Doesn鈥檛 the U.S.-China trade war that raged during 2018 and 2019 seem like a lifetime ago? Tariff talk might have taken a backseat to COVID chatter in the last 18 months, but the impact of higher duties on outdoor brands hasn鈥檛 lessened in that time. If anything, it鈥檚 gotten worse.

On Wednesday afternoon, however, Outdoor Retailer Summer attendees learned that tariff relief should be coming for outdoor brands and that companies have some control over the duties they pay on their imported finished goods or materials.

During the session, 鈥淭hriving Business: Tariff Relief for Outdoor Companies: How the New Trade Legislation Can Help Your Bottom Line,鈥� Rich Harper, director of government affairs for Outdoor Industry Association, moderated a panel that featured Patrick Fox, senior director of customs and trade strategy for VF Corporation, and Ron Sorini, principal, Samet, Sorini & Associates.

They told the crowd that Congress will soon consider legislation to renew two trade programs and establish a process to help companies impacted by the China 301 tariffs, both of which could help outdoor companies鈥� bottom lines. These include:

• The Generalized System of Preferences (GSP) provides duty-free treatment to certain products鈥攕uch as sports bags, backpacks, and other travel goods鈥攕ourced from eligible countries like Indonesia, the Philippines, and Cambodia. GSP expired at the end of 2020, and the new bill would renew GSP for six years through 2027.
• Miscellaneous Tariff Bills (MTBs) reduce or suspend tariffs on non-import-sensitive products for three years. The last package of MTBs expired at the end of 2020, and the new legislation contains eight footwear MTBs sponsored by OIA.
• Also, the legislation reinstates previously granted exclusions to the China 301 tariffs and will allow stakeholders to exclude additional products from the punitive tariffs.

While companies are waiting for the government to act, they do have some options in the meantime.

They can apply for exclusions to China 301 tariffs. And they can look for new places to manufacture鈥攕omething many brands pursued over the last three years to escape China鈥檚 tariff mess鈥攊ncluding countries that don鈥檛 have punitive tariffs in place.

But the first step they should take is re-examining the classification of their foreign-manufactured products. By inquiring to see if some of the products being imported from China could be reclassified in the Harmonized Tariff Schedule, you might not be subject to tariffs.

On the surface, shifting manufacturing to the U.S. seems like the obvious solution, and many brands on the show floor this week touted鈥攑erhaps rightly so鈥攖heir domestic production that hasn鈥檛 been subject (in most cases) to supply chain issues as overseas goods.

However, while Made in the USA works for some brands, it doesn鈥檛 for many. For example, some brands are so embedded with their manufacturing partners that divorcing them would be disastrous to quality control, not to mention a huge cost increase.

Some of the larger outdoor companies have a trade attorney on staff or retainer, but for those that don鈥檛, OIA members can receive consultation services from Samet, Sorini & Associates, the Washington, D.C., law firm that partners with OIA on numerous legal issues concerning the outdoor industry.

The post Lesson from OR: Tariff Relief Is (Somewhat) In Your Hands appeared first on 国产吃瓜黑料 Online.

This story originally ran in the Summer 2020 issue of The Voice.听

A few years ago, as the trade war with China heated up, Mark Wolf decided he had had enough. Already frustrated with theft of his company’s intellectual property in China鈥擶olf makes outdoor fire pits, camp grills, and fireproof covers, under the name Fireside Outdoor, among other products there鈥攈e shifted production of a large chunk of the work out of the country, to Vietnam.

Then, last winter, the coronavirus hit. And Wolf, like many in the outdoor industry, felt just how inextricably his fortunes remain tied to China.

The contagion all but shuttered the country for weeks, including its border with Vietnam and the flow of raw materials and components Wolf required. 鈥淲e had 13 containers sitting in Vietnam, stuck there. They were filled with kits waiting for nuts and bolts, the right fasteners,鈥� Wolf, the president of Fireside Outdoor, said about his predicament at the end of March. All of those nuts and bolts come from China. What鈥檚 more, he says, the aluminum ingots his Vietnamese factory needs also come from China. 鈥淭he coronavirus really exposed how dependent we are on China and their massive, disproportionate supply of raw materials,鈥� he said. 鈥淎nd that鈥檚 the key: disproportionate. It鈥檚 almost like Napoleon realizing he鈥檚 too far into Russia.鈥�

A reckoning is afoot, Wolf predicts. 鈥淲e can鈥檛 all leave China in the short term,鈥� said Wolf, who still makes 60 percent of his goods there. 鈥淏ut I can鈥檛 imagine there isn鈥檛 a boardroom in America that isn鈥檛 considering changing or offsetting their supply chain with China.鈥�

China has long been the world鈥檚 workshop, producing one fifth of the manufacturing output across the globe, according to the Brookings Institution, a public policy nonprofit. Increasingly, however, many companies have been wondering whether China is still the place to make their products. Some companies already have shifted elsewhere, or plan to. Nearly 40 percent of respondents in an American Chamber of Commerce in the People鈥檚 Republic of China survey in mid-2019 said they had either relocated manufacturing from China or were considering doing so.

