On a media call, today, September 15, Matt Priest, president and CEO of the Footwear Distributors and Retailers of America (FDRA), was joined by Pat Mooney, president of Footwear Unlimited, to highlight the challenges the footwear industry may face if tariffs accelerate inflationary pressures.
The call came after the Labor Department reported on Thursday, September 11, that consumer prices in August were up 2.9 percent from the same period a year ago, an acceleration from the 2.7 percent gain seen in July. Prices rose 0.4 percent between July and August, compared to a 0.2 percent increase the previous month.
Priest said on the call that the uptick “could signal that tariffs may finally be impacting prices as the month’s gain marked the fastest increase in inflation in seven months, the second fastest in fourteen months and the fourth consecutive month of accelerating inflation.”
The FDRA reported that retail footwear prices increased by 1.4 percent year-over-year in August, the most in seventeen months and the second fastest in thirty-three months. Women’s footwear rose 2.8 percent in August, the most in thirty-four months, and kids’ footwear prices climbed 0.9 percent, the fastest so far this year. Men’s footwear prices eased 0.2 percent lower but have still risen in fourteen of the last nineteen months.
“When we look at our tariff burden, we typically pay about $3 billion a year in tariffs,” said Priest on the media call. “We have for decades and decades. That number is tracking now to be about $5 billion at the end of the year. So, it’s a significant increase, and while we did our best to try to frontload product into this country, we saw that in some of the import volumes, not just within the footwear space but across the supply chain that flowed into this country at the start of the summer, that product has been sold through and we’re now starting to see tariff product hitting consumers.”
Priest said prices for women’s footwear are likely to see an earlier impact from tariffs versus men’s footwear because women’s footwear is more fashion-forward and harder to front-load.
Priest said that from a tariff collection standpoint, U.S. tariffs on footwear were up 108 percent in July to $635 million. He added, “We are now heading into kind of latter months of the year, and we’re pretty concerned about how the consumer responds to these higher prices now that this tariff product is making its way through the footwear retail ecosystem, if you will.”
“Obviously, tariffs have been brutal,” said Mooney at Footwear Unlimited, which makes shoes under the Frye, Baretraps and Spyder names as well as private labels. He estimates tariffs had been averaging close to 10 percent, depending on the classification, and have risen to an average range between 25 percent to 30 percent.
“The changes so quickly have been absolutely brutal, too, because you really don’t know what your cost of goods are going to be,” added Mooney. “Looking just at India, we all of a sudden got another 25 percent put on us.”
Mooney noted that no finalized trade deals are in place for the three largest countries from which the U.S. footwear industry sources: China, India, and Mexico. Mooney said, “It’s a really difficult way to navigate a business if you have to make sales and you don’t know what your margins are going to be to get there because things change so quickly.”
Asked if there have been any layoffs tied to tariffs, Priest said the FDRA has not yet quantified that data, but he noted that the FDRA’s members have not only been trying to hold prices as long as possible but also to retain talent amid increasing margin pressures.
“You don’t want to clear out talent if you don’t have to,” said Priest. “If you find out that these are all just negotiating tactics and some of the things will come down, you’ll have to draw that talent back. And so, much like during COVID, where a number of companies did not furlough people because they were nervous about losing talent as things pop back, a lot of our companies right now, at least, are holding tight.”
Mooney has heard of “some pretty significant cuts” among major footwear players on the coasts, and that’s allowed Footwear Unlimited, which is finding strength with its Frye brand, to “find some great talent.”
Mooney is concerned about the challenges many retailers will face as prices are likely to rise in the second half, potentially impacting sales. With importers and factories also sharing the hits from higher tariffs, he estimates retailers will be asked to share at least 10 percent of the tariff impact and suspects they’ll try to keep those price increases to about 5 percent.
Mooney said, “Where it gets really scary is when you look at the gross margins of all those major retailers. They’re less than 5 percent of what they make as a profit. Then you look at the debt levels that they have and their debt service. Almost everyone is extremely highly leveraged. So, this could be very tough for some companies.”
Priest also addressed the potential for refunds following a recent ruling by two U.S. federal courts that many of the steep emergency tariffs imposed by President Trump’s administration are illegal. Trump asked the Supreme Court to expedite the case and hear arguments in early November.
Priest said the refunds could spur job growth in the footwear space. “The importing community in the footwear industry has been stretched with their ability to hire and maintain jobs,” noted Priest. If we crawl back some of that capital, we can envision maintaining jobs or even increasing jobs, which, for American companies, would be phenomenal.”
Priest also stated that the refunds might result in a “better product,” as footwear manufacturers have likely been investing in fewer materials and features to keep prices lower for consumers amid margin pressures. However, he said he is urging the FDRA’s members “not to get overly excited until all of this is settled. And beyond that, we know the administration is hyper-focused on creating leverage with tariffs, with these negotiations, and has indicated they’re going to use other tools to do that. Our hope is that those tools are more targeted and that they’re less focused on these broader consumer good categories that drive up prices for consumers.”
Image courtesy Keen
