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Business of Fashion
13-05-2025
- Business
- Business of Fashion
With the Trade War on Pause, Here's What's Next for Fashion
Moments after news broke Monday morning that the US and China had reached a trade deal, Bogg founder Kim Vaccarella called her manufacturer in Dongguan, China and told them to start making her brand's colourful plastic beach bags again. 'We had a lot on hold and as of this morning, we've released 90 percent of our production orders,' Vaccarella said. She added that she's also slowing down on a frantic search for alternative factories in Vietnam and Sri Lanka. Bogg still plans to diversify its production, but the task is nowhere near as urgent as when the Trump administration's 145 percent tariffs on Chinese imports were still on. Those levies were reduced to 30 percent under the terms of a 90-day agreement announced on Monday. China will cut duties on US goods from 125 percent to 10 percent. The deal technically marks a pause in the trade war launched by US president Donald Trump on April 2, when he announced tariffs — also now on hold — against dozens of countries, as well as a 10 percent global levy, still in place. But investors and many in the fashion industry treated the news as their own version of Liberation Day. The S&P 500 jumped more than 3 percent to above where it traded on April 2. A number of apparel and footwear stocks soared, with some of the biggest gains seen by companies such as Vans owner VF Corp. and Victoria's Secret that were hit hardest by the initial tariff plan. Fashion isn't able to relax just yet, however. Industry sources described the deal as a step in the right direction, but also noted that it's only a temporary solution. And even Monday's pause leaves significantly higher tariffs on Chinese goods. 'While we're encouraged by the easing of tensions and the joint rhetoric coming out of both sides of the equation, our hope is that there continues to be a conversation that drives that 30-percent number lower,' said Matt Priest, president and chief executive of Footwear Distributors and Retailers of America. 'That's what we're focused on in the coming weeks and months.' What's more, it's still uncertain whether similar deals will be made with Vietnam, Cambodia and other countries where brands have diverted their production in recent years. If Trump's reciprocal tariffs go into effect in July as scheduled, imports from Vietnam will be subject to a 46 percent duty, for instance. 'This is still very much in motion,' said Simeon Siegel, analyst at BMO Capital Markets. Just in time for the holidays A tariff of 30 percent on Chinese goods coming into the US is much more manageable than 145 percent, which some economists said would have effectively halted vast swaths of trade between the two countries. When that tariff was still in play, importing from China would have been so costly that companies were canceling orders, diverting them to other countries and slowing shipments destined for the US. Apparel imports saw double-digit weekly drops, while the National Retail Federation estimates that, in May, total import cargoes at US ports will fall for the first time since 2023. The new tariff rate, by contrast, is at least one that companies will be more conceivably able to offset or absorb. For a brand such as Steve Madden, which has been moving aggressively to shift production out of China but still sourced most of its products there at the start of the year, the deal is a lifeline. Last week, it pulled its sales and profit outlooks for the year. The temporary agreement also means that retailers can now place their orders for the holiday season with a bit more clarity on their costs as well as consumer demand, which will no longer be hit quite as hard by rising prices stemming from the tariffs. Though given that it's only a three-month window, it's possible those orders will reach US shores just as tariffs ramp back up again, according to Spencer Hewett, founder of inventory visibility startup Radar. 'You could also argue that it would be cheaper if they wait,' Hewett said. 'It's still not enough certainty.' Steve Lamar, president and CEO of the American Apparel & Footwear Association, pointed out that the tariff applies on top of any previous tariffs still in place as well as the regular customs duties products incur. (To give one example, Priest said the total duties on a typical sneaker could come to 50 percent.) Fashion tends to be a low-margin business, so even the lower rate could be prohibitive for certain products, or for small brands that don't have the wherewithal to handle the costs. Companies that do import goods at the new rate are likely to pass the costs onto consumers as price hikes. 'This is really going to create a situation that is inflationary,' Lamar said. No relief for fast fashion The agreement did not address the end of the de minimis exemption, a tax loophole popular with Shein, Temu and other retailers that allowed them to ship packages worth under $800 directly from Chinese factories to US customers duty free. The loophole closed on May 2, forcing immediate, dramatic changes to how many retailers operated. Temu, for instance, said it would only sell locally available goods in the US for the foreseeable future. There's currently no reason to believe that the US is reconsidering, but Shein and Temu could still use the 90-day window to ship products in bulk to US warehouses, Yao Jin, an associate professor of supply chain management at Miami University of Ohio, told Reuters. No end to the uncertainty The new agreement doesn't fully solve one of the thorniest problems for fashion in the trade war, which is the uncertainty of the situation. 