This conversation is 鈥渁bsolutely front聽and center鈥� in the outdoor industry right now, says Drew Saunders, a member of the Outdoor Industry Association鈥檚 Trade Advisory Council and the country manager for Oberalp North America. Saunders knows from experience. He says that Oberalp鈥檚 brands鈥攊ncluding Salewa, Dynafit, and Pomoca鈥攈ave been making a 鈥渟low pivot鈥� away from producing apparel in China over the last five years. For other firms, the U.S. trade war with China and now the global pandemic that has convulsed through China and the rest of the world have forced them to face the question: Is China worth the trouble?

The issue seems urgent amid the economic crisis ushered in by the coronavirus, but the truth is that other factors are at play, and despite the reasons to leave, there are also compelling reasons to stay. Here鈥檚 what the manufacturing landscape looks like鈥攂oth in and out of China鈥攁nd why the only certain thing is that this question is not going away.

The Case for Leaving

Rising Costs

Until recently, the primary issue pushing companies to leave China was simple: the increasing cost of doing business there. Once, cheap labor was a huge draw. That鈥檚 no longer the case: Hourly labor costs in China-based manufacturing reached $5.78 in 2019, according to Statista.com. In Vietnam, it was $2.99 an hour.

Wages aren鈥檛 the only rising costs. The Chinese government has imposed increased regulatory requirements, and costs related to the environment have risen as well, as the country tries to address major pollution problems. 鈥淵ou can鈥檛 just dump stuff anymore,鈥� said Mary Lovely, a professor of economics at Syracuse University and a senior fellow at the Peterson Institute for International Economics. Outdoor companies are all for reducing pollution, of course, but it still changes the cost of doing business.

Sitting like a sour cherry atop these varying concerns are the tariffs of the U.S.-China trade war. Those costs are driving Fishpond USA to seek manufacturing elsewhere. Fishpond has successfully relocated some of its softgoods production, but still has significant ties to China, says founder Johnny Le Coq. 鈥淥h yeah. We鈥檙e looking. We鈥檙e looking at every opportunity we can, for the factories who have the ability, from a quality perspective, to make our products,鈥� he said. 鈥淥ur duty on packs and bags made in China is now over 42 percent, up from 17.6 percent just a few years ago.鈥�

That extra cost creates another frustration, Le Coq says. 鈥淲ith reduced margins, the incentive to innovate within that category is reduced and compromised. And we live in a world of innovation.鈥�

That leaves few options, Le Coq said. 鈥淭he implications of the tariffs are forcing brands like us to move.鈥�

Human Rights

Concerns about working conditions in China are hardly new (see: Apple and FoxConn). Human rights violations aren鈥檛, either. But a report released in early March now links these two in a troubling way. The Chinese government has transferred Uyghurs, a Muslim ethnic minority, and also other ethnic-minority citizens, to factories across the country and is making them work 鈥渦nder conditions that strongly suggest forced labor,鈥� according to the report 鈥淯yghurs for Sale鈥� by the Australian Strategic Policy Group, an independent, nonpartisan think tank. The Uyghurs are in the supply chains of 鈥渁t least 83 well-known global brands in the technology, clothing, and automotive sectors,鈥� the report alleges, citing Apple, BMW, Nike, Patagonia, and L.L.Bean, among others.

In reply, companies told media outlets they take an ethical supply chain seriously and are committed to upholding compliance standards that prohibit forced labor. Patagonia and L.L.Bean both issued statements affirming this, with L.L.Bean saying, 鈥淥ur Supply Chain Code of Conduct strictly prohibits the use of forced labor of any kind. Our global compliance programs and auditors cover every country聽where a factory makes L.L.Bean-branded product, including China, and we are actively working with our fellow industry leaders, associations, and our partners in the region to ensure that our supply chain standards are being met at the highest level.鈥� Amy Celico, principal at global business consultant Albright Stonebridge Group, expects this issue will continue to be a big deal in the coming months. Some companies will decide remaining in China is not worth it, she says, given the need to police supply chains.

Emerging Alternatives

While forces within China are pushing companies out, there are opportunities elsewhere that are pulling them in. For example, skilled workers in other countries are drawing brands that need cut-and-sew manufacturing.

Vietnam is one of those places. Osprey discovered it years ago, and recently the ski glove maker Hestra USA followed suit. About three years ago, the company purchased a building there and installed new equipment, as part of a long-range plan to shift part of its glove production from China to Vietnam, says Dino Dardano, the company鈥檚 president. 鈥淲e鈥檝e had tremendous success鈥攕o much so that we actually expanded the facility by about 30 percent last fall to accommodate about 125 more workers,鈥� he said.

