Outdoor Retailer - Winter 2019 - 19

CASE STUDY

dealing with that, and now the clock is ticking
on an even bigger increase."
Gearing up for a new ski season, the
Snowsports Industries America (SIA) trade
association's member companies had to stop
and reassess. "We started following the tariff
conversation in the late spring and did our
best to keep up on the story. Our members
were excited to work with retailers to get the
season started, when all of a sudden this happened," says Nick Sargent, president of SIA.
"The tariffs are pretty devastating because
these costs will be pushed down to the retailer,
and possibly to the consumer."
With sales orders and contracts signed
months before, companies had limited options: Absorb the costs, pass the increases on
to retailers and consumers, or a combination
of both. "We have had some very good success in negotiating with our suppliers on costs
so we wouldn't have to pass those increases
to our consumers for some products," says
Darren Dunn, chief operating officer of SOG
Specialty Knives & Tools, based in Lynnwood,
Washington.
At the time of the tariff announcement,
Chaos was shipping product from Canadian
warehouses to specialty retailers in the United
States. The majority of the brand's inventory
fell under the tariff. Chenelia explains how the
sales team reached out to vendors to discuss
the ramifications of the tariffs. Absorbing a
portion of the tariff price increase, Chenelia
and his sales teams asked his customers to accept an 8 percent increase. "When you're in the
middle of shipping season, there's no easy way
to contact everybody before you ship the products. We asked for some help with the tariffs,"
says Chenelia. The response was mixed. Some
listened, others refused to accept a pricing
change. "There are people who said, 'Look, I'm
not helping with anything. Sorry, but no,'" says
Chenelia. Another typical response was an intention to pass increases on to consumers.
The Trump administration launched the
tariffs in order to force China to address contentious technology-transfer and intellectual property issues. While agreeing with that
premise, outdoor brands feel their products
don't fit those scenarios. "I understand the
administration wanting to protect intellectual

"THE TARIFFS ARE PRETTY DEVASTATING BECAUSE
THESE COSTS WILL BE PUSHED DOWN TO THE
RETAILER, AND POSSIBLY TO THE CONSUMER,"
SAYS NICK SARGENT, PRESIDENT OF SIA.
property, but putting on these large tariffs is
detrimental to our consumers," says Dunn
During public comment periods, executives
from outdoor industry companies like SOG
Knives, Farm to Feet, and Light & Motion, as
well as representatives from Outdoor Industry
Association (OIA) and SIA testified in front
of Congressional committees. Given the short
time period between the announcement and
the application of tariffs, many felt their appearances had little impact. "I don't think our
voices were heard," says Daniel Emerson, CEO
of Light & Motion. "Small businesses are the
backbone of the United States, and we don't
have a voice at the table when these policies
are heard. People could argue the point, but
from my perspective, our trade policy is driven
by multinational corporations, not by small
businesses like ours."
Rich Harper, manager of international
trade at OIA, testified at the hearings and
thinks consumers will end up paying the bill.
"Companies say consumers have to absorb
these costs because they can't negotiate contracts with the vendors or with their retail outlets," he says. "By absorbing that cost, there's
less money to hire new employees or to explore
new innovative ideas and technologies, and
less money to grow their business."

DISRUPTING SUPPLY CHAINS
The real danger is yet to come if tariffs skyrockets to that 25 figure. In order to stay competitive, many companies will have no choice
but to shift their supply chains and manufacturing contracts out of China. One of the
stated objectives of the tariffs is the laudable
goal of increasing domestic manufacturing.
Achieving that rosy end is not as simple as
publishing a press release announcing a new
plant, however.
"No one has the ability to jump into a new
factory. That is extremely difficult and can
take anywhere from 12 to 24 months. When

you change a factory, you to run into issues
based on design, implementation, and
durability. Not every factory can deliver
what's needed," says Sargent.
"It takes a long time and a lot of work to
establish new supply chains, and they can't
be just switched as quickly as some of these
deadlines are trying to suggest can be accomplished," says David Petri, Farm to Feet vice
president of marketing. (While Farm to Feet
is 100 percent U.S. made, parent company
Nester Hosiery produces socks with globallysourced raw materials under contract for a
long list of brands.) Dunn agrees: "It would
take a long time and a lot of resources to move
production and maintain the quality we want
for our consumers."
Indeed, the tariffs may undermine U.S.
manufacturing."It's pretty simple. Our U.S.based assembly and manufacturing business is directly threatened by these tariffs
that penalize Light & Motion, the only U.S.made products in the bike light market," says
Emerson. "Our supply chain includes significant parts purchased from China. Prices for
these parts, from circuit boards to die-cast
parts to power supplies will increase. There is
only one way to respond-to move offshore.
We will avoid China and go to a country where
we can import into the U.S. with no tariffs likely in the future, like the Philippines or Taiwan."
Trade negotiations remain at a standstill
as the January 2019 deadline to increase the
tariff levy inches closer. Instead of boasting
about 2020 product introductions, Outdoor
Retailer Winter Market exhibit floor conversations will center on the ripple effects
of the trade conflict with China. "There's
no guarantee this will get resolved. This is a
larger poker game that could come to a head
and go away," says Sargent. "But what happens between now and January could cost
the outdoor industry companies hundreds of
thousands of dollars." O.R.

Winter 2019 / OUTDOOR RETAILER 19

Outdoor Retailer - Winter 2019

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