Dive Brief:
- The maker of Saucony, Keds and Sperry Top-Sider shoes is boosting inventory by 30% in Q3 in anticipation of Sept. 1 tariffs of 10% on $300 billion in imports from China, which includes many previously untouched categories of shoes and apparel.
- The company, Wolverine Worldwide, said in an earnings call it expects to end the year 5% to 10% more inventory-rich than the previous year. CFO Mike Stornant said the pull-forward began in reaction to previous tariff threats, the most recent in May, with inventory rising 35% in Q2.
- The call took place before the Trump administration delayed the pending tariff hike until Dec. 15. USTR has not yet released enough detail to determine if Wolverine is affected.
Dive Insight:
CEO Blake Krueger said it is too early to determine the impact on 2020 consumer pricing: several mitigation strategies have not yet been implemented since the new tariffs have not actually taken effect.
But Wolverine Worldwide has calculated the potential costs if the tariffs are to hit its supply chain. Stornant said the tariff increase would likely cost the company roughly $5 million from the Sept. 1 implementation to the end of the year. Those costs, however, will count against next year's sales, as the inventory coming into the U.S. in Q4 is largely for the spring 2020 season.
"We will have a much more specific mitigation strategy around pricing and other things that we can do to mitigate the impact," Krueger said.
Wolverine was already on a sourcing diversification path before the trade war kicked off in early 2018, but the last few years of back and forth encouraged the company to accelerate its efforts to move sourcing away from China.
Krueger outlined the progression he foresees between now and 2020 — decreasing China imports from 7.5 million pairs in 2020 to 3.5 million in 2021.
"We are working on efforts to reduce these amounts even further. We’ve been able to move very quickly because approximately 75% of pairs transitioning out of China are moving their factories owned by existing sourcing partner," said Krueger.
Though Wolverine is confident in its mitigation strategies, executives did not say that consumer prices will not rise in 2020 and Krueger underlined that ample preparation does not signal support for the overall tariff strategy.
"As a matter of policy, we remain opposed to higher import tariffs on footwear which already has one of the highest tariff duty rates compared to a wide spectrum of other industries and product categories," the CEO said.