Dardano says Hestra has been in China for 50 years, owning two companies there in a joint venture. But experienced sewers are in decline there, and the company has not found young people to replace them. 鈥淚 can tell you that I鈥檝e had a lot of conversations with my peers and they鈥檙e faced with the same challenges when it comes to sewn goods,鈥� he said. Dardano attributes the change in part to China鈥檚 now-defunct one-child policy, and the problem is likely exacerbated by the natural evolution of a maturing economy.

Vietnam isn鈥檛 the only country benefiting from the exodus. South Asia saw a 34 percent increase in demand for factory inspections and audits in the first half of 2019 over the same period in 2018, according to supply chain consultant QIMA. And the migration is not limited to Asia. Tariffs and the coronavirus have also made it more appealing to bring production聽closer to home. The volume of inspections 鈥淎s a company has no plans to move production and audits ordered of factories in Latin America by U.S. businesses increased nearly 50 percent last year,” QIMA reported.

Another shift away from China came at the prompting of the outdoor industry itself. Travel goods鈥攍uggage, backpacks, sports bags鈥攎ade in China can be taxed steeply upon entering the U.S. Sensing opportunity, the outdoor industry lobbied to have such goods made eligible for the Generalized System of Preferences (GSP), a trade-preference program that allows qualified products to enter the U.S. duty-free when a substantial amount of their value is produced in more than 120 developing countries. The effort has been successful in recent years. 鈥淪ince that went into effect, we鈥檝e seen a movement out of China to Indonesia, Philippines, Thailand, and other GSP countries on travel goods,鈥� said Rich Harper, manager of international trade for Outdoor Industry Association. In 2015, China produced about 64 percent of GSP-eligible travel goods. By January of this year, that share of 鈥渕ade in China鈥� had been cut by 40 percent. 鈥淭he duty savings that first year was something like $90 million鈥� for outdoor companies, Harper says.

A Natural Evolution

What companies are experiencing overall with China is part of a natural evolution: As a country matures, so does the nature of the work that鈥檚 done there. You can see the Chinese government directing this transition, says Celico, of the Albright Stonebridge Group. 鈥淎s the country has become more economically advanced, it鈥檚 not just that it became more expensive to manufacture there, it鈥檚 that the Chinese government started to鈥攕orry for the lack of a technical phrase鈥攑ooh-pooh low-end manufacturing,鈥� Celico said. 鈥淭he government has started to become more selective about the kinds of manufacturing it wants to encourage, as well as the location of manufacturing facilities.”

Celico recalls working with a sporting goods manufacturer there. Government officials told the company they didn鈥檛 want the factory in the middle of Shenzhen anymore because the area was being turned into a high-tech manufacturing zone. 鈥淲e just decided that if we鈥檙e gonna move, we鈥檙e gonna move to Mexico,鈥� Celico said.

This evolution has played out elsewhere. Japan, for instance, became the place to produce cheap goods right after World War II, and was later supplanted by Taiwan. Eventually manufacturing went to places such as Korea. Thirty years ago, South Korea was the world鈥檚 primary supplier of backpacking tents. Now it supplies the high-end fabric and poles for those tents, but the tents themselves are made elsewhere. Today, South Korea has a booming outdoor recreation scene and its participants now buy those tents.

The Case for Staying

Quality and Capacity

Despite qualms about China, many outdoor companies say it鈥檚 not good for business to leave. For starters, the work is usually fast and high quality. Of course, not every company鈥檚 experience in China is the same because not every supply chain is the same, says Lovely, the economics professor. Small companies that don鈥檛 require much sophistication, or don鈥檛 need many subcontractors to make their products, can pick up and move rather quickly in the face of headwinds, she says. Meanwhile, very large multinational companies (Samsung, for example) may be able to shift production to another factory they own elsewhere, if trouble strikes. But a lot of outdoor companies probably fall in between the two, she says. Their products require knowledge to make, perhaps specialized equipment and techniques, a mature supplier system, and contractors and subcontractors. Finding this elsewhere is not easy, she says. That makes China 鈥渟ticky,鈥� as it were.

Big Agnes manufactures throughout Southeast Asia, including in the Philippines for furniture and, more recently, in Vietnam for stuff sacks. But the Colorado-based company has no plans to move production of its well-regarded sleeping bags and tents, the latter of which can command $700 or more, out of China, says founder Bill Gamber. 鈥淭he best sleeping bag manufacturers in the world are in China. Same goes for tents,鈥� Gamber said. In 2019, 95 percent of all down sleeping bags imported to the U.S.鈥攁nd nearly 90 percent of all kinds of sleeping bags鈥攃ame from China, according to statistics from the International Trade Commission.

