Outdoor winners and losers in China and beyond

U.S. brands, including many in the outdoor industry, have been increasingly relying on Asia not only as a maker of its goods, but a buyer, too.
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Welcome to the new global economy.

When Asian markets crashed nearly 20 years ago, U.S. companies were mostly indifferent, if not upbeat. Their overseas manufacturing costs would fall and while that meant greater price competition, it was good news for the economic health for those buying their products — U.S. consumers. The following few years were some of the strongest ever for U.S. economy.

Flash ahead to today’s Asian market troubles, and the story is a little different. Over the past two decades, U.S. brands, including many in the outdoor industry, have been increasingly relying on Asia not only as a maker of its goods, but a buyer, too.

China’s sheer population — with more than a billion people than United States holds untapped potential. And its neighbors — like Japan, Korea and Russia — have benefited from China’s rise, in turn, buying more U.S. products, too.

This time around, if a recession hits the region, it will affect many more U.S. brands. But, by how much remains to be seen.

In the outdoor industry, those to watch will be the bigger brands, such as V.F. Corp’s (NYSE:VFC) The North Face and Timberland, and Columbia Sportswear (Nasdaq:COLM). While neither brand reports exact figures from the region (for example, Columbia’s Asian figures are lumped in with its Latin America sales), commentary from company officials during recent conference calls puts each of their Asian markets at roughly 10 percent of total sales. Columbia, which began a joint venture sales business in China in 2014, said it gained $161.4 million in additional sales that year from the deal, meaning China alone accounted for at least 7.7 percent of its total $2.1 billion annual sales.

For 2015, Columbia expects low, double-digit percentage growth from China, while V.F. Corp projects a mid-to-high teen percentage increase from its Asia-Pacific region.

Long story short, Asia isn’t a big driving force for these brands, but it’s not to be ignored either. If China’s troubles stretch beyond its borders into Japan, Korea, Russia, and even Europe and the United States, then its greater influence in the global economy will become apparent. Futhermore, Asian weakness will likely translate into a stronger dollar, hurting all international sales for global brands.

Still, there could be some silver linings for outdoor brands, reminiscent of 20 years ago. Overseas employee costs will likely drop, as will commodity costs such as oil, gas, electric and water bills as China’s demand for the raw goods weaken. The latter helps the U.S. consumer, too, and with the savings, they might spend a little more during the all-important holiday season.

Interest rates might also remain low for a longer period of time, as federal officials consider the pluses and minuses of a stronger dollar. Lower interest rates would benefit brands wanting to borrow money to expand. The ultimate winners will include smaller outdoor brands that manufacture overseas, but sell a majority of the their goods — and borrow their money — in the United States.

Just don’t expect another 1997 U.S. economic boom. The health of the global economy carries a little more sway these days.

--David Clucas

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