration's objective of trying to get China to play by the rules of the road,” Muskat said. “We just think that using such a blunt instrument that will have a dramatic impact on the consumer and particularly the working class consumer is concerning.”
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Reggie Wade is a writer for Yahoo Finance. Follow him on Twitter at @ReggieWade.
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