Deckers Outdoor vs. Adidas: Navigating Tariffs Through Pricing Power and Supply Chain Resilience

The U.S. footwear industry is in the throes of a structural shift, as escalating tariffs and geopolitical tensions force brands to reengineer supply chains while preserving profit margins. Deckers Outdoor (DECK) and Adidas (ADS.Germany) are emblematic of divergent strategies to navigate this new reality. While both have turned to Vietnam as a critical manufacturing hub, their approaches to geographic diversification, cost mitigation, and pricing power reveal stark differences in their ability to sustain growth. For investors, the choice hinges on which company can best balance exposure to Vietnam's tariff risks with the pricing leverage to offset margin pressures. Here's why Deckers' premium brand strategy gives it an edge.

The Vietnam Dilemma: Reliance vs. Diversification

Vietnam has emerged as a linchpin for footwear production, but its 46% U.S. tariff rate on imports complicates cost structures. Deckers and Adidas have responded differently:

• Deckers' Vietnam Focus: Deckers has aggressively shifted production from China to Vietnam, aiming to mitigate a projected $150 million tariff-driven increase in fiscal 2026 COGS. Vietnam now accounts for a significant share of its manufacturing, though exact figures are not disclosed. This heavy reliance exposes Deckers to tariff volatility, but its financial strength—a current ratio of 3.72x and net cash position—provides a cushion for transitions.

• Adidas' Diversified Network: Adidas has a more complex geographic footprint, with Vietnam producing 40% of its footwear as of 2024, down from 46% in 2021. It has expanded into Mexico (leveraging FTAs), Indonesia, and the Philippines to reduce overreliance on any single market. Despite this, tariffs on Vietnamese goods remain a drag, with CEO Bjørn Gulden warning of potential price hikes for U.S. consumers.

Pricing Power: A Premium Play for Deckers

Both companies benefit from strong brand equity, but Deckers' premium positioning gives it a critical advantage in passing costs to consumers:

• Deckers' Leverage: Its UGG and HOKA brands command premium pricing power, enabling selective price increases without significant demand erosion. This flexibility has already helped offset 60% of projected tariff impacts, with the remainder absorbed through cost-sharing agreements with manufacturers. The strategy's success is reflected in its 13% sales growth in 2024 despite margin pressures.

• Adidas' Balancing Act: Adidas' sales growth (13% in Q1 2025) is fueled by retro styles (e.g., Samba) and collaborations, but its broader product mix means it cannot raise prices universally. While premium lines like Adizero and Formula 1 collaborations help, the 46% tariff on Vietnamese imports limits its ability to fully offset costs.

Risk Exposure: Geographic Spread vs. Margin Resilience

Adidas' geographic diversification reduces Vietnam-specific risks, but its lower gross margins (52.1% in 2024 vs. Deckers' 57.88%) leave it more vulnerable to tariff-driven margin compression. Deckers' higher margins, bolstered by brand pricing power, create a buffer against cost increases.

• Deckers' Financial Fortitude: With a net cash position of -1.61 billion USD (net debt), Deckers is positioned to weather short-term disruptions while its premium brands sustain demand.

• Adidas' Trade-offs: While Adidas' Q1 2025 operating profit surged 81.7% to €610 million, its reliance on lower-margin products and exposure to multiple tariff regimes (e.g., Indonesia's 32% rate) complicate long-term profitability.

Investment Implications: Prioritize Pricing Power Over Diversification

For investors, the choice between Deckers and Adidas boils down to which risk-reward profile aligns with their appetite for tariff volatility.

• Deckers' Case for Outperformance: Its premium brands provide a moat against margin compression, while its financial flexibility allows strategic investments. The stock's resilience in the face of COGS headwinds suggests it can sustain growth even as tariffs rise.

• Adidas' Diversification Limitations: Geographic spread mitigates Vietnam-specific risks but does not fully offset the cost of tariffs. Its margin structure leaves less room for error in a high-tariff environment.

Recommendation: Deckers' stronger pricing power and margin resilience make it the better bet for investors seeking to navigate the new tariff era. While Adidas' diversification is a defensive move, its exposure to multiple tariff regimes and lower gross margins leave it more vulnerable to margin erosion.

In an industry where cost control and brand equity are paramount, Deckers' focus on premium pricing—coupled with its financial strength—positions it to outperform in the coming years.

Disclosure: This analysis is for informational purposes only and should not be construed as investment advice.