'The next few weeks, months, or even years could be filled with policy twists and turns between the two countries, and the high level of uncertainty facing fashion companies and their suppliers is likely to persist,' said Sheng Lu, a professor of fashion and apparel studies at the University of Delaware. 'This means that US fashion companies will continue to struggle to manage their inventory and will prioritise flexibility and agility in their sourcing.' The lack of clarity makes it difficult for brands to invest as well, Lamar noted. Additionally, if companies rush to resume shipments of fall and holiday merchandise they had put on pause, it could create a cargo capacity crunch that sends freight rates up. The surge in demand for production could also overwhelm manufacturers, Hewett said. All the while, retailers must also account for low consumer confidence and slower economic growth projected for 2025. Access to reasonably priced goods isn't the only factor for returning to business as usual; inventory without matching demand only creates further strain on cash flow. Potential for new trade deals The fact that the US and China came to an agreement does at least provide some hope that the country could soon reach deals with other nations, too, including manufacturing hubs like Vietnam and Cambodia. FDRA's Priest said it also offers some sense of what other deals could look like. 'The 30 percent number for China becomes a benchmark for the other countries, in the sense that it's hard to imagine a trade policy from the US government where you have some of these other nations, particularly in Southeast Asia, that have a higher tariff rate than China,' Priest said. 'So will we see a 46 percent duty on goods out of Vietnam? I don't think so.' But there are still plenty of questions that remain. Lamar of AAFA said it's unclear if talks with other countries could be delayed or paused while the US focuses on the complex negotiations with China. It's a matter of how much bandwidth is available. It's also possible that any new bargains could be like the China deal — temporary, and with the purpose of working out a future deal later. Based on the Trump administration's deals with China and the UK, the one safe bet is that some level of tariffs will remain in place for other countries as well. But for now, a 90-day reprieve on the most severe China tariffs is a welcome update for brands like Bogg. 'Let's hope that they can come with a reasonable agreement after the 90 days, but while we're in the 90 days, we're going to be happy and enjoy this time until they make some other crazy announcement,' said Vaccarella.
Yahoo
07-05-2025
- Business
- Yahoo
LA Footwear Innovators Say Tariffs Aren't Enough to Spur a Reshoring Renaissance
The pandemic shone a spotlight on American makers for the first time in years, illuminating unique capabilities and advantages that set them apart from Asian super-factories and their dependably cheap labor. Covid concern has now faded, but global geopolitical conflicts and snarled supply chains have deepened doubts about whether the sourcing status quo can ever return to what it once was. Footwear manufacturing, like apparel production, has long operated under what Martin, a veteran of VF Corp., referred to as a 'locust industry mentality': the swarming of a sourcing market, the swallowing up of local resources, and finally, the flight away from what's been used up to something newer, shinier and cheaper. 'There are costs that are beyond what brand pays a factory for FOB in Asia or elsewhere,' he said. In today's sourcing landscape, there are many other relevant factors at play, from 'human inputs to environmental inputs, surety of supply, speed, and response to market logistics concerns,' he believes. 'It's looking at those in the aggregate and coming up with a formula that makes sense.' But first, brands must reexamine their long-term goals related to sourcing and reframe their thinking about cost, according to Stephen Martin, CEO of KX Lab , a startup pioneering the use of 3D-knitting for footwear uppers. The reshoring of American footwear manufacturing at a meaningful scale will take more than panic caused by inflammatory headlines, and it will require deep conviction that outlasts the modern news cycle. In the view of the city's most forward-looking producers, tariffs have lit a flame, but it will take oxygen—in the form of meaningful support from the industry and policymakers—to ignite a true blaze. But whether those seeds of intrigue take root and grow into real business is yet to be seen. And while the White House is laser-focused on onshoring the production of hard goods and industrial technology, like chips, solar panels and automobiles, the soft-goods sector is plowing forward in the shadows as it has for decades—with or without the help of the federal government. In Los Angeles, where footwear producers and innovators have been laboring for years to claw back some of the market share lost long ago to far-flung sourcing locales, the talk of President Donald Trump's tariffs has spurred a 'jolt' in interest in making shoes closer to home. Story Continues 'That's where we're trying to position things and engage with these brands,' Martin said. 