Footwear Sector Analysis

A Report On Footwear Sector Analysis Guided by: - Prof. Venkatraman

Submitted by:Akhilesh tripathi (8103) Ankit Sruvastava (8105) Brijendra Pal Singh

(8116) Dipti Pathak (8121) Gaurav Agarwal

(8124)

Priyanka Mahajan (8146) Sarvesh Jaiswal (8161)

Footwear Industry Market definition: The footwear market consists of the total revenues generated through the sale of all type of men’s, women’s and children’s shoes. The global figure includes the Americas, Asia Pacific and Europe. Americas consist of Brazil, Canada, Mexico and US, while Asia pacific consist of Australia, China, India and Japan. Europe comprises of Czech Republic, France, Denmark, and Germany etc.

ATHLETIC FOOTWEAR INDUSTRY

Global Scenario: Footwear is huge and increasingly diversified business driven by a host of demographic lifestyle, and fashion trends. It would not be exaggerating to say that globally the footwear industry is having expanding market rather it is axiomatic. As the world population increases so the living standards of people rise thus increasing the demand of footwear. According to SATRA (Shoe and allied trade research association, UK) the global trend of footwear industry are as follows.

Consumption

1998

2000

2002

2004

2008

Asia (all)

4744

5222

5474

5840

6528

Americas

3011

3274

3279

3433

3611

Europe (all)

2239

2396

2544

2717

2886

Rest of the world

1086

1187

1172

1317

1399

Total

11080

12079

12469

13307

14424

(Millions of pairs)

According to the report published by SATRA, Asia including India Subcontinent is the largest market for FOOTWEAR in terms of consumption. Next to Asia is Americas and then followed by Europe and rest of the world. In monetary terms the market shows a different picture as Asia lies behind Europe and North America but irony to the situation is that Asia is the leader in terms of footwear consumption and market. It is merely because of the population density in the Asia. China is the largest producer and exporter of shoes and it is also the biggest consumer of footwear by virtue of the size of its population. Overall the footwear production is highly concentrated in Asian market and the consumption in the US and European market.

Table: showing the breakdown of major consuming countries and their areas.

Country

Consumption

Population

Per Capita

Millions/ pairs

Millions

Paris/ Person/year

USA

1939.7

290.3

6.68

Japan

584.4

127.2

4.60

EU

1666.5

380.2

4.38

Canada

122.4

32.2

3.8

Taiwan

82.7

22.6

3.66

Australia

72

19.7

3.65

Korea

165.4

48.3

3.42

Brazil

483

182

2.68

Thailand

144.4

64.3

2.25

Mexico

180.4

104.9

1.72

China

2768.7

1286.9

1.71

India

1687

1049.7

1.61

Indonesia

350

234.9

1.49

Indian Scenario: The Footwear Industry is a significant chunk of the Leather industry in India. India ranks second among the footwear producing countries next to China. The industry is labor intensive and is concentrated in the small and cottage industry sectors. While leather shoes and uppers are concentrated in large-scale units, the sandals and chappals are produced in the household and cottage sector. India produces more of gents footwear while the world’s major production is in ladies footwear. In the case of chappals and sandals, use of non-leather material is used to manufacture these in the domestic market. Reputed global brands like Florsheim, Nunn Bush, Stacy Adams, Gabor, Clarks, Nike, Reebok, Ecco, Deichmann, Elefanten, St Michaels, Hasley, Salamander and Colehaan are manufactured under license in India. Besides, many global retail chains seeking quality products at competitive prices are actively sourcing footwear from India. The industry is on the edge of adopting the modern and state-of-the-art technology to suit the exacting international requirements and standards. The Indian Footwear Industry is all set for leveraging its strengths towards maximizing benefits. Strength of India in the footwear sector originates from its command on reliable supply of resources in the form of raw hides and skins, quality finished leather, large installed capacities for production of finished leather & footwear, large human capital with expertise and technology base, skilled manpower and relatively low cost labor, proven strength to produce footwear for global brand leaders and acquired technology competence, particularly for mid and high priced footwear segments. India has the competitive advantage over other countries in the form of materials and skilled manpower.

The Indian footwear retail market is expected to grow at a CAGR of over 20% for the period spanning from 2008 to2011. Footwear is expected to comprise about 60% of the total leather exports by 2011 from over 38% in 2006-07. Presently, the Indian footwear market is dominated by Men's footwear market that accounts for nearly 58% of the total Indian footwear retail market. By products, the Indian footwear market is dominated by casual footwear market. As footwear retailing in India remains focused on men's shoes, there exists a plethora of opportunities in the exclusive ladies' and kids' footwear segment. The Indian footwear market scores over other footwear markets as it gives benefits like low cost of production, abundant raw material, and has huge consumption market. India is now a major supplier of leather footwear to world markets and has the potential to rival China in the future (60% of Chinese exports are synthetic shoes). India is often referred to as the sleeping giant in footwear terms. It has an installed capacity of 1,800 million pairs, second only to China. The bulk of production is in men’s leather shoes and leather uppers for both men and ladies. It has over 100 fully mechanized, modern shoe making plants, as good as anywhere in the world (including Europe). It makes for some up market brands including Florsheim (US), Lloyd (Germany), Clarks (UK), Marks and Spencer (UK). The Export targets from 2007-08 to 2010-11 (In Million US$)

