Outside Business Journal

Face Off: Are Tariffs Forcing You Out of China?

As costs increase, brands must weigh tough production choices

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“No, We Can’t Move.”

BOCO Gear has a unique business model: we offer customized, high-quality performance headwear delivered within 35 days, for as few as 35 units at a time. We made this happen through an exclusive agreement with our factory owner in China when we launched five years ago, an arrangement that has given us a competitive advantage and allows BOCO Gear and our factory to continue to grow.

BOCO Gear endured two tariff increases last year (10 percent and 15 percent), and the administration is threatening more. We’ve absorbed some of the costs ourselves, pushed our factory for lower prices, and passed along price increases of up to $5 per item to our consumers. But we don’t have the option of moving production elsewhere. We’ve been looking for alternate factories in anticipation of these tariffs since before they were announced. To do that, we shifted resources we’d originally planned for new hires into sourcing efforts, but we haven’t found a factory that has the capability to make our products, with low minimums, and in the timeframes and pricing we require. Even if we could find a replacement, moving our style of customized production would take about two years of development time and the addition of three or four new employees—time and resources we don’t have.

We’re still investigating options to help mitigate the impact of the tariffs, such as growing our international business, diversifying our product line, and negotiating with freight companies. But now, our best option is sticking with our Chinese factory and passing along the tariffs. Luckily, our loyal customers are standing by us.

-Kay Martin, CEO of BOCO Gear

“Yes, We’re Moving.”

The past 18 months have been a trying time for Hestra. After the administration imposed a 10 percent tariff on all our leather ski gloves manufactured in China in fall 2018, we bore the burden of the added expense for the 2018/19 season. Fast-forward to early summer 2019, when the administration announced that the tariff would be increased by an additional 15 to 25 percent. This was very problematic for several reasons: We had already set fall 2019 pricing and accepted orders based on these prices. We had no choice but to notify our retailers of a price increase of five to ten percent. Internally, we had to re-label 200,000 pairs of gloves to reflect post-tariff pricing. We’re thankful that the response from the outdoor industry and the retail community has been very supportive.

We knew the new China trade landscape wasn’t sustainable, so we made the call to move 70 percent of our production for the U.S. market out of China. Fortunately, Hestra owns its production facilities worldwide, either in joint venture (our two China factories) or wholly (our Hungary and Vietnam factories). This allows us to closely monitor the quality of our gloves, and let us quickly shift the majority of our 19/20 production to our Hungary and Vietnam factories to minimize the retail price impact of the tariff. Certain styles had to remain in China due to the complexity of the manufacturing process.

We will continue to shift the remaining 30 percent of production out of China as our capacity increases. We have invested heavily in our factories and our employees in China, and we’d like to continue to support them. But right now, trade realities make that impossible.

Dino Dardano, president of Hestra USA

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