SARS disruptions may affect prices, new styles of shoes

By Jim Hopkins
USA Today

SAN FRANCISCO — U.S. footwear prices and the introduction of new styles may be threatened as SARS continues to spread in China.

Athletic-shoe maker K-Swiss last week was the latest footwear maker to warn of supply disruptions in an industry that is more dependent on Chinese factories than any other U.S. manufacturing sector. Warning earlier: Vans, Converse and Stride Rite, the maker of Keds and Tommy Hilfiger brands.

More than 70 companies, from Accenture to Waterpik, have noted SARS as a potential problem in filings with the Securities and Exchange Commission in the past four weeks, researcher 10K Wizard says.

But it is the $45 billion footwear industry that has a greater risk because it moved so much production to China since 1990. More than 64 percent of the footwear sold in the USA is made in China, up from 55 percent in 1998.

Shifting work to factories in other nations — a worst-case step if severe acute respiratory syndrome shuttered Chinese plants — could raise consumer prices at a time when annual revenue growth is flat, says Peter Mangione, president of the Footwear Distributors and Retailers of America trade group.

That could also delay shoe design and production. "We've never really been in a circumstance like this," Mangione says.

Companies have not reported supply problems, he and company officials say. But companies are limiting risk by:

• Relying on technology. Industry leader Nike — which produces almost 90 percent of its footwear in Asia and 38 percent in China alone — is using teleconferencing to link U.S. designers with factories. It also is relying more on computer-aided design to ship electronic images of shoes to factories via the Internet.

Vans and Stride Rite, both of which have banned travel to the affected Chinese region, are using similar technology.

Such technology can only do so much in an industry where designers want to see products while they're being made to ensure they meet standards. "It's a very tactile business," says Stride Rite executive Peter Charles.

• Warning investors. Amid corporate scandals, many companies are going out of their way to report any possible problems, such as SARS, that could affect results, says Ken Scott, a Stanford University securities law professor. Such extra-thorough reporting is a defense against shareholder lawsuits.

K-Swiss, which on Thursday reported a 41 percent jump in first-quarter net income from a year ago, included a warning about SARS in its statement. It has not had any problems, President Steven Nichols says. The advisory was included with other possibly negative factors, including terrorism, he says.