Coach Bags Languish in Vietnam Port in Painful Tariff Workaround

May 10, 2019

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With President Donald Trump slapping 25% tariffs on $200 billion in Chinese goods Friday, those companies who’d already started moving production outside China are looking pretty smart. But those shifts come with their own headaches.

Take Tapestry Inc., owner of the Coach and Kate Spade brands. As it relocates more manufacturing outside China, interim finance chief Andrea Shaw Resnick says it’s finding infrastructure investments in key Asian ports like the Philippines, Vietnam and Cambodia “have simply not kept pace.”

“While this has not resulted in higher freight costs, it has resulted in longer lead times with more inventory on the water at any given time,” Resnick said on the company’s quarterly earnings call Thursday.

Bagmaker Vera Bradley Inc. is in a similar boat. It’s been setting up factories in Myanmar, Cambodia and Vietnam -- giving it a supply chain free of the additional Chinese tariffs but also weighing down its average delivery times.
“One of the challenges that does come up that we’re working through is the timeline,” Chief Executive Officer Robert Wallstrom told investors last month. “Deliveries and everything are longer coming out of everywhere else. You’re trying to speed up your sourcing and production timeline, so this definitely moves you backwards on that and so it puts more pressure on us to find other ways in taking time out of the production cycle.”

The new factories will hit Vera Bradley’s earnings by $3 million to $4 million this year, he said.

The fresh wave of U.S. tariffs put in place Friday have been a threat for some time, though the original implementation date was delayed as China and the U.S. tried to hash out a trade deal. The levies that started overnight marked a sharp reversal from just last week, when U.S. officials expressed optimism that a pact was within reach.

Vera Bradley had already been moving production out of China for some time, but Friday’s implementation spurred it into action, said Julia Bentley, vice president of investor relations. “We are moving production out of China more quickly than originally planned,” she said, noting that the company expects less than a quarter of its products to come from China by the end of fiscal 2020, down from about 54% in the fiscal year that just ended.

https://www.bloomberg.com/news/articles/2019-05-10/ex-china-production-comes-with-its-own-headaches-bagmakers-find