Relationships

More than a physical factory and skilled workers keep Big Agnes in China, however. 鈥淎 really high-end, ultralight backpacking tent is not as complicated as an electric car,鈥� Gamber acknowledged. 鈥淏ut our supply chain is very specific for building a very specialized tent.鈥� Big Agnes鈥檚 manufacturer leans on an ecosystem of suppliers. 鈥淲e鈥檝e been working with both our factory and fabric supplier for 20 years,鈥� he said. 鈥淚t would take years to rebuild what we鈥檝e done.鈥�

Such talk of 鈥渞elationships鈥� is not mushy sentiment; a relationship can save you money, says Gail Ross, chief operating officer of Krimson Klover, whose apparel company continues to work with the same factory in China that it has for a decade, even as some of the brand鈥檚 manufacturing of sweaters and other clothing has shifted elsewhere. 鈥淚 can say, 鈥楬ey, do you remember that silhouette from five years ago? I want you to haul that out, and do this, this, and this with it,鈥欌�� Ross said. Less back-and-forth with a factory owner translates into less time and money spent air shipping prototypes. And a longstanding relationship means Ross only goes to the factory in person twice a year. 鈥淲ith brand-new factories, we need to go three, maybe four times a year.鈥�

A small company like Krimson Klover also found something else when shopping around for alternative manufacturing options: 鈥淭here are other countries鈥擨ndonesia, Vietnam鈥攖hat are really great at cut-and-sew and printing. But the minimums are much higher,鈥� Ross says. So, for now, the same Chinese factory that gets the 鈥渃arrot鈥� of her fall business is willing to accept the 鈥渟tick鈥� of her tiny spring production.

Culture

And then there are cultural differences that can work in China鈥檚 favor. In China, 鈥渁 normal shift is 12 hours,鈥� said Wolf of Fireside Outdoor. 鈥淭hey work seven days a week. And then they really, really enjoy their holidays.鈥� He added, 鈥淲hat we鈥檙e seeing in Vietnam, and we also saw this in the Philippines, is that they have a different work ethic. In Vietnam we鈥檙e having challenges where an employee won鈥檛 show up for three days. Then he just shows up on the fourth day and says, 鈥楬ere I am.鈥� It鈥檚 hard to do a production line when someone doesn鈥檛 show up at their post.鈥�

In China, workers historically have been more willing to move where the work is, says Neil Burch, who has 35 years of experience manufacturing in Asia and today is president of the North American group of Joinease, which designs, manufactures, and does market research for drinkware for the suppliers to Nike, Gatorade, and Brita. 鈥淏ut in Vietnam, they kind of want to live at [or near] home,鈥� he said, which can cause issues for manufacturers in locating and moving factories. Burch says his company聽has looked at Vietnam, and could establish a factory there eventually. But not yet.

And China is not alone in wrestling with issues of human and workers鈥� rights. Ethical ratings in Malaysia, Vietnam, and the Philippines have been 鈥渟lipping,鈥� according to the consultant QIMA, and factory safety can be poor. (One outdoor company executive says she wasn鈥檛 comfortable leaving China for another country, where working conditions and human rights would be even harder for her to track.)

For his part, Burch鈥檚 company is refocusing on China. 鈥淲e鈥檙e looking at doubling down and reinvesting,鈥� he said.

Emerging Middle Class

An enormous reason to stay in China is the Chinese market itself. 鈥淐hina is poised to replace the United States as the biggest consumer market in the world,鈥� said Celico, from the Albright Stonebridge Group. 鈥淭hat is a massive change. This is a country of 1.4 billion people. The middle class is basically larger than the population of the U.S.鈥� China has a thriving outdoor gear market. It was worth $60 billion in聽2018, and it鈥檚 expected to be worth $100 billion by 2025, according to a 2019 report by Research in China.

鈥淎nd so, what a lot of companies are doing is sort of splitting the baby, saying, 鈥極K, maybe we have to diversify our global supply chain, but we still have to manufacture inside China, for China,鈥欌�� said Celico.

To Leave or Not to Leave

Every company will use a slightly different calculus to determine if it鈥檚 time to go. And many will find, like Wolf, that even when you decide to get out, truly disengaging from China is harder than it appears. But every company will have to confront the same basic issues, and this unavoidable fact: The worldwide ecosystem of manufacturing and consumer sales is more complicated, and more intertwined, than ever before. China is at the center of that world and no matter what you make or where you make it, managing how the global Goliath impacts your business matters more than ever.

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A little less than a month after outdoor companies with Chinese supply chains got some relief from a preliminary trade deal, they鈥檙e now reeling from work stoppages caused by the coronavirus outbreak.

