US tariffs could push Puma to shift China production

Trade & Policy

US tariffs could push Puma to shift China production

German sportswear maker Puma is working on contingency plans to move some production from China to other Asian markets if US tariffs are imposed on footwear, its chief executive said last week.

Puma reported that strong demand in China helped power a jump in first quarter sales and earnings, but cautioned that the threat of a US-China trade war was tempering its optimism for the rest of the year.

Puma currently makes about a third of its products in China and is looking into moving sourcing of footwear to countries like Vietnam and Indonesia, and apparel to Cambodia and Bangladesh, said CEO Bjorn Gulden. "Our sourcing people have been working on alternatives for the last two or three months," Gulden told a conference call for journalists.

"It causes headaches for many people." Apparel and footwear could be included in a new US list of $100 billion worth of Chinese imports expected to be announced in coming days as the trade fight started by US President Donald Trump with China escalates. Gulden said Puma might have an advantage over larger rivals Adidas and market leader Nike in being able to move sourcing faster because its volumes are smaller. However, he added that US tariffs could also mean Puma has to accept a lower US margin or raise prices, adding, "We are not the market leader in the US so of course we will see what the market does."

Gulden said moving production for the US market could take about 12 months, adding that capacity freed up could also be used to make products for the booming Chinese market, where Puma's sales growth was exceptional in the first quarter. "We are not even touching the second and third tier cities in China," Gulden said, noting Puma had about 1,400 points of sale in China, compared to about 10,000 for its rivals. Puma reported that first quarter sales in the Asia-Pacific region jumped 35%.

Gulden noted that Puma had already been shifting production away from China over the last couple of years due to rising labour costs, with many of the factories across Asia owned by the same companies, making it easier to switch volumes.