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The Bulwark
Why Trump’s Favorite Shoe Company Is Fighting the White House (w/ Thomas Florsheim Jr.)
00:13:25
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- [00:00]
A
Hi, I'm Kathryn Rampel, economics editor here at the Bulwark. I just finished talking with Tom Florsheim Jr. If that name sounds familiar, it's because Florsheim Shoes is our president's very favorite brand of shoes. He has been outfitting much of his cabinet in Florsheim Shoes. Tom runs the Waco Company, which makes this brand. And we talked a little bit about what life has been like over the past year since Liberation Day tariffs arrived. Spoiler alert. It's been a little rough. At one point, those tariffs got so high that the cost of bringing shoes into the United States more than doubled. Tom and I talked about what it's been like absorbing those costs. Did he ever even consider reshoring some of that manufacturing here to the United States, which he says is economically infeasible? And the other kinds of invisible costs that have come from this tariff policy, not just in dollars paid to the federal government for the tariffs themselves, but but lost sales and wasted time having to plan around this unending uncertainty that has come from Trump's tariff agenda. Take a watch. So, Tom, thanks so much for taking the time to talk with me today. Why don't you start by telling people a little bit about your company?
- [01:13]
B
Sure. The company's name is Waco Group, and we've been around a long time. We're publicly traded. We have four different brands. Three of them are men's brands, including Florsheim, which is my last name. And we also have an outdoor boot brand called Boggs.
- [01:34]
A
Okay, you said you've been around for a long time. Where are your products made?
- [01:40]
B
Our products are made in China, Cambodia, Vietnam, the Dominican Republic and India.
- [01:49]
A
Not in America?
- [01:50]
B
Not in America. Although we historically were 100% US manufacturing based, the shoe industry moved offshore starting really in the 60s, and that continued. So today, less than 1% of all shoes that are sold in the U.S. are made in the U.S. so not
- [02:11]
A
just your company's shoes, but you're saying 1% of all shoes nationwide, from all distributors, all manufacturers, are made actually in the United States?
- [02:22]
B
That's correct. Only 1% or less.
- [02:24]
A
Why is that?
- [02:27]
B
Primarily due to the cost of labor. The shoe industry is a very labor intensive industry. It's fairly low skilled labor. And so work like that in the shoe industry as well as in the apparel industry moved offshore because of the comparative advantage you have in places like India as far as labor rates and having the labor that you need to make these types of products. And so when you. When you think about what the US really prefers to make, it's the higher value added products, and that's the way it's been for quite a while.
- [03:06]
A
If you were to try to manufacture men's shoes in the United States, what kind of price point would we be talking about given those higher labor and any other input costs?
- [03:20]
B
Right. I think the first thing that's important to understand is we for the most part sell moderately priced shoes. So if you look at the Florsheim brand, our prices range from $90, we go up to $200, but the majority of the products selling around $150. And so if we were to make these same shoes in the US At a very minimum, they would be double that price, probably well over $300.
- [03:49]
A
Have you thought about reshoring ever?
- [03:53]
B
It's really not practical. There is no component industry left in the U.S. it's difficult to even buy a shoebox in the U.S. all that, including the tanneries, have moved over to the places that are making shoes today.
- [04:07]
A
Okay, and what has the past year been like for your company?
- [04:12]
B
The past year, starting with Liberation Day in April, has been pretty crazy. And we knew from the rhetoric during the campaign that there were going to be tariffs. But the day where it was announced what those tariffs would be was, was pretty stunning to us because on the countries that I listed before that make shoes, the tariffs were around 40%. And after that day, the tariffs got worse. So the tariffs, and this is incremental. The shoe industry actually pays pretty high tariffs to begin with. And so the numbers that I'm referring to are incremental on top of the normal tariffs. And so right after Liberty Liberation Day. Right after Liberation Day, there was a fight between the US and China and the incremental tariffs were ramped up to 145%. So what that means is if the first cost of a shoe is $50, you're going to pay a tariff of, of something like $75 on a $50 factory cost shoe. And so it just made the possibility of importing from China really non existent. And we had this happen with other countries as well.
- [05:31]
A
But that's in addition to, in addition, existing tariffs. So wait, so what, what were the existing tariffs? Just so people can.
- [05:38]
B
Out of China. Out of China, they were already 16%.
- [05:43]
A
Okay, wow. Okay, so you're paying like whatever it was, 161%.
- [05:51]
B
Yeah.
- [05:52]
A
Okay, so with the tariff, it's more than double the original cost of the shoe. What was your response to that new cost pressure? How did you adapt?