Large outdoor apparel companies VF Corp. and Columbia Sportswear are losing sales at retail stores that have been temporarily closed in China, where travel has been sharply curtailed to help stem the spread of the virus. But they aren鈥檛 saying much about the potential effect on their supply chains, which include manufacturing operations in China. Meanwhile, smaller companies told 国产吃瓜黑料 Business Journal their production remains halted even after the conclusion of the Chinese Lunar New Year holiday, which was extended because of the outbreak.

Printing, embroidery, and sewing operations remain closed at the factory near Shanghai that produces hats for Boco Gear, a Colorado-based custom headwear maker, the owner of the factory, Geng Gaotun, tells 国产吃瓜黑料 Business Journal.

鈥淭his is the longest holiday I have had but the worst,鈥� Geng told OBJ via email from Las Vegas, Nevada, where he was stranded as many flights into China were cancelled.

His factory still has orders its needs to ship this month, but Geng isn鈥檛 sure if it will be able to fulfill them. Local printing workers may not be able to return until February 25, and the factory may not be able to resume embroidery and sewing operations until the end of the month. Meanwhile, a separate factory that makes beanies for Boco remains closed, with that owner hoping it could re-open February 20, Boco CEO Kay Martin tells OBJ.

To help deal with February orders it couldn鈥檛 push back to March, Boco, which has a relatively agile manufacturing footprint because of its quick turnaround business model, sent some orders to Vietnam for production. But there鈥檚 not enough manufacturing capacity there to fulfill all the orders Boco is expecting to book for March, which is traditionally a busy time for the company.

鈥淚f this stretches beyond March, we鈥檒l lose orders,鈥� Martin said.

Outdoor industry heavyweights are also grappling with the fallout from the outbreak.

VF Corp., which owns , said in a statement last week that it鈥檚 too early to gauge the impact of the virus on its supply chain in mainland China, where approximately 16 percent of its cost of goods sold is sourced directly.

The company is also facing a near-term hit to its sales as around 60 percent of the company鈥檚 owned and partner retail stores in China have been temporarily closed. Stores that have remained open are seeing significant declines in foot traffic. During the 2019 fiscal year, mainland China represented 6 percent of total VF Corp. revenue.

Columbia Sportswear CEO Tim Boyle said on a conference call that the virus is 鈥渉aving an immediate impact on our business in China, including the effects of store closures and lower store traffic at stores that remain open.鈥�

He said it was too early to forecast the financial impact on Columbia鈥檚 business, including on its sourcing, production, and supply chain. Chief operating officer Tom Cusick added that Columbia鈥檚 spring 2020 production is largely completed, but orders are in process for the fall line, which is where most of the coronavirus’s threat to the company’s business lies.

Meanwhile, CEO Dani Reiss said on a conference call that the company expects it will be able to offset any supply chain impact in the long term with buffer inventory built up over the last year.

As for Canada Goose鈥檚 retail operations, revenue in China is at 鈥渘egligible鈥� levels across its entire store network, including its most significant online markets, Jonathan Sinclair, the company鈥檚 chief financial officer, said on the call. The impact has also been spreading to major shopping destinations in North America and Europe, and Canada Goose has lowered its annual revenue growth guidance to 13.8-15 percent when it had been expecting average annual revenue growth of at least 20 percent.

While Canada Goose produces clothing in Canada, it sources raw materials from suppliers in China, and a prolonged disruption could affect its ability to do that, the company said in a regulatory filing.

For outdoor industry companies, the chances of shipment delays increase the longer disruptions from the outbreak go on, two industry analysts tell 国产吃瓜黑料 Business Journal.

Supply chain delays that stretch into March could start to affect shipments for the back-to-school season, said Wedbush Securities analyst Chris Svezia, who produces research notes for investors about publicly traded footwear and apparel companies including VF Corp. and Columbia.

And once shipments resume, there could be bottlenecks at ports trying to get them out, potentially forcing companies to use more expensive air freight services out of China, said Stifel Financial Corp. analyst Jim Duffy, who also covers Columbia and VF Corp. among other sports and lifestyle companies.

Management at Swedish glove maker Hestra is considering moving as much production as it can out of China and into Hungary and Vietnam if the coronavirus timeline drags on, Dino Dardano, president of Hestra USA, told 国产吃瓜黑料 Business Journal. The company has been planning to move its manufacturing out of China anyway because of difficulty finding labor as well the U.S.-China tariff situation, but it would accelerate those plans if the coronavirus outbreak lingers.

Hestra鈥檚 two jointly owned Chinese factories in Shanghai and Guangzhou are shuttered at least until February 17, Dardano noted.

鈥淥ur fear is that it鈥檚 going to continue for weeks, if not months,鈥� Dardano said, echoing concerns from the outdoor industry about the outbreak鈥檚 duration, a key factor in determining the extent of the impact on companies鈥� sales and manufacturing.

