In This Story
Apparel and footwear stocks are taking a beating in the aftermath of President Donald Trump’s “Liberation Day” press conference on Wednesday, where he announced sweeping new tariffs on nearly all U.S. trading partners.
Nike (NKE) shares tumbled more than 13% in pre-market trading Thursday. Lululemon (LULU) fell nearly 15%, while Deckers (DECK), the maker of Uggs and Hoka sneakers, dropped 14%. American Eagle (AEO) and Abercrombie & Fitch (ANF) slid 9% and 11%, respectively.
The selloff followed Trump’s announcement of what he called “reciprocal tariffs” on 50 countries, along with a baseline 10% tariff on imports from all other nations. The new tariffs, levied on a country-by-country basis, hit China and Vietnam — two of the biggest suppliers to the apparel and footwear industries — especially hard. China now faces an additional 34% tax on its exports to the U.S., while Vietnam was hit even harder with a 46% tariff.
The baseline 10% tariff will take effect this Saturday at 12:01 a.m. ET, with the country-specific levies set to follow on April 9 at the same time.
For the fashion industry, the impact could be severe. The U.S. imports about 51% its apparel and footwear from China and Vietnam, according to Goldman Sachs (GS). Vietnam alone accounts for 34% of U.S. footwear imports. Investors fear the tariffs will lead to higher prices, which could slow sales and squeeze margins.
Lululemon appears particularly vulnerable. The athleisure company sources about 40% of its products from Vietnam and another 17% from Cambodia, which was hit with a 49% tariff. Overall, Lululemon faces a blended tariff rate of 39% — the average tariff rate across all its imported goods.
With more than 60% of Lululemon’s sales coming from the U.S. and a merchandise margin of 70%, the tariffs could result in a 700 basis point (7%) margin hit if the company takes no action, William Blair analyst Sharon Zackfia wrote in a note on Thursday.
Zackfia said Lululemon is likely to pursue mitigation strategies, including negotiations with vendors, cost-saving and operational strategies, and selective price increases.
“On the latter, we estimate an 11% to 12% across-the-board price increase in the U.S. would fully protect dollar profit (albeit diluting margins), although we expect any price increases will likely be more surgical than an across-the-board hike,” Zackfia wrote.