Aritzia, Canadian Tire, Lululemon among Canadian retailers shifting production outside China

While recent headlines have focused on Donald Trump's threatened tariffs against Canadian products, retailers in this country have also been considering the possible impact of additional tariffs he's threatened on goods coming from China. 

This could affect Canadian brands that manufacture products overseas and sell them south of the border. That includes Groupe Dynamite, Aritzia, Lululemon and Canadian Tire — all of which have been asked about tariff threats during their latest earnings calls. 

"Knowing that there's going to be a transition in the first quarter of the year, we've already taken steps — I won't get into the percentage — but we've already taken steps to move more production out of China," said Andrew Lutfy, CEO of Groupe Dynamite, on a recent call with investors. 

Groupe Dynamite, a Montreal-based clothing company, has been expanding in the U.S. since 2007, and has 109 Garage stores and five Dynamite stores south of the border, according to its latest investor presentation.

The trend of companies shifting production outside China isn't new. Tensions between the U.S. and China have been escalating for years, and tariffs that started during Trump's first administration were maintained under his successor Joe Biden.

That's prompted businesses to make plans to move, and that's only been accelerating recently. The shoe maker Steve Madden, for example, said it plans to reduce its goods made in China by 40 per cent, up from a previous target of 10 per cent. 

And just as the Canadian government has matched U.S.-China trade restrictions with its own tariffs on Chinese electric vehicles, steel and aluminum, rising geopolitical tensions have prompted Canadian companies to examine their trade relationships with China. 

"The Canadian business community is seeing those signals and they are realizing that there are potential vulnerabilities in having a significant portion of your supply chain located in China," said trade lawyer John Boscariol, a partner with the firm McCarthy Tétrault.

Setting aside the threat of tariffs, the shift away from China has also been driven by concerns around forced labour. There's mounting evidence of human rights abuses against ethnic Uyghurs in the Xinjiang region in China, a hub for the production of cotton and other goods.

With the passage of the U.S. Uyghur Forced Labour Protection Act, companies now risk having certain goods halted at the border and being made to prove they're not manufactured with forced labour. 

"You've had the normal forced labour issue and then the U.S.-China fight on top of that," said Carlo Dade, director of trade with the Calgary-based Canada West Foundation. "That's why businesses are suddenly taking more extreme or extraordinary measures."

Costs may have also played some role in the shift, said Bob Kirke, executive director with the Canadian Apparel Federation. As China has developed economically, "labour costs have increased," he said. "That's very straightforward."

Greg Hicks, president and CEO of Canadian Tire — which also owns the international brand Helly Hansen — told investors it's seen a "sizeable shift" in country-of-origin sourcing outside of China this year alone.

"As it relates to any type of trade escalation between [the] U.S. and China and how that impacts us just from that standpoint alone, we're in a less [risky] position than we would have been this time last year," said Hicks in the fall.