US Retail: Tariff Thoughts for US Apparel/Footwear

By the numbers, there are incremental $36 billion sourcing headwinds associated with the proposed retaliatory tariff rates on apparel and footwear importers to the US, or closer to $42 billion inclusive of the 20% IEEPA tariffs instituted on China in February/March. These initial tariffs have reportedly created conflict with suppliers, and the potential for Chinese suppliers to absorb an additional 34% round of tariffs seems slim, raising the risk of either compressed retailer margins or renewed inflationary pressures for US consumers. In the context of $550 billion US consumer spending on apparel/footwear, an unabated tariff impact passed fully to consumers could generate ~8% inflation in the category at a time when consumers are already exhibiting strong value-centric behavior.

Proposed 46% tariffs on Vietnam, the US’ next largest source of apparel and footwear, were surprisingly large, as were tariffs on other Southeast Asia production countries (Bangladesh, India, Indonesia, Cambodia at 37%, 26%, 32%, and 49%, respectively), limiting another regional short-hop solution to avoid tariffs. Each of the retaliatory tariffs is slated to go into effect April 9th, leaving a relatively short window for negotiation.

South/Central American countries fared relatively better in this round of the trade war (mostly in the 10% camp), but while a few names have shifted some production in that direction (Target spoke to this for its private label apparel recently), no country in the region is yet a meaningful player in imports to the US (Mexico leads at ~3% share).