Although outdoor apparel companies are facing lost retail sales and an uncertain production outlook because of the new coronavirus outbreak, the industry as a whole is less vulnerable than it was when a similar epidemic occurred nearly two decades ago.

In general, outdoor apparel makers are less reliant on Chinese production now than they were during the 2002-2003 outbreak of severe acute respiratory syndrome, or SARS.

Many companies in search of cheaper labor have diversified their manufacturing to places like Vietnam, Bangladesh, Indonesia, and Ecuador. Also, China鈥檚 decades-long one-child policy has made the Asian nation less attractive for clothing manufacturers because there aren鈥檛 enough younger workers to replace aging retirees. Recently, the trade war between the United States and China accelerated the process of companies reducing their Chinese production footprint.

Swedish glove maker Hestra already had plans to eventually exit manufacturing in China entirely because of the labor issue, said Dino Dardano, president of Hestra USA. But it accelerated its move into Hungary and Vietnam because of the recent tariff turmoil. This year, it was planning to make about 80 percent to 85 percent of products outside China, even before the coronavirus outbreak.

Another key difference between now and the early 2000s for the outdoor apparel industry is the ubiquity of e-commerce. But its offsetting effect on lost brick-and-mortar sales is a mixed picture in China at the moment.

While Nike said in a recent press release that its digital commerce business in China was showing 鈥渃ontinued strength,鈥� Canada Goose鈥檚 chief financial officer Jonathan Sinclair said on a conference call that revenue from the outerwear maker鈥檚 most significant online markets in the nation was 鈥渘egligible.鈥�

Although e-commerce sales have the potential to mitigate some of the losses from traditional stores, there is still the question of how orders get delivered, noted Mitch Kummetz, an analyst with Pivotal Research Group who covers footwear and apparel companies.

鈥淭ravel restrictions have essentially cut-off all traffic from mainland China, and local activity is almost at a standstill,鈥� Sinclair said on the Canada Goose call. 鈥淪ARS unfortunately, it’s still fresh in many memories.鈥�

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鈥淣o, We Can鈥檛 Move.鈥�

BOCO Gear has a unique business model: we offer customized, high-quality performance headwear delivered within 35 days, for as few as 35 units at a time. We made this happen through an exclusive agreement with our factory owner in China when we launched five years ago, an arrangement that has given us a competitive advantage and allows BOCO Gear and our factory to continue to grow.

BOCO Gear endured two tariff increases last year (10 percent and 15 percent), and the administration is threatening more. We鈥檝e absorbed some of the costs ourselves, pushed our factory for lower prices, and passed along price increases of up to $5 per item to our consumers. But we don鈥檛 have the option of moving production elsewhere. We鈥檝e been looking for alternate factories in anticipation of these tariffs since before they were announced. To do that, we shifted resources we鈥檇 originally planned for new hires into sourcing efforts, but we haven鈥檛 found a factory that has the capability to make our products, with low minimums, and in the timeframes and pricing we require. Even if we could find a replacement, moving our style of customized production would take about two years of development time and the addition of three or four new employees鈥攖ime and resources we don鈥檛 have.

We鈥檙e still investigating options to help mitigate the impact of the tariffs, such as growing our international business, diversifying our product line, and negotiating with freight companies. But now, our best option is sticking with our Chinese factory and passing along the tariffs. Luckily, our loyal customers are standing by us.

-Kay Martin, CEO of BOCO Gear

鈥淵es, We鈥檙e Moving.鈥�

The past 18 months have been a trying time for Hestra. After the administration imposed a 10 percent tariff on all our leather ski gloves manufactured in China in fall 2018, we bore the burden of the added expense for the 2018/19 season. Fast-forward to early summer 2019, when the administration announced that the tariff would be increased by an additional 15 to 25 percent. This was very problematic for several reasons: We had already set fall 2019 pricing and accepted orders based on these prices. We had no choice but to notify our retailers of a price increase of five to ten percent.听Internally, we had to re-label 200,000 pairs of gloves to reflect post-tariff pricing. We鈥檙e thankful that the response from the outdoor industry and the retail community has been very supportive.

We knew the new China trade landscape wasn鈥檛 sustainable, so we made the call to move 70 percent of our production for the U.S. market out of China. Fortunately, Hestra owns its production facilities worldwide, either in joint venture (our two China factories) or wholly (our Hungary and Vietnam factories). This allows us to closely monitor the quality of our gloves, and let us quickly shift the majority of our 19/20 production to our Hungary and Vietnam factories to minimize the retail price impact of the tariff. Certain styles had to remain in China due to the complexity of the manufacturing process.

We will continue to shift the remaining 30 percent of production out of China as our capacity increases. We have invested heavily in our factories and our employees in China, and we鈥檇 like to continue to support them. But right now, trade realities make that impossible.

