When news of the Trump administration’s new tariff structure for goods produced in China broke, accessories brands were caught off-guard. As president and CEO of The Accessories Council—a not-for-profit, international trade organization whose members include nearly 300 wholesalers and retailers—I witnessed firsthand how the market’s heavy reliance on China and lack of supply chain diversification put many brands in a tenuous position.
Many accessories companies have relied on Chinese factories to make their products. Fashion jewelry has shifted production from the United States to Asia over the past 25 years, and as other categories, such as handbags, grew in importance, the factories overseas became the go-to places to manufacture.
China became a well-oiled production machine for most every one of the accessory categories — offering expert factories, a quick turn around with sampling and great pricing on footwear, bags, scarves, fashion jewelry and more. Support businesses, such as quality inspection and freight companies, also established themselves to streamline options. The Chinese learned our market and largely became the go-to place to produce our goods.
In recent years, however, we have been regaled with stories of challenges coming from China. Prices were increasing, minimum units required were rising, there were worker shortages, late shipments and factories closing. Some larger companies began to shift production elsewhere to find lower labor costs and factories that could meet their needs, but for the most part, many companies had well established supply chains and did not establish back-up plans or search for new countries for sourcing.
When the administration announced the new tariff structure, our members making luggage, handbags, backpacks, wallets, purses, hats, belts and similar items were suddenly faced with staggering duties as a side effect of the tariff war. Those companies with purchase orders shipping between September 24, 2018, and January 1, 2019, will now be paying an additional 10 percent duty, and goods shipping after January 1, 2019, will be subject to an additional 15 percent tariff —making for an additional 25 percent total.
The majority of goods imported by our members were already dutiable at high tariff rates, ranging from 16 percent to 20 percent of the imported value. The addition of another tariff has created cumulative tariff rates that exceed 30 percent and go as high as 45 percent. This subjects handbags and luggage items to the highest tariff rates of any product imported into the United States. In fact, these rates are on par, or higher than, goods from countries that do not have Normal Trade Relation, such as Cuba and North Korea.
The U.S. retail industry for accessories is already under financial stress as sales have been down over the past two years and many of the larger retailers have consolidated or closed retail locations. In the short term, our companies will have decreased margins, but in the long term, the cost increases will be passed along to the consumer. For startup and young businesses, there is even more of a hit —these businesses have limited financial resources and do not have the budgets to find alternative manufacturing sources, let alone switch production in a timely manner that could potentially minimize the impact of this action.
While there are many categories that are not currently impacted by these tariffs, such as footwear, jewelry and apparel, we fully anticipate that they will be included in future tariff announcements. There is no timeframe, no schedule and no assurances of a new trade agreement with China in the near future. The bottom line is, just because you are not impacted today, doesn’t mean you won’t be tomorrow — now is the time to begin to explore new options to produce your goods.
It can take six to 18 months or more to identify, certify and approve a new supplier. Once found, one must sample and place test orders before one can comfortably shift production. Training a new factory is like getting a puppy —probably there will be a few accidents before they are well trained to meet your needs. We strongly suggest attending sourcing shows, such as MAGIC in February or the India Factory & Sourcing Expo in November in New York City, to identify new partners.
I have been working extensively in India over the past three-and-a-half years regarding leather sourcing for bags, garments and small accessory items. Indian factories are continuing to expand their capabilities and quality, with many becoming increasingly design focused. And in many Indian factories founded in the late 80s and 90s, second generation leaders are taking the helm, bringing with them a global perspective, innovative ideas and an understanding of how their businesses must change to provide solutions for brands and thrive in this ever-changing market. We anticipate that certain other countries like India will become an alternative to China for production of these categories of goods. There are a few U.S.-based resources, which we are hoping to see expand, but in order to mitigate the long-term effects of these tariffs, we are aggressively exploring other options for our members and associated companies.
When working with new manufacturing sources, there can be issues with compliance with U.S. Federal and State product safety regulations, which is why as part of my time working in India, we have focused on coaching factory partners to assure products meet our standards as well as handle the extensive testing and inspections that are required before the goods are exported to the United States.
The Chinese tariffs certainly highlighted the lack of diversity in our supply chain. While it was a tariff that highlighted this issue, it easily could have been a plague or natural disaster that caused the disruption. The lesson we must learn is that that, like a healthy stock portfolio, companies must have a healthy sourcing portfolio to be successful.
Karen Giberson is the president and CEO of The Accessories Council, a not-for-profit, international trade organization established in 1994 with a mission of promoting consumer awareness and demand for fashion accessory products. She has more than 30 years of experience, working for Macy’s and QVC prior to joining The Accessories Council. Giberson is a sourcing expert in leather goods, having worked with many factories in multiple countries. This November 13-14, The Accessories Council will host the India Factory & Sourcing Expo in New York City in tandem with India’s Council of Leather Exports. The two-day expo will connect skilled Indian leather factories with sourcing leaders from top brands and highlight the unique skills and innovative processes of these leather suppliers who are experts in the categories of accessories, apparel and footwear. To learn more or RSVP for the trade show, contact Kelly Beal, [email protected].