A pedestrian walks by a large Adidas logo and German multinational sportswear shop.
Miguel Candela | SOPA Images | LightRocket via Getty Images
First there was the trade war. Then, the coronavirus struck.
U.S. footwear imports from China just had their worst January in more than a decade, Matt Priest, president and CEO of the Footwear Distributors & Retailers of America, told CNBC in an interview. The 15.7% drop was also the worst year-over-year decline in four years, he said.
A whopping 70% of shoes sold in the U.S. come from China, according to the industry organization, which has more than 500 members, including Walmart, Nike, Crocs and Steven Madden.
The footwear industry was already dealing with an ongoing trade war between the U.S. and China, when the spread of the coronavirus began in China, prompting quarantines and shuttered factories.
Though trade tensions eased somewhat in late 2019, Priest said shoe companies are still mitigating the duties they must pay on footwear imported from Asia.
“The virus is now going to coexist with the trade war,” he said. “Just because the coronavirus is here does not mean the tariffs are going away.”
Many shoe makers had already started to diversify their supply chains and reduce their reliance on China as a result of the higher tariffs. Companies including Nike, Under Armour and Puma have steadily been shifting resources to places such as Vietnam.
“That was one benefit of getting caught up in a trade war,” Priest said.
Still, these businesses will inevitably take a hit from the coronavirus, as evidenced by the slowing rate of imports to kick off 2020.
Adidas said Wednesday it expected first-quarter sales to drop by up to 1 billion euros ($1.14 billion) in greater China, and operating profit to decline by between 400 million and 500 million euros, because of the new coronavirus. That was after the company last month warned that its business in the greater China area had dropped by about 85%, year over year, in the period since the Lunar New Year on Jan. 25.
Adidas CEO Kasper Rorsted is referring to the spread of COVID-19 as “a painful setback” for the company’s business, as it is already seeing traffic declines at some of its shops. It has not yet factored a hit into its full-year outlook.
Under Armour in February said it anticipated the outbreak in China to lower sales by roughly $50 million to $60 million during its fiscal first quarter. That was, notably, before the virus started to hit Europe and North America much harder.
Nike is expected to discuss the virus when it reports earnings on March 24.
While consumers might yet notice any shortage of shoes on shelves, that could change if this situation drags on, FDRA’s Priest said. He said many retailers had stockpiled goods from China ahead of the Chinese New Year, preparing for that period of time when factories normally shut down in celebration of the holiday. That gave many businesses “inventory to play with,” as factories went dark because of quarantines.
But if manufacturing does not get back up and running soon, it could begin to impact the back-to-school or even holiday shopping seasons, he said. “I did not expect [January imports] to be that low.”