'Because if you don't come from a point of value positioning, then the race to the bottom in terms of cost is a zero-sum game. We'll never be competitive in that regard.' Sean Scott, CEO and co-founder of Fashion District stalwart and footwear factory ComunityMade, agreed that there's no competing with markets like China or Vietnam on the criteria that made them the world's premier footwear sourcing destinations. 'We all came up in an environment where decisions were made strictly on landed costs, and that made sense if everybody was making their stuff in Asia and you're only comparing to other Asia manufacturers,' he said. 'But we're talking about a new reality centered on a more holistic view of what cost is.' In L.A., the average minimum-wage worker's hourly rate surpasses what a cut-and-sew operator in China might make over the course of several days. While brands have traditionally viewed the cost of doing business in the U.S. as an inhibiting (if not totally prohibitive) factor, 'there are a myriad of advantages to making things closer to where the consumers are, not overseas,' Scott argued. Adaptability to marketing teams' whims or ever-evolving market challenges. Sustainability. Quality control. The comfort and ease of partnership with suppliers in the same time zone, who speak the same language. 'The entire list is advantages on the side of making things closer,' he said. 'The one disadvantage is out the door factory cost, which is totally artificial and based on manipulation by an authoritarian government,' he added, referring to the Chinese Communist Party's inexorable ties to the country's industrial base. ComunityMade's Downtown, L.A. headquarters and factory. But there's a way to combat China's unfair advantages and usher in a new reality, L.A.'s producers believe, and it depends on championing the spirit that once made America a master of invention and a leader in manufacturing. It involves doing away with cheap labor in favor of advanced technology, and eschewing overproduction to focus on providing the market with the products it demands, when it demands them. 'We need to change the whole entire manufacturing system from forecasting and pushing [out product] to a system of proving our concepts and pulling [in business],' said Alex Zar, CEO of Lalaland Production and Design, L.A.'s biggest leathergoods manufacturer. 'We're never going to be able to produce the 2.7 billion pairs of shoes annually imported into United States—and that is not the goal,' he said definitively. 'We want 1 to 5 percent in the next five years, and that's all we need.' That critical mass of nearly 38 million pairs of shoes 'would help us to ramp up the supply chain, but not the same way [as Asia],' he added. According to Zar, what the U.S. lacks in worker headcount it more than makes up for in ingenuity. L.A. producers are pioneering processes that streamline production and augment capacity, from 3D-printing (now being used to create shoes, and eventually, the expensive molds traditionally produced exclusively in Asia) to engineered computer knitting and direct-attached injection molding. This is 'the next level of employment' in a factory setting, he believes—'not the traditional, labor-intensive factory.' Scott agreed, saying that innovation, not low costs and high volumes, will establish the L.A. market (and the American production force more broadly) as a beacon for the industry at large. 'We're not trying to be traditional Made-in-the-U.S.A.—and I think we all like to be careful when we say that, because we all have this great respect for traditional shoemaking—but that's not what's going to bring manufacturing back,' he said. With the onset of the Trump tariffs, more brands are sitting up and taking note of the possibilities, and their motivations have morphed. Where they once sought to create Made-in-the-U.S.A. collections to capture the marketable cachet of domestically made product, they're now evincing a real desire (and sometimes desperation) to establish onshore sourcing capabilities. A sneaker prototype from Zar's operation. 'These conversations were already being had, but they've definitely moved into a higher, C-suite level,' said Shannon Scott, ComunityMade's co-founder and president. 'I think the people that are planning for the future know that they have to de-risk some portion of their supply chain.' The Scotts are now fielding multiple inquiries a day with email headlines that read, 'How to make shoes in the U.S.' or 'I want to move out of Asia.' 'Now everybody's like, 'We seriously need to consider this,'' Scott said. And after sitting down with ComunityMade and its symbiotic network of L.A. co-producers, brands tend to have a similar reaction, Scott said: ''It's not as scary as I thought. I'm doing the cost analysis, these people are providing me a good education, they're providing me a future framework, they're much more buttoned-up than we thought.'' KX Lab's Martin agreed that tariff mania has pushed talk of onshoring to a higher echelon of decision-makers. 