–Dino Dardano, president of Hestra USA

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In early January, we found attorney Andrew Grant in his element: in the previous week, almost six feet of snow had pummeled Washington鈥檚 Snoqualmie Pass, a cluster of ski areas 50 miles east of Seattle. Even better, he鈥檇 just dropped his two young kids in lessons and ducked into the lift line. Grant, a Seattle native, is the head of the outdoor group for Perkins Coie LLP鈥攁n industry stalwart that has represented REI, Columbia,聽and many other household names in matters ranging from litigation to privacy law to mergers and acquisitions. We took a run with him鈥攖hen pulled up a stool at the base lodge to find out what makes his firm a longtime leader in the outdoor space.

Who is your typical client?

It鈥檚 often a retailer or brand on the cutting edge of what’s new and exciting in outdoor, and it runs the gamut from family-run businesses like Burley Design to industry icons like Columbia, from growth-stage companies like Xero shoes to hybrids like Loge Camps, which operates hotels designed around getting people outside. The common thread is that they’re driving innovation in the industry, and they鈥檙e looking to us to see what legal issues might be coming down the pike. With any innovation, it takes a long time for the law to catch up; often companies are in an interesting gap period where they鈥檙e doing something that a law kind of addresses鈥攂ut not quite. Think about the move from analog to digital: For so long, all of our laws were focused on analog, and it has taken a really long time for them to catch up to an ecommerce-focused world.

What are some common problems your clients have?

Consumers are changing the way they purchase goods. When brands and retailers went from brick and mortar to ecommerce, and when digitally native companies started to gain traction and leverage their customer data for business development and marketing, we advised them on privacy. And privacy continues to be a huge issue鈥攚e can help navigate the GDPR [the European privacy law] and the CCPA [California Consumer Privacy Act, went into effect January 1], and we deal with how data can be used and shared for advertising and targeting customers. We help companies with branding and patent protection鈥攆or instance, how to get a new, exciting feature on a jacket or boot associated with your brand. On the flip side, we work on brand enforcement a lot, especially with the shifting issue of tariffs and the proliferation of counterfeit goods through third-party platforms, which erodes margin and brand loyalty and reputation. Sustainability, environmental impact, and supply chains are becoming very important to consumers and clients have to adapt. For example, companies might want to start a new resale or used-gear initiative. And, of course, there鈥檚 always litigation鈥攑eople and companies get sued and sue each other and we can help. It could be trademark, product liability, or employment litigation.

Do companies come to you in a crisis?

They absolutely do. Our clients call us when it鈥檚 11 P.M. and something pops up and they need advice right away, we answer, and we help. We do a lot of day-to-day operational stuff to keep businesses going and growing, but sometimes a client comes to us in a crisis first, and then it evolves into a long-term relationship. Whatever鈥檚 top of mind, we are there.

What are some of your most challenging outdoor issues?

There has been a lot of merger activity in the industry, a lot of consolidation, over the last several years. M+A deals are always tricky, particularly when there are gaps in expectations around risk allocation. There are a lot of pieces that have to fall into place. There鈥檚 due diligence on the company that鈥檚 being sold, negotiating and finalizing the terms of the agreement, third-party consents, regulatory review, and integration of systems and operations and people. It鈥檚 a lot more than just the price announcement you see in the news. In terms of commercial operations, challenges arise with innovation and new business ideas. How does it fit within the existing legal landscape? What are the risks? Take devices that are embedded in our gear: How do you manage that in terms of privacy? Security? How does a client put itself into a position for compliance when we鈥檙e talking about wearable tech that is connected to the internet and transmitting data? Another new challenge is experiential retail. Brands and retailers are trying to transform stores into places where people go to find community and do more than just shop, but it creates new pitfalls about permitting for a different use of the space. Food or alcohol licenses. Liability waivers for your climbing wall. City ordinances for your sidewalk usage. For us at the firm, it鈥檚 a rewarding opportunity to be a part of business strategy.

So why should an outdoor client work with Perkins Coie?

We are committed to the industry and truly understand the nuances that make the outdoor industry unique. We鈥檝e been going to outdoor shows for about 15 years, speaking at Rendezvous, partnering with on DEI issues, attending OIA鈥檚 Capitol Summit鈥攚hich is an incredible way to keep up with the regulatory issues that are facing our clients.听We get to see them in their own environment, not just in a legal advice role. We know the industry, we love the industry, and we know its people and culture. Our clients are our friends鈥攚e meet up with them at trade shows and have a beer and talk about family and life.

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Outdoor businesses are running out of wiggle room for tariffs on all types of products, as duty after duty gets added to the cost of doing business with China. Some brands are turning to their last resort鈥攔aising prices.

