US retailers accelerate shift away from Chinese suppliers
US retailers are ditching Chinese suppliers at an accelerating rate in response to President Donald Trump’s trade tariffs, switching sourcing of thousands of goods from furniture to bicycles to countries such as Vietnam, Cambodia and Thailand.
Top executives at several household names have disclosed fresh details of their tariff response plans since the latest tranche — 15 per cent levies on $112bn worth of Chinese imports — took effect on September 1.
While US retailers have been reducing reliance on China for years due in part to rising labour costs, Washington’s trade dispute with Beijing has spurred them to redouble their efforts.
The push to reshape supply chains is set to gain further momentum now that President Trump has followed through on his threat to widen the tariffs net, taking in consumer goods from alarm clocks to baby clothes.
Michael Casey, chairman and chief executive of children’s clothing chain Carter’s, said the New York-listed company was planning to reduce its proportion of products sourced from China to less than 20 per cent by the end of this year from about 30 per cent a year ago. Speaking at a Goldman Sachs conference, he said Carter’s had “developed a path that would take us closer to 10 per cent, if the risk of [additional] tariffs increases”.
Cambodia had become the largest supply source for the company, which has more than 1,000 stores across North America. “We’re proceeding as assuming these tariffs will stay in place indefinitely,” he said.
Other companies moving away from China include American Eagle, which sources about 30 per cent of its goods from the country. The teen retailer planned to reduce this to roughly 20 per cent over the next 12 to 18 months, Robert Madore, chief financial officer, told Wall Street analysts last week.
Robert Wallstrom, chief executive of luggage and handbag designer Vera Bradley, said the Indiana-based company planned to cut its exposure to China-produced goods from more than half last year to less than a quarter by the end of its fiscal year.
US retailers are deploying a variety of tactics to protect margins and avoid price rises. Several are leaning on suppliers of Chinese goods to bear the brunt of the costs. Target last week told its suppliers that it would refuse to accept new tariff-related cost increases.
Retail executives cautioned that reordering supply chains was complex and some said they were resisting pressure from investors to make hasty sourcing decisions that they would later regret.
“Once you get your production out of China . . . you can’t bring it back. Those factories will go out of business,” Morris Goldfarb, who runs G-III Apparel said last week in an earnings presentation.
He said the fashion company behind brands including DKNY and Andrew Marc had reduced the amount of goods sourced from China from about 80 per cent to less than 50 per cent over the past four years. But “you still need to keep a foothold [in China], until we fully recognise the depth and term of the problem”.
While it made sense to move production of some types of clothing, shoes and other goods, said Craig Johnson, president of Customer Growth Partners, a consultancy, countries other than China often lacked the necessary facilities and labour skills to handle more complex products.
Niraj Shah, co-founder of homewares ecommerce company Wayfair, told the Goldman conference that despite the tariffs there were some categories in which “it’s still not economically sensible to move” from China.
“But short of that, we’ve seen suppliers aggressively move,” he said, adding that the complexity involved in shifting elsewhere meant it typically took them several months to enact the decisions.
The list of products subjected to tariffs is due to be further extended to include toys and sports equipment on December 15. American and Chinese officials last week agreed to resume face-to-face trade talks in coming weeks.