Columbia Sportswear Co.
Trade War Unleashes C-Suite Chaos: ‘How Do You Plan?’

Trade War Unleashes C-Suite Chaos: ‘How Do You Plan?’

May 23, 2019
“Uncertainty is the enemy of investment,” said Columbia Sportswear Co. general counsel Peter Bragdon.

For Columbia Sportswear Co., President Donald Trump’s escalating trade war has snatched away the most finite resource of all -- time.

Although the outdoor-gear maker was largely spared financial pain in the first tariff rounds, the dispute has still sucked up hours and resources that it hadn’t planned for. Budget meetings and strategy sessions have been getting derailed by the uncertainty. Added costs have popped up in unexpected places, like the price of mannequins rising about 5% because of levies on aluminum used in their frames. Making this more difficult is the fact that Columbia’s production cycles stretch out 18 months.

“How do you plan?” said Peter Bragdon, Columbia’s chief administrative officer and general counsel. “Uncertainty is the enemy of investment.”

Unknowns for Corporate America increased in the past few weeks. The U.S. and China looked headed for a detente, but they failed to reach a compromise. So Trump ramped up the pressure by raising a wave of existing tariffs and starting a process to put levies on the remaining goods coming from its largest trading partner, from shoes to toys and smartphones.

Columbia joined other footwear giants on Monday in a letter urging Trump to reconsider.

Good Info?

“There is a reason that trade policy is negotiated and set over the period of years, even decades. It has a significant impact on the orderly operation of the economy,” Bragdon said. When asked about the trade war’s latest twists and turns, he quipped: “Well, I haven’t checked my phone in the last 20 minutes, is that still good information?”

Shoemaker Wolverine World Wide Inc. is also feeling the pain, even though its physical goods didn’t appear on any tariff lists until last week. President of global operations Michael Jeppesen was visiting suppliers in the Philippines when he learned his job overseeing the production of 15,000 new products a year, including many in China, was about to get harder.

“I was miffed,” said the executive at Wolverine, whose brands like Keds and Merrell have year-long lead times. “We need a certain level of visibility, transparency and predictability in order to plan our business in the most cost-effective way. If we are wrong on those assumptions, we will not be able to make the profit we planned.”

Economic Risk

The risk of the president’s trade war is that it could dampen U.S. economic growth by creating enough uncertainty to stall investments, or that the tariffs could increase prices and hurt consumer spending. There are signs that may be happening. Retail sales declined in April for the second time in three months. U.S. factory production fell for the third time this year. The Cass Freight Index, a measure of U.S. shipping demand, decreased for a fifth straight month.

Neato Robotics Inc. has been whipsawed by the trade war. The closely-held company with $100 million in retail sales started paying 10% duties on its robot vacuums in September. The Trump administration said that would jump to 25% on Jan. 1, so Chief Executive Officer Matt Petersen drastically upped production ahead of the increase to save money, while spending a lot of time looking at other sourcing countries. But that hike was delayed, leaving Petersen with a glut of inventory that’s been a drag on cash flow.

By April, a deal with China looked close, only for it to fall apart. The volatility is “wreaking havoc” on decision making for the Newark, California-based company, said Petersen, who is again looking at manufacturing alternatives, like Malaysia and Mexico. He’s considering how much to raise prices on robots that already sell for as much as $800. To counteract the new costs, he plans to spend less on hiring and advertising.

Mannequin Hit

At Columbia, the pricier mannequins were not a material headwind, and maybe they’ll eventually come down in price now that Trump lifted steel and aluminum tariffs on Canada and Mexico to encourage lawmakers to ratify a new North American trade deal. But even if relief on metal prices may be ahead, an extra $10,000 here and there these past few months adds up. That could mean less travel for executives -- a hit to the airlines -- or cuts in other areas.

Now multiply that times the thousands of U.S. companies -- big and small -- that are paying the duties directly or having them passed down to them. So far Trump’s assessed tariffs have totaled more than $23 billion through April, with more than two-thirds generated by the duties on imports from China.

“It’s money that’s being taken out of the business and given to the government,” Bragdon said. “That’s all money that would go into other investments in plants and people to grow the business.”

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