The owner of Seven For All Mankind is poised to begin moving production out of China if President Donald Trump pulls the trigger on the next round of tariffs, dragging apparel and footwear into the escalating trade dispute for the first time.
Isaac Dabah, chief executive officer of Delta Galil Industries Ltd., told WWD that just under 30 percent of its U.S. merchandise is currently produced in China, but if more levies are introduced then the Israeli-based apparel company would work to push that number down to 10 percent.
“We import about 28 percent of our merchandise for the U.S. from China. If it happens we’ll have to move production elsewhere. It will take us some time, but it’s something we’ll be focused on doing,” he said.
The process, however, cannot be done overnight, with Dabah calculating that it would take around 18 months. For some companies, it could take even longer depending on their dependency on China.
As for where to move operations, Delta Galil will likely stick to Asia and countries under consideration include Thailand, Indonesia and Vietnam, added Dabah.
The apparel industry had thought that it had avoided higher tariffs as trade talks between the U.S. and China appeared to be moving along, but that all changed just over two weeks ago when Trump took to Twitter to accuse China of reneging on its commitments.
Since then, relations have deteriorated rapidly with the U.S. raising levies on $200 billion worth of imports, including handbags, to 25 percent from 10 percent and China retaliating with tariffs on $60 billion of U.S. goods.
The situation doesn’t look likely to stop there as the U.S. has begun the paperwork for placing tariffs on the rest of Chinese imports that have not yet been targeted, including apparel and footwear.
Dabah warned that it will be the consumer that will be squeezed by more tariffs as companies have little choice but to increase the price of products.
“If he puts tariffs on, all it’s going to do is increase prices for the American consumer and I’m not sure it’s going to help the economy,” he said, although he is still hopeful that the two sides can make a deal before this happens.
His concerns were echoed by many in the footwear industry, who today wrote a letter urging the U.S. government to drop footwear from the proposed list of items it is considering for 25 percent tariffs.
Their comments have contrasted with tweets from Trump that have stated that China will pay the cost of the tariffs.
Dabah’s musings on the worsening trade dispute came as Delta Galil released its first quarter results — a largely mixed bag.
While sales grew 9 percent to $365.4 million from $334.5 million a year earlier, net income was $3 million, down from $7.4 million and diluted earnings per share were 12 cents, representing a 61 percent decrease.
Dabah blamed this on the devaluation of the euro versus the U.S. dollar, as well as a shift of holiday sales to the second quarter and new store opening expenses.
Nevertheless, he said Delta Galil is still on track to meet its full-year target of increasing sales by between 3 percent and 6 percent to a range of $1.55 million and $1.59 million. Net income, meanwhile, is expected to rise between 5 percent and 12 percent.
He also reiterated that the company is still open to more acquisitions after paying VF Corp. $120 million for Seven For All Mankind and Splendid/Ella Moss in 2016. Most recently, it acquired Eminence Group and has been busy incorporating its underwear brands Eminence, Athena and Liabel into the business.