- [06:10]
B
You know, I think that we were all in shock because it really makes the situation that we're in as a company very difficult. And part of the reason for that is we work on a long timeline. So when, when the tariffs were announced in April, we had already sold shoes to all of our big customers, which are the department stores and the family shoe stores and the independents for fall. And so the prices that we had sold those shoes for were locked in. We couldn't change that. And so all of a sudden, the cost of our product, in some cases is more than doubling, and we're selling shoes and we're losing money.
- [06:55]
A
And so you're just having to eat the cost.
- [06:57]
B
Exactly. Because we. When we get a purchase order from a customer, that's essentially a contract. And so you. You can't change the price at that point. And. And so we ate a lot of the tariff costs, and fortunately, they didn't stay at 145% for that long. But the amount of the tariffs was onerous. And I'll tell you one other thing. What we did, one of our strategies with how we were planning on handling this was when the tariffs got very high in China, we started moving product to India. And it's no easy feat doing that, but we moved a lot of product to India. And then there was a fight between our administration in India. And. And so the tariffs first went up to 25%, and then very shortly after that, they went up to 50%. So the alternative that we picked was not the best idea, but you had no way to know how this was going to play out. And so it was really. It's very, very difficult for businesses who need to be able to plan, price their product, you know, figure out other investments, and everything kind of came to a halt, which is not good for business. It's not good for the U.S. economy.
- [08:14]
A
It kind of sounds like you're playing whack a mole that you realized it was going to be not financially feasible to continue your production orders in one country. You move to another country where it seems like it might make more economic sense, then there's a spat of some kind that leads to higher tariffs there. So do you move back? What did you do at that point?
- [08:40]
B
Whack a mole is a good description of it. And at that point, we just continued to grow our footprint in other countries. We'd been in Vietnam and we'd been in Cambodia, but we increased our footprint because we wanted to have that flexibility. But if you have a program of shoes that you're making in China, to move that program to another country is not something you can just pick up and do. You've got, you have tooling, you have people that are experienced in making that program. And so this is not something that you can just flip a switch and move up Chinese program to Cambodia. So it just created a very difficult situation for us and for many businesses, particularly small businesses.
- [09:21]
A
And again, to clarify, nowhere under consideration was the idea of moving that production to the United States.
- [09:30]
B
Not at all.
- [09:31]
A
Yeah. Even within these tariffs, that still would not have made financial sense for your business. Correct.
- [09:37]
B
It would not have made sense for us. And talking to other people at the industry, nobody was considering that.
- [09:46]
A
Okay. In addition to the expense of actually moving production from China to India or Cambodia or Vietnam, what kind of tax was all of this on your time? Like how much time do you think you ended up spending in the past year? Ordering, reordering, scheduling and rescheduling shipments, working on logistics, making decisions about where to locate production. It seems like the cost of the tariffs is not only the dollars remitted to cbp, it's also the cost on the business's time and resources. Navigating all of this.
- [10:32]
B
Absolutely. And I've thought about that a lot. We're a fairly large company where we have purchasing department with great people and a logistics department with great people. But even with that, it's taken up a tremendous amount of my time. And what I think about is the opportunity cost of that. You know, you want the CEOs of company to think long term and strategically and figure out what, what they should be investing in. Is that an acquisition? Is it an investment in a bigger distribution center? And for us, along with, I would say, most of the companies in our industry, all that got put on hold because we were just trying to figure out how we price product, how not lose money, and how we're going to move shoes to all these different countries. And so it was. There's a big opportunity cost and it was a big. Because of how big a time sink it was for not just me, but a lot of people at our company.
- [11:31]
A
How much was the cost of the tariffs themselves? How much did you end up remitting?
- [11:36]
B
We ended up remitting $19.8 million to be precise.
- [11:42]
A
Okay, and were you able to pass along any of those costs down the supply chain?
- [11:49]
B
We ate the majority of that, especially in the beginning, because we were locked into these pos. And then in July of last year, we raised our prices 10%. But when you're paying tariffs of 50% in India and they kept bouncing around in China, but as high as 145%. That's a small piece. And the majority of it, you know, we just absorbed, which is not an easy thing. And because of that, our profits were off considerably last year. And this is all public information, so anybody can go look to see how much they're off.
- [12:24]
A
Did you have to make any other kinds of cost cutting to compensate?
- [12:29]
B
We. We made the decision that we weren't cutting any people, you know, that we were all going to be in this together. Such an unusual situation. We were hoping that it would not be a situation that lasted for a long time. And so we decided that we have a strong balance sheet, we can get through this. And we were going to all do it at the company together. There were other companies in the industry that had to cut people. This was really difficult for small businesses. We have a credit line. We have cash in the bank. But I've talked to a number of small businesses that they didn't have the cash, and so they bought shoes from China. The container came in. They were planning on spending $10,000 on tariffs. I'm just making that number up. And they ended up spending $100,000. And so think about that as a small business. And so this has put many small businesses in our industry. I.