'It's allowed the conversation to bubble to the surface much more than just existing within the innovation and design community,' he said. But while the White House's disruptive trade policy and overall market uncertainty have brands strategizing new paths forward, lawmakers must do more to support U.S. manufacturers as they work to scale, he said. 'If onshoring is so important to the future of manufacturing in this country, there has to be some paving of that way from the government—policy, loans—that make it viable for manufacturers to really get going, and not have them on the vine withering under tariffs or the brands' decisions,' he said. When Martin was stationed in China as a sourcing expert for one of America's oldest heritage brands, he took note of the benefits provided to local manufacturers. 'There were so many subsidies—subsidized labor, tax benefits, land benefits for the manufacturers that were moving in,' he explained. Those breaks allowed the country to ascend to its current status as the 'World's Factory' in a matter of years, not decades. Manufacturers 'were enticed to come to China because the lower labor costs and the governmental support that parted the Red Sea of all those regulations.' Conversely, American manufacturers looking to ramp up production are staring down the barrel of massive duties on equipment and inputs, he explained. 'I think this is going to be an uphill battle that should be recognized: the import tax for machinery should not be part of the tariffs,' he said. 'If there's a machine that's next level, we should have access to that and be able to deploy it here without having some sort of punitive tax.' Zar agreed that tariffs on their own will not be enough to ensure the sustained growth of American manufacturing, though the 'jolt' provided by the flurry of executive orders on trade has been 'very, very necessary.' 'We don't know where it's going to go, if it's going to change the paradigm… but at least at this moment, it has been a positive,' he said. Duties may inhibit the competition by driving up import costs on foreign-made shoes, but effective policy should also bolster U.S. producers, allowing them to become the more viable and attractive alternative, he believes. 'In 2000, when I was transferring my factory from Italy to United States, I had been offered a free factory—completely rent free—in China, and a loan with zero interest. Why can't we do the same thing in here?' he asked. 'Why can't we get a special employment tax credit for the employees we are hiring? Why can't we give special tax credits to the consumers that buy the Made-in-the-U.S.A. product?' 'We are trying to spearhead and convince everybody that this is the moment. Put your money where your mouth is. Give us the commitment, and we'll show you what it is possible,' Zar said. 'We showed them during the pandemic; how the hell could we have imagined that we would be able to produce 180,000 medical gowns daily out of Los Angeles and serve the entire nation?' What should have been a moment of triumph—wherein Downtown, L.A. producers answered the call of hospital systems and local governments across the country to produce essential PPE—has now become a cautionary tale among Fashion District veterans. Manufacturers like Zar, who invested personally in the machinery and materials to serve a real and dire need, were dropped when the Covid panic subsided in favor of low-cost offshore options. Scott said he could see the same thing happening now, five years later, if the White House continues to waffle on its trade policy. 'If I had a direct line to the administration, I would be like, 'Pick a lane,'' he said. Even as ComunityMade nurtures hope for the opportunities that are rolling in, he knows the tide could go out again with the president's next tweet or Truth Social post. 'There have been a few fortunate cases where a brand said it was committed regardless of the chaos, but you can hardly blame somebody, especially when that 90-day pause came, for saying, 'Well, let's just see how this settles,'' he said. 'Humans are very resilient and resourceful, and we'll make it work,' he added, 'but the uncertainty is a danger.' In the near term, the Scotts and their network are determined to keep their heads down as they push to gain new ground. The interest in domestic manufacturing has been growing steadily, regardless of presidents or policies, and they believe that trajectory will continue unabated as brands recognize the inherent upsides of doing business in their backyard. 'If we do our jobs right, we don't need tariffs to make this thing work. We could totally use the help, but we were doing it before anyway,' Scott said. 'In a perfect or a better situation, [success] should be agnostic to tariffs. If we're viable, if we're resilient, then tariffs will only be a blip on the radar for us,' Martin added. 'Hopefully it's the flash point that makes it happen, but for longevity to be to be there, there has to be a supply chain that has the resiliency to weather the storms.'
