Blown Away by Trade
As the Sweet 16 stage of the NCAA Tournament gets underway, some readers have already seen their brackets busted due to some of the past week’s upsets. Top-seed Duke barely survived an upset bid by the University of Central Florida in the second round despite Duke star Zion Williamson scoring 32 points. Duke experienced a sole-crushing moment in February when Williamson’s sneaker suddenly blew apart mid-play in a game against North Carolina, taking him out of action for five games.
March Madness might drive eyeballs to players’ showy performance shoes, but sales of basketball shoes are likely to be less than five percent of U.S. sport shoes sales this year. We’ll use the tournament then as a jump-off point to explore what’s afoot today in manufacturing and trade in footwear, and the industry’s footprint and legacy in Massachusetts for over two centuries.
Legacy of the Massachusetts Shoe Industry
Massachusetts’ history as a footwear hub dates as far back as 1750, when skilled shoemaker John Adam Dagyr arrived from Wales to Lynn, Massachusetts. In “Best Foot Forward: The Shoe Industry in Massachusetts,” Anna Fahey-Flynn describes how trained craftsmen like Dagyr and their apprentices from Europe, helped by demand for shoes for the Continental Army during the Revolutionary War, built an industry that was producing 15 million pairs of footwear annually by the 1830s.
Shoe producers in Massachusetts dominated the industry throughout the 19th century, ushering in a period of mechanization fueled in part by the need to mass produce for Civil War soldiers. Even with lower-cost competitors coming on line in places like Missouri, 40 percent of America’s shoe production remained concentrated in Massachusetts into the early 20th century.
Over time, the high relative wages demanded by powerful Massachusetts unions contributed to the decline in competitiveness of the state’s factories, a phenomenon mirrored nationally as production began to move offshore to locations with lower labor costs.
Today, about 98 percent of shoes — almost all of the shoes we wear — are manufactured abroad, according to the American Apparel & Footwear Association (AAFA). Roughly 70 percent of U.S. shoe imports come from China. Boston-headquartered New Balance is the only major athletic shoe company that manufactures footwear in the United States, and in fact still makes them in Massachusetts (and Maine).
The World at Your Feet
Footwear – like many other products we buy – is produced through a global network of designers, suppliers, manufacturers, distributors, and retailers.
Consider the example of a new athletic shoe. A performance sneaker might begin life in the United States, born of the imagination and skills of a shoe designer, who creates the prototype for a new line of sneakers. Next, the shoe’s parent company makes sourcing decisions, such as an airbag from the United States, rubber soles from Vietnam, and specialized fabric from Korea. The materials might be shipped to China and Vietnam for manufacturing, after which the finished products arrive at a U.S. warehouse to fulfill U.S. brick-and-mortar and online sales. At the same time, the company’s sales and marketing team introduces the product to U.S. customers. Even this simplified example shows the intermingling of trade in goods and services.
Watch this video of a shoe’s production in reverse from the wearer on the basketball court to retail store owner, drivers, port operators, business analysts, product handlers and line workers, to the designers.
Out of Step
America’s generally low tariffs mask very high rates on a few products we all need, like footwear. According to the AAFA’s most recent ShoeStats, the average duty in 2017 for all U.S. goods imports was 1.4 percent, but the average tariff on imported footwear was much higher at 11 percent. Some U.S. footwear tariffs can be as high as 67 percent. High tariffs on products like shoes hit low-income families the hardest – particularly those with children – as these families spend the highest share of their incomes on home goods that tend to be imported. The United States does not have free trade agreements with China or Vietnam, two key import sources, meaning imported sneakers do not qualify for tariff waivers.
Had the United States remained part of the Trans-Pacific Partnership (TPP), which included Vietnam, most of the tariffs from our second largest source of shoe imports into the United States would have gone duty free on day one. Steve Lamar, AAFA’s Executive Vice President, points out, “Those tariff savings would have found their way into price savings for American consumers, innovation for the U.S. footwear industry, and U.S. jobs.”
Shoes and sneakers have not been on the Administration’s list of additional tariffs imposed over the last eight months on Chinese imports under Section 301 of U.S. trade law, but rising prices on discretionary purchases in general due to tariffs may be having an effect on already slowing shoe sales.
Massachusetts Still Has Game
While Massachusetts was America’s historic footwear-manufacturing hub, the state is still home to a strong industry cluster. Manufacturing has mostly moved overseas, but the Boston area still has large numbers of workers with an understanding of design, sales and marketing, sourcing, and other facets of the industry. Players in this ecosystem include Clarks, Converse, Keds, New Balance, Puma, Reebok, and Stride Rite, just to name some. They take advantage of millennial talent, not to mention Boston sports mania, to lead the pack in industry innovations, pioneering sales platforms as well as new functional and aesthetic elements of shoe design.
Boston-based Italian footwear company M.Gemi, marries old-world craftsmanship with new-world access. The company makes shoes, sneakers, and belts in specialty factories across Italy. M.Gemi might be best known for its practice of introducing a new women’s shoe style on its website each Monday, with these new limited editions developed by collaborative Italian and American design teams.
Exemplifying the “clicks to bricks” retail trend, an important part of the M.Gemi brand is opening small physical locations, including pop-up shops and fit stores in Boston and beyond, to interact with customers and grow sales beyond e-commerce. Other digital marketplaces like BrandYourShoes, GOAT, and Grailed allow sneaker enthusiasts to buy rare sneakers, customize one’s own, or list sneakers for resale.
Digital innovations have brought to life the sneaker resale aftermarket, but an unfortunate feature of innovation on the product side is the growth in copycats and other forms of theft. As infringers attempt to copy logos or well-known design elements of popular styles, trademark lawsuits proliferate. The U.S. International Trade Commission is not able to award damages for such theft, but can block the import of shoes shown to be counterfeit.
In other cases, companies may have a patent on, for example, footwear with a particular kind of upper, and bring charges of patent infringement while, in yet others, a lawsuit may involve allegations of designers violating non-compete agreements and taking trade secrets or marketing plans. Athletic shoemakers have adopted particularly aggressive intellectual property protection strategies in China, bringing lawsuits in the country’s courts, and working with local authorities to protect their brands through raids, product confiscations, and police action.
The Chase for the Championship
With 16 teams still in the chase for the national championship, and five starting players from each, that’s 80 pairs of sneakers out there on the court, not counting those on the referees.
Global collaboration in design, sourcing, production, logistics, sales, and marketing made that possible, with U.S. importers and American consumers covering the tariff bill on the imports. In the footwear hub of Massachusetts, the Northeastern University Huskies had carried the state’s only hopes in the tournament, entering as the number 13 seed in the Midwest bracket. Alas, they went down in round one against Kansas, not managing to put their best foot forward this year.
Leslie Griffin is Principal of Boston-based Allinea LLC. She was previously Senior Vice President for International Public Policy for UPS and is a past president of the Association of Women in International Trade in Washington, D.C.