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Fashion accessories face supply chain issues with ongoing tariff wars

"In recent years, these companies have been facing many challenges from the Chinese markets. Prices are increasing, minimum units required are rising, there are worker shortages, late shipments and factories are closing. Although some large companies have begun shifting production elsewhere to find cheaper labor costs and factories that could meet their needs, many companies that had well established supply chains, have not established back-up plans or searched for new countries for sourcing."

 

Fashion accessories face supply chain issues with ongoing tariff wars 002For long, fashion accessories companies have relied on Chinese factories to make their products. Twenty-five years ago, fashion jewelry shifted production from the US to Asia and as other categories, such as handbags, grew in importance, the factories overseas became the go-to places to manufacture.

In recent years, these companies have been facing many challenges from the Chinese markets. Prices are increasing, minimum units required are rising, there are worker shortages, late shipments and factories are closing. Although some large companies have begun shifting production elsewhere to find cheaper labor costs and factories that could meet their needs, many companies that had well established supply chains, have not established back-up plans or searched for new countries for sourcing.

Chinese companies face staggering taxes

Chinese companies making luggage, handbags, backpacks, wallets, purses, hats, belts and similar items areFashion accessories face supply chain issues with ongoing tariff wars 001 suddenly facing staggering duties as a side effect of the tariff war. With purchase orders shipping between September 24, 2018, and January 1, 2019, they will now pay an additional 10 per cent duty, and goods shipping after January 1, 2019, will be subject to an additional 15 per cent tariff —making for an additional 25 per cent total.

The majority of goods imported by these Chinese companies were already taxed at tariff rates ranging from 16 to 20 per cent of the imported value. The addition of another tariff has created cumulative tariff rates that exceed 30 per cent and go as high as 45 per cent. 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.

Decreased margins for US retail companies

The US 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, these companies will have decreased margins, but in the long term, the cost increase will be passed along to consumers.

While there are many categories that are not currently impacted by these tariffs, such as footwear, jewelry and apparel, 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.

India emerges an alternative to China

India will become an alternative to China for production of these categories of goods. There are a few US-based resources that are likely to expand but in order to mitigate the long-term effects of tariffs, the US is aggressively exploring other options for its members and associated companies.

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.

The tariffs have highlighted lack of diversity in the US supply chain. The lesson that US must learn is that in order to be successful the US companies, alongwith a healthy stock portfolio, also need to have a healthy sourcing portfolio.

 

 
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