By Jennifer Williams
Potential new tariffs could lead to higher prices on things such as Nike and Adidas shoes at Academy Sports & Outdoors stores, but the retailer hopes a laser focus on keeping its prices lower than competitors facing the same tariffs will give it an edge.
Meanwhile, changes that Academy has made to its supply chain to cut back on the amount of private-label goods it imports from China also could blunt the impact of tariffs proposed by President-elect Donald Trump.
But tariffs or no tariffs, Academy hopes its pricing will bring inflation-weary consumers hunting for deals to its doors.
"We're going to stay committed to being an everyday value retailer, which in the current state means on things like Nike T-shirts and Nike shoes, we price our goods $5 below" the manufacturer's suggested retail price, said Carl Ford, chief financial officer at Academy. "If Nike takes those MSRP's up...we will continue at that same level below MSRP, but at a higher level."
Trump has proposed a universal tariff of 10% to 20% on all imports to the U.S. and a 60% or more tariff on goods from China. The incoming president has also threatened 25% tariffs on goods imported from Canada and Mexico. The potential for stiffer tariffs on imports is spurring executives across industries, from Costco Wholesale to Mama's Creations and Hasbro, to think through possible impacts. Executives are preparing for the potential levies by negotiating with suppliers, diversifying supply chains and pulling forward orders where it is possible.
Some businesses, such as Academy, will look to pass their own higher costs onto consumers.
Academy is looking at the potential tariffs through two lenses.
The first is its private-label business, which includes its namesake brand as well as Magellan Outdoors and Outdoor Gourmet labels. The 19 brands represent around 21% of Academy's sales, according to Ford. Roughly half of the private-label items are sourced from China, he said.
Academy over the past few years has diversified its sourcing of private-label goods. More than 70% of the items came from China in 2019, and the percentage could drop further. "We're going to continue to diversify," the CFO said.
The remaining roughly 80% of Academy's business comes from national brands such as Nike, Under Armour, Adidas, Columbia Sportswear, Yeti and Carhartt.
"We're kind of in the soup with everybody else who sells Nike and Adidas and Brooks and Asics," Ford said. "If they are subject to tariffs, their costs will go up, so our costs will go up."
Nike sourced roughly 18% of Nike brand footwear and 16% of apparel from China in the fiscal year ended May 31, according to a regulatory filing. Adidas sourced 14% of footwear and 15% of apparel from China in 2023.
Like Academy, retailers over the past few years have diversified their supply chains in response to the previous round of Trump-era tariffs that started in 2018 and were focused on China. Shoppers saw high prices as a result, but many retailers were largely unscathed. Timing made all the difference. Tariffs on apparel items from China, for instance, didn't go into effect until late 2019. Pent-up demand during the pandemic, coupled with shoppers who had money to spend, meant retailers were able to easily raise prices.
The story now could be different, as consumers pull back on discretionary spending and hunt for deals. Higher prices could be a particularly troublesome prospect for Academy shoppers, who tend to be value-oriented, said Anthony Chukumba, a senior research analyst at Loop Capital.
That might make it harder to pass higher prices along to Academy's customers, according to Chukumba. Still, Academy might have an advantage in maintaining its strategy of pricing below others, he said. If national brands raise prices, the retailers that sell those products are likely to follow suit, which would include Academy's competitors.
"They are trying to undercut their competitors," Chukumba said, referring to Academy. "So they can raise their prices, but still come in $5 under MSRP."
The potential for tariffs comes while Academy is looking for a sales boost. The sporting goods chain has posted declining comparable-store sales, or those across stores open for 13 months, since the three months ended April 2022, as demand for outdoor gear such as canoes, tents and bicycles dropped after a surge during the pandemic. The latest quarter offered signals for optimism, analysts said.
Academy's comparable-store sales were down 4.9% for the three months ended Nov. 2 compared with a year earlier. But those sales were positive in the first two months of the quarter, August and September. They fell off in October because of unseasonably warm weather that dented outerwear purchases as well as a tough comparison to the year-ago period, when sports teams in core markets performed well, boosting sales of related merchandise.
Academy also announced this month that it will add a wider assortment of Nike products early next year to roughly 140 locations, or about half of its stores, which analysts expect will bring more shoppers into Academy stores. The retailer hasn't shared specifics about the incoming products.
Business executives from various industries are thinking through strategies in response to the possible tariffs. Some that don't expect a direct impact are preparing for knock-on effects. This is the case for fresh deli prepared foods manufacturer Mama's Creations, which sources from the U.S. Take beef, said CFO Anthony Gruber. Mama's Creations doesn't import the meat, but the prices the company pays for it could still rise, he said.
"If those tariffs hit people that do import beef, they're going to look to the domestic supplier, and it's just going to drive that price up," he said. And if ingredient costs rise, so too might prices, he said.
At Costco, raising prices is a last resort. The retail giant's exposure to levies on imports primarily comes from nonfood items, which account for around a quarter of Costco's products, said Chief Financial Officer Gary Millerchip. If the cost of a particular item were to increase because of any tariff, everything from lowering product costs in other areas, such as product design, to switching in new products on Costco's shelves is on the table to minimize any impact to Costco members, he said.
Costco aims to offset any of its own higher costs without lifting costs for its shoppers, according to the CFO.
"No one is immune if tariffs come along, but we tend to look at it through that kind of lens, to make sure that we're doing everything we can to minimize the impact to members," Millerchip said.
Write to Jennifer Williams at jennifer.williams@wsj.com
(END) Dow Jones Newswires
December 23, 2024 09:00 ET (14:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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