Yahoo
03-04-2025
- Business
- Yahoo
Wall Street Crashes on Trump Tariffs That Could ‘Hobble' the Apparel Industry
President Donald Trump's 'Liberation Day' tariffs looked very little like freedom on Wall Street on Thursday, where shocks are disliked and uncertainty is hated. Even though Trump telegraphed the move well ahead of time, investors didn't think he would really do it. More from WWD Prada Nearing Deal for Versace and Jimmy Choo Just as the Market Plunges Jellybean Looks to Digital Passports to Create New Connections for Fashion Brands CEO Bracken Darrell Brings VF Corp.'s Reinvention Back to Wall Street The president has extolled the virtues of tariffs, threatened to impose them and actually hit some friends and foes with higher duties earlier this year, occasionally walking them back. But the sweeping broadside against globalism that Trump unfurled on Wednesday surprised almost everyone. The liberation — by Trump's way of thinking of the U.S. economy — included a new 20 percent tariff on goods from the European Union, a 34 percent tariff on China and a 46 percent levy on Vietnam, all on top of existing duties. If that tariff regime sticks, it will break or completely reinvent the global supply chain sooner rather than later. Investors weren't keen to wait around and see how serious Trump is or how long it will take for the import-dependent retail and fashion companies to reorient. The S&P 500 fell 4.8 percent to 5,396.52 — the worst drop in the market since COVID-19 sent the world home. The list of fashion and retail companies getting hit much harder — with declines more than 20 percent — was top, if at times struggling, players, including: VF Corp., down 28.7 percent to $11.68. Capri Holdings, down 23.6 percent to $14.99. Kohls Corp, down 22.8 percent to $6.64. Victoria's Secret & Co., down 22.6 percent to $14.87. Gap Inc., down 20.3 percent to $17.84. In beauty, The Estée Lauder Cos. was down 15.3 percent to $58.19, while Coty Inc., dropped 7.8 percent to $5.21 and Ulta Beauty Inc. just beat the market, falling 3.9 percent to $367.76. The day's strongest fashion player was the offpricer Ross Stores Inc., which was down just 0.9 percent to $131.21. Ross, which caters to the value crowd and can soak up inventory directly from other retailers, is a stock that plays well when the economy is in trouble. Dylan Carden, an analyst at William Blair, said in a research note that there would be 'few places to hide' if the duty regime held. 'The April 2 tariffs seem purpose-built to hobble the apparel industry, with the highest tariffs targeting regions that in aggregate are the source of 50 percent of apparel imports,' Carden said. The analyst said merchandise costs would likely increase by 30 percent overall and that 'companies will have to eat a fair share' of that hike. While one of the intents of the tariffs is to rebuild the American manufacturing sector, Carden sees that as 'a dim hope.' 'The skilled labor and infrastructure necessary for such a move has not existed in the U.S. at any meaningful scale since the 1980s and would take time and capital that few are likely inclined or able to spend,' he said. 'We would look for some potential carve outs in the days to come. The bigger hope would be that larger trading partners reliant on the U.S. start lowering their own tariffs to allow the U.S. some headline wins to lower theirs.' But the analyst also said that 'such a scenario is near impossible to game out from the current vantage.' So, who knows? In the meantime, fashion veterans are bracing themselves. Mickey Drexler, former chief executive officer of Gap Inc., and now CEO of Alex Mill, said the tariffs would fuel apparel inflation that 'will be beyond the acceptable inflation rate if the companies are to maintain earnings or growth or value.' 'And there are three or four companies I think that might not survive this,' Drexler said. 'I won't mention them, but they're very successful companies.' That leaves a lot hanging on what comes next as the geopolitics of an economic reset with the world take hold. 'President Trump, he's too smart,' Drexler said. 'There's an end game here that he's playing.' There are others hoping this is the end game. Kim Glas, president and CEO of The National Council of Textile Organizations, thanked Trump on behalf of the industry's 471,00 workers. 'We are particularly pleased with the administration's decision to preserve duty-free trade for imports from Mexico and Canada that are compliant with the U.S.-Mexico-Canada Agreement rules of origin,' Glas said. 'The U.S. textile industry ships $12.3 billion, or 53 percent, of its total global textile exports to Mexico and Canada and those component materials often come back as finished products to the United States under the USMCA. It is by far the largest export region for American textile producers, representing $20 billion in two-way trade that spurs enormous textile investment and employment in the United States.' Best of WWD Harvey Nichols Sees Sales Dip, Losses Widen in Year Marred by Closures Nike Logs $1.3 Billion Profit, But Supply Chain Issues Persist Zegna Shares Start Trading on New York Stock Exchange
