Stocks took a nosedive today following President Trump’s announcement of a broad 10% tariff on global imports and increased rates on key trading partners late last night.
This development didn’t come as a shock to investors, but it certainly sent many parts of the market into disarray. Especially impacted were the footwear and apparel sectors, which rely heavily on manufacturing outside the U.S., primarily in regions such as Asia and Latin America. These tariffs are likely to drive prices up, putting pressure on consumers when it comes to non-essential goods. Companies now face the tough decision of passing these costs onto customers or absorbing them, which would nibble away at their profit margins.
As of 1:18 p.m. Eastern Time, the S&P 500 was down 5.1%, but footwear stocks were bearing the brunt, with several companies seeing double-digit declines. Nike plummeted 12%, Deckers was down 15.8%, On Holdings fell by 14.9%, and Boot Barn saw a 15.1% drop.
Footwear firms like Nike have, in recent years, invested in moving some production away from China to locations like Vietnam. However, these efforts appear to have fallen short in mitigating the impact of the abrupt “Liberation Day” tariffs announced on April 2. These “reciprocal tariffs” are calculated to offset the U.S. trade deficit with specific countries. Consequently, China has been slapped with a 34% tariff, while Vietnam faces a hefty 46%.
Speaking of individual stock performances, Nike’s sharp decline is particularly striking. It’s uncommon for a stalwart and industry leader like Nike to drop by double figures in a single trading day. During its fiscal 2024, Vietnam, Indonesia, and China were responsible for nearly the entire production of Nike brand footwear, with proportions of 50%, 27%, and 18%, respectively. Its apparel production is somewhat more spread out, covering Vietnam, China, and Cambodia at 28%, 16%, and 15%.
Bringing production back to the U.S. presents a daunting challenge for Nike. The company had previously cautioned that tariffs could hurt their margins, but the reality appears harsher than anticipated by the market.
Deckers, known for its HOKA and UGG brands, finds itself in a similar predicament. Much of its manufacturing relies on Asia, with oversight facilities positioned in China, Indonesia, and Vietnam. Deckers had already seen share prices drop after lowered guidance in its third-quarter earnings report, as investors priced in the potential fallout from weakening consumer sentiment and ongoing trade tensions.
On Holdings, a rapidly growing Swiss sneaker company, still relies heavily on the U.S. market, with 64% of its 2024 revenue stemming from the Americas. It shares a similar manufacturing footprint with its peers—largely Vietnam and Indonesia. Its apparel production is more varied, being spread across Vietnam, Slovenia, Portugal, Turkey, and China.
Boot Barn, while not in the athletic footwear game, faces parallel challenges. Predominantly manufacturing its exclusive brand products in Mexico and China, the company offers third-party products that are, likely, also imports. Boot Barn’s potential agility as a retailer might allow it to lean towards more domestically produced offerings, though it’s uncertain if they have the infrastructure in place for such a shift.
Looking ahead for the footwear industry, the full impact of these tariffs remains to be seen, though they are anticipated to present some serious hurdles. They might be subject to negotiation and are unlikely to linger indefinitely.
For a company like Nike, already in a recovery phase, these tariffs could set them back even further. Despite this sell-off presenting what appears to be enticing valuations, there’s room for prices to drop even more.
In the grand scheme of things, however, these companies are expected to rebound and continue their growth trajectories. With strong brand recognition and a consistent demand for sneakers, they’re well-positioned to weather the storm, albeit with some short-term turbulence.
