Abercrombie Races to Reduce China Imports as Trade Tensions Rise
The urgency of the task is underscored by apparel retailer’s share plunge on Thursday. The stock fell 15%.
(Bloomberg) -- Abercrombie & Fitch Co. is pushing to reduce its dependence on suppliers in China by more than 40% from last year’s level as it becomes clear that President Donald Trump’s trade war is going to hurt profits.
“It’s time-consuming, but it’s necessary,” Chief Executive Officer Fran Horowitz-Bonadies said in an interview on Thursday. “It’s part of our business. The sourcing team is always listening to what’s happening.”
The urgency of the task is underscored by apparel retailer’s share plunge on Thursday. The stock fell 15% -- the most since its last quarterly report -- after warning that trade tensions could have an “direct adverse impact” on the cost of merchandise.
Abercrombie joins J.C. Penney Co., PVH Corp., Express Inc. and others that are working to cut the merchandise they import from China. Prices are also being raised in some instances. The mounting tariff threat has caused investors to sell off shares of apparel companies, while discount and general retailers like Dollar General Corp. and Walmart Inc. have thus far been able to assuage Wall Street concerns about the trade war’s impact.
To help mitigate the tariffs, Horowitz-Bonadies said Abercrombie plans to lower the percentage of U.S. merchandise it receives from China to the “low teens” in 2020. In May, the company said it received roughly 25% of its merchandise receipts from China in fiscal 2018. That has since been reduced to less than 20%. Horowitz-Bonadies said the company is working with its vendors to spread production across 17 countries, including Cambodia and Vietnam.
The fact that the tariffs are a moving target adds to the complexity. Last week, Trump axed a planned temporary reprieve to new duties, instead raising levies on the next round of Chinese goods to 15% from 10% as of Sept. 1. Additionally, the $250 billion of goods and products already being taxed at 25% will see that rate hiked to 30% starting on Oct. 1.
While the duties aren’t a surprise, the shifting levels aren’t ideal, Horowitz-Bonadies said. “We would like to know what the tariff percentage is,” she said.
Softening Demand
For apparel companies like Abercrombie, the tariffs are an added headache that’s compounded by softening U.S. demand for clothing. Investors have turned pessimistic on the sector, with Abercrombie shares down more than 25% this year. The declines have been steeper for competitors like Gap Inc. and Express.
Abercrombie also has been hindered by geopolitical factors. Protests, extreme weather and Brexit also pressured international sales, Horowitz-Bonadies said.
Despite this, Horowitz-Bonadies expressed optimism about the company’s ability to pick up market share.
“The apparel market has been shrinking, but we’re excited about what we’re seeing,” she said. The retailer’s back-to-school season has been strong, the company said Thursday.
There may be upside for companies that diversify away from China. Guess? Inc. surged 20% on Thursday after the company reported it has “successfully mitigated” the tariff risk by negotiating with vendors and expects to cut its U.S. imports from China to 12% of apparel production.
For the rest of the year, Abercrombie does not plan to raise prices, even as the latest round of tariffs go into effect. Still, the company will re-evaluate the landscape in 2020.
“We can only focus on what we can control,” Horowitz-Bonadies said. “We can control where we do the production, we can control the quality we give the consumer.”
To contact the reporter on this story: Jordyn Holman in New York at jholman19@bloomberg.net
To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder
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