In the five years to 2010, the Global Footwear Manufacturing Industry is expected to grow steadily. Most consumers in the world require footwear for practical reasons, and it is a product used by most people in the world. As the world's
population increases, so too does footwear demand. Revenue is projected to rise from $113.8 billion in 2005 to an estimated $126.9 billion in 2010 (constant 2010 dollars). This represents an annualized average growth rate of 2.2%. The past five years is characterized by rising levels of international trade, due to several factors including: reductions in barrier protection, changing consumer preferences and the further internationalization of capital and workforces. This industry is relatively labor-intensive and production and revenue from low labor-cost countries continues to rise. For the most part, the world-wide footwear supply chain is clearly structured across global lines, with design and marketing done in the developed world and manufacturing conducted in the developing or newly-developed world.
Manufacturers of less expensive footwear and athletic shoes are mainly situated in developing regions of Asia and South America, while designers, large wholesalers and retailers are predominantly located in Europe, the US, and developed Asian regions, such as Taiwan. Footwear is an actively-traded product in international markets and is being delocalized from developed countries to developing ones. China is clearly the dominant footwear manufacturer in the world and its market share, while reaching a plateau, has grown substantially over the last five years.
Slow growth as the world cuts discretionary spending
In 2010, moderate growth is expected in light of dampened consumer spending with economic recessions in developed countries such as the USA, Japan and Europe lowering demand for discretionary footwear. Revenue in the Global Footwear Manufacturing Industry is expected to rise by only 0.8% to $126.9 billion. The credit crisis is making banks reluctant to lend to small and medium sized businesses, which is expected to lead to some contraction in footwear manufacturing capacity. Despite this, large, financially strong companies still have the opportunity to receive more orders from brand customers.
Footwear manufacturing in the developing world continued to grow in 2009, but the effects of a declining US and world economy, suffering from a credit crunch, saw the previous strong growth levels taper off, especially in China. Slowing consumer demand in the developed world impacted on demand for manufactured exports from Asia. For China, the most prominent developing Asian nation and footwear manufacturer, enormous macroeconomic changes are taking place. The US credit mortgage crisis escalated into a global economic crisis, which constrained output in China's economy. There are also rising uncertainties of the external factors affecting China's continuous economic growth. Meanwhile, consumer confidence suffered a blow caused by a number of factors, including consumer price index rises, the stock market downturn, and a spate of natural disasters. However, China's per capita income continued to rise rapidly in 2008, and the footwear manufacturing industry in China benefited from the Beijing Olympics in 2008.
In 2008, slowing US and world economies limited revenue growth in the Global Footwear Manufacturing industry to 2.6%. While still extremely high, growth levels in China slowed to a slightly lower rate than the previous year as gradual wage pressure in the country saw manufacturers begin moving to Vietnam and other developing countries to take advantage of lower labor costs. Despite the trend for China to source from cheaper wage alternatives, Vietnam contributed only 4.1% of total footwear manufacturing revenue in 2008. China continued to have the infrastructure and a large domestic market for ongoing expansion in the industry and made up about 53.5% of industry revenue during the year. Industry revenue in 2008 was constrained by a slowing US economy and softening EU economies. Because of this, demand for cheap- to mid-priced products manufactured in China, Vietnam and India continued as US consumers choose low "value added"
INDUSTRY PERFORMANCE Global Footwear Manufacturing
04 May 2010 imported footwear over more expensive European and locally-produced brands. However, demand from developing nations for luxury items from Europe dropped substantially.
IBISWorld estimates that total industry revenue grew by 3.3% in 2007 to $120.5 billion. Worldwide real GDP rose at by 5%. Revenue in the Chinese footwear manufacturing industry increased by 24.7% and made up approximately 40.7% of worldwide revenue.
In 2006, industry revenue also grew by 4.1% and again, revenue from Chinese footwear grew by 17.3%. The growth in China was slightly less than the previous year as gradual wage pressures in the country saw manufacturers move to Vietnam to take advantage of lower labor and production costs. The introduction of tariffs on imports to the European Union also limited growth. The already large Indian industry grew during the year as companies from the US, Italy and Taiwan continued to invest in sourcing manufactured footwear from India.
Profitability
Industry profitability has remained relatively stable over the past five years to 2010, and is expected to account for approximately 7.3% of industry revenue in 2010. This is down from about 8% in 2007 with the majority of consumers around the world demanding fewer high-priced, high-end shoes. A drop in profitability is also expected with wages paid to factory workers in developing manufacturing nations, especially in China, beginning to rise.
