Just when it seemed like China and the United States were approaching a trade deal, President Donald Trump increased tariffs on $200 billion worth of imports, including backpacks, leather ski gloves, camp stoves, and other outdoor products.
The 10 percent tariff imposed last year will rise to 25 percent starting Friday. Trump also threatened tariffs on a new list of imports worth $325 billion covering outdoor apparel, footwear, and virtually all other goods.
Outdoor brands have been facing the hikes since last summer and the fight continues.
"Right at the moment, we’re just keeping a really close eye on the news because it seems that threats of additional tariffs are really part of a bigger negotiating strategy," said Ben Christensen, senior director, development, sourcing, and quality at Simms Fishing Products. "So much hinges on the conversations that are happening right now so it’s triggering a lot of conversation internally, but we’ll be waiting to determine specific actions and next steps until early next week after the completion of the current negotiations and trade talks."
Tariffs are in place as punishment against China for intellectual property theft and forced technology transfers, uncovered after an investigation by the U.S. Trade Representative. But Trump is calling for more action as a way to pressure China to act quickly.
Outdoor Industry Association (OIA) and member companies have urged the administration to roll back the tariffs, and in fact, more than 100 outdoor executives visited Congress last week during Capitol Summit. In addition to climate change and outdoor recreation, tariffs were on their list of priorities.
“Increased tariffs will greatly raise out-of-pocket costs on nearly everything Americans wear on a daily basis and put thousands of small and medium sized businesses at risk of going out of business,” said Patricia Rojas-Ungar, OIA's vice president of government affairs. “It’s critical that the trade dispute with China end quickly and fairly, and that we see all the tariffs removed. We urge the Administration to stay at the negotiating table to get it done.”
Example of impact: A hat is sold for $30 at retail. If retailers are getting a wholesale margin of 50 percent, they buy the hat for $15. If the brand also makes a 50 percent margin, they buy the hat for $7.50, which includes the normal import tariff of around 7 percent and about $0.15 of freight cost. The real cost of the hat is about $6.50.
If tariffs shoot up to 25 percent on top of the 7 percent, about $1.50, the hat costs about $9. Should the brand and retailer want to keep the same margins, shops might buy the hat for $18 and sell it for $36.
OIA reported that Nester Hosiery and KEEN, like other brands, were struggling with the unexpectedness and immediacy of the tariffs. Kelly Nester told OIA, “We’re used to being able to plan our business 18 months out with certainty, and the uncertainty is a challenge."
Snowsports Industries America President Nick Sargent on Friday said, “We know that increased tariffs will lead to higher prices, passed from manufacturers to retailers, and ultimately to consumers. This is not a pro-growth strategy. Snowsports Industries America (SIA) feels strongly that if the list three tariffs are enacted, we’ll see our local retail businesses suffer the most so we strongly urge the Administration to continue discussions to avoid this reactive and dangerous approach."
While some brands have either absorbed costs or passed costs on to customers, others have sought out factories in other countries. Hestra USA's impact was not as great as it could've been since they have factories in Hungary and Vietnam. Simms also has a diverse global strategy and was in the midst of diversifying even more. Luckily, most of the brand's key products are made at their factory in Bozeman, Montana. However, Simm's hats are made in China, and as a smaller brand competing for attention with larger brands, it's more effort to switch factories than it is to bite the bullet and accept the costs.
"We certainly changed our cost assumptions as we look out at projected margins going forward," Chistensen said. "We had to look at all the possible scenarios, decide what scenario was most relevant for the different timeframes that we’re looking out to, and plan our business accordingly. Of course retail price adjustments are one option. In the case of Simms, we did not make significant retail price changes. It just didn’t feel like it was the right move at that point in time. We did project slightly lower product profitability, which in turn drives different decisions around operating expenses and other investments in the business."
But a hike to 25 percent is going to be a different story for Simms and other outdoor brands.