President Trump might have tweeted this week that “tariffs are the greatest,” but there are plenty in fashion who disagree.
Count Anne Harper among them. The 17-year handbag veteran, whose children’s line OMG Accessories relies on imports from China, is among those scrambling to prepare for higher costs since the Trump administration pledged to impose levies of 10 percent on a raft of Chinese goods.
“I can’t just absorb that percentage,” said Harper. The duties are designed to punish China for unfair practices in an escalating tit-for-tat trade war between the superpowers, but would hurt the accessories line, which is sold nationwide through Nordstrom, Target and Dillard’s.
(There were signs of some easing of general trade tensions Wednesday, with Trump agreeing to step back from a trade war with Europe and work toward lower tariffs, but the dispute with China continues).
Like most other fashion businesses, OMG Accessories had been relatively sheltered from the trade war with China as the first round of tariffs avoided consumer goods. That changed this month when the Trump administration unveiled a list of more than 6,000 items, covering $200 billion in imports, that are in the line of fire for additional levies.
The list included numerous apparel and accessories categories, such as handbags. That covers the bulk of Harper’s business, putting her in a difficult position since OMG already works at “supershort” margins.
Because Harper sells mostly to retailers instead of directly to consumers, and has agreed to all of her orders for the rest of the year, she has little room to maneuver since her small business has sales of just under $10 million.
Companies can negotiate with suppliers and retailers, but it may be too late for the final quarter of the year, while moving production chains in the short term is unthinkable for many businesses. Depending on the nature of the business, some may be able to raise prices, while others will have to just take the financial hit.
“The bread and butter of my business is selling to retailers, so that’s a big challenge,” she told WWD. “Q4 is where we ship all of our holiday goods. If the 10 percent comes into effect right before the goods ship from China, we’re subject to that extra 10 percent so it represents hundreds of thousands of dollars for my business.
“Everyone’s written their orders basically through November so it’s kind of impossible to work backward and say, ‘OK, well now even though your purchase order says you pay this, now I need this,'” she said. “It doesn’t really work that way. It’s basically a loss.”
It’s a similar story in Nashville, for local fashion designer Patricia Nash. She, too, mostly sells her handbags directly to national retailers — Macy’s, Lord & Taylor and Anthropologie, to name a few — and is worried about the lack of time the government has given businesses to plan for the tariff increases.
While a date is yet to be determined, they could be implemented as early as September. That’s when officials in Washington will hold a two-day hearing on the topic. And more items, such as shoes, could be dragged into the fray since Trump doubled down last week and threatened to raise levies on all Chinese imports to the U.S. if Beijing further provokes the White House.
“We’ve booked through the end of the year to customers, so I feel like it’s a disadvantage and an unfair situation,” Nash said. “We can’t do anything about what we’ve already sold to the customer at the price we’ve agreed to because you’ve got to change retail, stickers, price tags. It’s just impossible to really go back and change a lot of that.
“Long term, we’ll have to deal with it and work it out — whether it’s increase pricing or whatever — but in the short term for the rest of the year for a lot of companies, it’s a big loss and it really impacts your employees and their bonuses,” she said.
And it’s not just the situation with China that is causing small businesses concerns. As Trump ups the ante with numerous countries, companies are closely watching developments to see who’s next, especially with Trump tweeting Tuesday that: “Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs.”
That attitude worries Patrick Woodyard, cofounder and chief executive officer of the sustainable brand Nisolo, which sells shoes and handbags that are made by workers on a fair wage at factories in Mexico, Peru and Kenya.
“We do not import from China, but we do import from Mexico and Peru, and I have a growing fear that Mexico is up next on Trump’s list,” Woodyard said. While the trade war between the U.S., China and other countries is unquestionably a headache for retailers of all sizes, Johan Gott, a principal at consultancy A.T. Kearney, said it’s a much bigger deal for smaller companies.
According to Gott, a larger company has a bigger cushion in terms of making a call whether to pass the cost onto the consumer. It can decide to take the revenue hit or absorb the cost and shift the pain directly to the bottom line. In contrast, a smaller company has much less room to operate.
“They just don’t have the same organizational muscle to deal with it,” he said, adding that while the difficulty of moving supply chains to different countries should not be underestimated for larger businesses, it’s “going to be a much harder for a small company.”
“I’ve seen it first hand when I worked with smaller companies,” Gott said. “They’ve gone through the prototyping, invested in going to the factory, and their nature is that they don’t have multiple suppliers for their product. It’s just not feasible for them.”
That certainly rings true for Nash. While the leather used for her handbags is not from China, all her styles are manufactured there and to change that in the short term is just not an option as she would have to retrain workers in artisan craftsmanship.
“We do artistry on our bags that has taken us years to perfect, so it’s not like it’s your average core kind of leather handbag,” Nash said. “It’s got braiding and lacing and hand burnishing, so all the detailing on that bag, it takes a real artisan to do it. You just can’t give an order to a factory and they’re going to execute it that way.”
For now, she will try and negotiate with retailers and see if there’s wriggle room with her manufacturers in China, especially given a weakening renminbi, but it won’t be easy. She has recently been battling with them to keep prices down against a backdrop of the increasing costs of packaging and hardware at Chinese factories.
As for OMG’s Harper, her main concern is convincing retailers to be accepting of the situation and push up the prices of the products in-store.
“It’s the consumer that is going to have to pay in the end,” Harper said. “If we don’t raise the cost then I can’t afford to pay for my staff and then people lose jobs. It’s really not a good situation.
“It’s just such a shame because I’m finally experiencing incredible success with the business,” she said. “Finally things are working. It seems like the economy is getting back in order and people are spending money on fashion and now this. It’s not like I can just start producing in another country tomorrow. I have my whole operation and management and staff in China, so it would cost of a lot of money to the business to try and manufacture somewhere else.”