Manufacturers in India and China, and many parts of South East and Central Asia are already feeling the sting of rising energy prices and price rises of raw materials like cotton. Other raw material costs include leather and synthetic material. While dipping in 2009, the profitability of European luxury footwear producers is expected to increase, from approximately 10.4% of revenue in 2004 to about 12.5% of revenue in 2009, with the increasing willingness of prosperous classes in Asia to spend on luxury items counterbalancing some of the tightening of spending in the US and EU.
Rising international trade
International trade is a very important component of revenue in this industry. The total value of trade is expected to increase from $72.6 billion in 2005 to a forecast $83.7 billion in 2010, with annualized increases of 2.9%. In 2009, China is expected to export 31% of total global footwear exports. While up from about 27% of revenue in 2005, China is not expected to increase substantially from 30.3% of exports in 2006 as its domination of production starts to plateau. Trade rose throughout the period as many manufactures in the US, Europe and other countries such as Taiwan and Korea effectively converted themselves from domestic manufactures to wholesalers of overseas manufactured footwear. International trade is expected to rise from 63.5% of industry revenue in 2006 to 66% in 2010.
The rise in the amount of sourced footwear manufactured in low-wage countries by contractors and company-owned facilities is causing the rise in imports. The US is the largest importer in the industry. It is estimated to purchases 31.9% of the word's imports in 2009. This is down from 32.9% of total world imports in 2008 as the recession saw US consumers tighten spending on discretionary footwear. Tariff reductions in the US market have seen a greater flow of Chinese products enter the country. The declining US economy in 2009 should see some stability in the rate of Chinese imports entering the country as US consumers substitute more expensive branded European footwear with lower-priced alternatives.
Cheaper footwear imports, mainly Chinese but also Vietnamese, have been penetrating the EU over the last five years. "Anti-dumping" tariffs on Chinese and Vietnamese footwear entering the EU were implemented in 2006. These tariffs, 10% on all leather footwear imports from Vietnam, and 16.5% on all imports from China, limited the growth in Chinese and Vietnamese imports to the EU in 2007 and subsequent years. Demand from consumers with increasing affluence and the
INDUSTRY PERFORMANCE Global Footwear Manufacturing
04 May 2010 accompanying culture of displaying affluence in China and India is benefiting manufacturers and exporters of high-priced goods with fashionable brand names and stylish designs in Europe. This is expected to continue as the Chinese and Indian economies grow over the next five years.
Wages and employment moving to the developing world
Total industry wages have declined at an estimated 1.5% a year on average during the past five years, from $22.6 billion in 2005 to a forecast $21 billion in 2010 (constant 2010 dollars). Wages as a percentage of revenue are expected to decrease from 18.3% in 2006 to 16.5% in 2010. As a greater proportion of footwear is being manufactured in Asia and South America, wage levels have declined over the last few years in relation to revenue.
Despite the decline in wages, employment has steadily increased. While employment in the US and most parts of Europe has contracted severely, the number of low-cost workers engaged in footwear manufacturing in China, Vietnam, India and Brazil has consistently risen over the past five years. Total employment is expected to increase from 6.71 million workers in 2006 to a forecast 7.15 million in 2010.
China dominates production
In 2010, the Global Footwear Manufacturing Industry is expected to produce approximately 12.15 billion pairs of shoes, up from 11.63 billion in 2006. Developing countries dominated production volumes in the industry. In 2010, approximately 57% of total shoes manufactured in the world, or 6.9 billion pairs of shoes, are expected to be Chinese-made shoes. This was up from around 6.5 billion pairs, or 56% in 2006.
Vietnam is projected to be the next largest manufacturer with about 975 million pairs produced or 8% of total world production in 2010. This is up from 700 million pairs or 6% of world production in 2006. The Vietnamese footwear manufacturing industry has developed considerably through substantial overseas investment. Manufacturers have moved to the country to take advantage of the low labor costs; production costs in the country are less than in China. India's production is expected to grow from 700 million pairs in 2006 to 950 million pairs in 2008. India's production of footwear has the potential to contend with some of China's market share, but its manufacturing infrastructure is not currently as well-developed as China's. Brazil is also a large shoe manufacturer, expected to make up 6.5% of production in 2010. Down from 9% of revenue in 2006, Italy is still expected to make up a significant 6.7% of industry revenue in 2010. As the country specializes in the production of high quality fashion labels and more expensive designer shoes, it is only expected to make up about 230 million pairs, or 1.9% of total pairs in 2010. This is down from about 330.0 million pairs in 2004. While it still leads the world in high-end shoes, Italy has struggled to compete against importation of mid-priced shoes produced in Asia.