鈥淭he China tariffs are looking more and more like a giant avalanche that鈥檚 trying to bury many outdoor businesses,鈥� said Patricia Rojas-Ungar, vice president of government affairs at Outdoor Industry Association (OIA).

As the trade war with China rages on, new data from OIA reveals that outdoor businesses have paid an additional $2.6 billion in punitive tariffs over the last year, up from $1.3 billion in August to $4.1 billion in September.听Additionally, total tariffs paid by American outdoor businesses in a on imports from China exceeded $1 billion for the first time ever in September.

“The impacts to the outdoor businesses and outdoor experience of Americans is threatened by this U.S.-China trade war,” Rojas-Ungar said. “We strongly encourage the Trump administration to come to a trade deal with China and remove all these punitive tariffs so we can get back to focusing on creating new, innovative products and expanding our workforce.”

The Trump administration has called for tariffs on four different lists of goods. The third and fourth lists (4A and 4B) impact the outdoor industry the most. A 15 percent tariff on hiking boots, ski jackets, and more (4A) started on September 1. Another 15 percent increase on a new set of outdoor products on list 4B is expected to go into effect on December 15.

Keen, Vista Outdoor, and Krimson Klover shared about the impacts during a call on Tuesday with OIA. Here’s some of what they said:

On Whether or Not a Trade Deal with China Is Coming

OIA’s Patricia Rojas-Ungar: “We鈥檙e hearing a trade deal is imminent, that there may be a rollback of some of the tariffs that were imposed and potentially a delay on December 15. But we can鈥檛 count on predictions. These are real life impacts and tariffs are being paid on a day to day basis. We want certainty.”

On the Real-World Impacts of These Tariffs

Krimson Klover COO Gail Ross: “We鈥檝e had three positions we put on hold the minute the tariffs hit in May. We had to eventually fill one of those positions even though there鈥檚 so much uncertainty. The other two are on hold indefinitely. We鈥檙e all just pitching in and trying to make it happen. There鈥檚 certainly an issue with employees and filling positions. The other thing where we feel (tariffs) is cash flow. We have good banking relationships, but this tariff has just thrown our cash flow into a complete bind and banks don鈥檛 really understand it…I would say those are the two biggest affects it has had on us.”

Keen global compliance manager Sara Bowersox: “The biggest impact to us by far of this change in September is to our domestic production. Keen has a hometown factory in Portland, Oregon. List 4A drove a significant duty cost spike for that site鈥檚 American-built program. Items used in domestic production, imported items, jumped from duty rates below 6 percent to duty rates nearly 20 percent with the application of the additional 15 percent duty. This exercise proved that U.S. production is not the ultimate solution. U.S. production uses input from other parts of the world and is therefore not insulated from trade war fallout.”

Vista Outdoor VP of public affairs Fred Ferguson: “Helmets have been whipsawed by the China 301 tariffs. They have been listed, delisted, and listed again. Vista, our coalition of supporters on Capitol Hill, and trade groups believe that safety helmets should not be subjected to list 4 tariffs…The implemented and proposed tariffs are impacting current financial performance, future financial planning, and the overall lack of uncertainty complicates all aspects of business operations. While helmets have been the main topic today, our outdoor cooking, hunting accessories, and hydration products are also being impacted. These supply chains have been established over long periods of time and while we are developing mitigation strategies above and beyond political advocacy, simply relocating operations to meet the political challenges today is not feasible or realistic in the short term. So in closing, the China 301 Tariffs will impact Vista in the range of $15 to $20 million during our current fiscal year鈥攁 financial impact that is considered material and has required us to disclose to our employees, shareholders, and other investor analysts.”

On How Tariffs Under This Administration Compare to Other Administrations

Trade partnership vice president Dan Anthony: “There鈥檚 two or three iterations of the tariff schedule in any given year. For 2019, they鈥檙e on revision number 16 to the tariff schedule…As someone who has to use codes to build databases, it鈥檚 a very different scale of changes that we鈥檙e trying to monitor.”

On Whether or Not Brands Are Passing Costs onto Customers

Ross: “When the first list (3) dropped in May, our prices were already set in the market. We were about to deliver to our dealers our fall 19 products. We chose to not raise our prices. We were concerned that people would cancel their orders and we鈥檇 have a bunch of inventory. In that case, between us and our factories, we absorbed the cost…But for fall 20, which will ship to customers this summer, we did have to raise our prices.”

Ferguson: “In the case of one of our brands, Camp Chef, they have had to raise prices and that has impacted their results, which has led to reduced sales, reduced profitability, and reductions in their workforce. The leader of Camp Chef testified before the USTR last summer that during his entire time at Camp Chef鈥攁nd he鈥檚 been there since the beginning, which is the late ’80s鈥攖hey鈥檝e never had to let anybody go. And he predicted that should these tariffs come into affect, that would probably chance and he was right.”

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