Product

2006-07

2007-08

2008-09

2009-10

2010-11

Leather

688.05

726.85

785

847.8

915.63

Footwear

1212.25

1967.88

2597.6

3428.83

4526.05

Garments

308.98

358.53

372.87

287.78

403.3

Leather Goods

690.66

733.34

798.69

870.06

948.04

Saddlery & Harness

81.85

105.66

127.85

154.7

187.19

Total

2981.79

3892.26

4682.01

5689.17

6980.21

Approximately 4000 units are involved in manufacturing footwear in India. The major chunk of the industry is contributed by small scale units with the total production of 55%. The total turnover of the footwear industry including leather and non-leather footwear is estimated at Rs.8500-9500 crores including Rs.1200-1400 crore in the household segment. India's share in global leather footwear imports is around 1.4% Major Competitors in the export market for leather footwear are China (14%), Spain (6%) and Italy (21%).

The footwear industry exists both in the traditional as well as modern sector. While the traditional sector is spread throughout the country with clusters of concentration catering largely to the domestic market, the modern sector is largely confined to selected centers like Chennai, Ambur, Ranipet, Agra, Kanpur and Delhi with most of their production for export. Assembly line production is organized, and about 90% of the workforces in the mechanized sector in South India consist of women. In fact, this sector has opened up plenty of employment opportunities for women who have no previous experience.

STATISTICAL INFORMATION:

India’s Exports of Footwear – Country-wise Share in Total Exports (2007-08)

Major Markets for Indian Footwear: The European Union and the USA are the major markets for Indian Footwear accounting for 79.95% and 9.22% share respectively in India’s total footwear export. The major markets for Indian Footwear are Germany 16.66%, UK 16.31%, Italy 15.32%, USA 9.22%, France 7.81%, Spain 5.10%, Netherlands 4.91%, Portugal 2.50%, UAE 2.48% and Denmark 1.18%. These 10 countries together accounts for nearly 81.49% of India’s total leather products export.

Footwear Industry – PEST Analysis Political • Recent merger between Adidas and Reebok • home market lobbying/pressure groups • Very few sporting events apart from cricket fixtures to attract customers Economic • Marginal share of 2.44 percent in global trade worth US$ 97.606 billion • Estimated target of 12 bn $ (7bn $ export + 5 bn $ domestic) trade by the year 2012 overseas economies and trends • The Indian footwear retail market is expected to grow at a CAGR of over 20% for the period spanning from 2008 to 2011. Footwear is expected to comprise about 60% of the total leather exports by 2011 from over 38% in 2006-07 • Growing middle class and growing buyer power leading customers to look for branded shoes. • seasonality issues – sports is more of a rage in summers • Lack of targeting of market segments for kids and women Social • lifestyle trends – upward shift

• demographics • consumer attitudes and opinions changing favourably towards branded shoes • media views • consumer buying patterns • fashion and role models • buying access and trends • advertising and publicity Technological • Competing technology development • India offers benefits like low cost of production, abundant raw material, and a huge consumption market • research funding in design and requirements • manufacturing maturity and capacity • information and communications • consumer buying mechanisms/technology • innovation potential • technology access, licensing, patents

SWOT ANALYSIS OF INDIAN FOOTWEAR INDUSTRY

MAJOR PLAYERS IN FOOTWEAR MARKET PUMA

NIKE

WOODLAND

ADIDAS

BATA

RELAXO

LIBERTY

ACTION

Companies Profile: ADIDAS: Adidas ltd is a German sports apparel manufacturer and part of the Adidas group, which consist of Reebok sportswear company, Taylor Made-Adidas golf company, and Rockport. Adidas is the largest sportswear manufacturer in Europe and the second largest sportswear manufacturer in the world. Company’s revenue for 2006 was listed at about US $ 13.625 billion and the 2007 figure was listed about $ 15.6 billion. It has more than 170 subsidiaries guarantee marketplace presence for Adidas products around the world.

Liberty: Liberty shoes ltd. is a leading leather shoes brand and is engaged in the manufacturing, supplying and exporting of the footwear’s. It is the only Indian leather shoe brand that occupies fifth ranking among the top shoes manufacturing companies in the world.

Reebok: Reebok specializes in the design, marketing and distribution of sports and fitness products including footwear, apparel and accessories, as well as footwear and apparel for nonathletic use. The company has three main product categories: Rbk, Performance, and Classic. Each of these product categories features product offerings for both men and women that are designed for specific consumer groups. Reebok has operations in the UK, Europe and in various and in various Asian countries. It is headquartered in canton, Massachusetts. The acquisition of Reebok by Adidas-Salomon was completed in January 2006.

Bata: Bata industries is a specialized division of the world’s largest shoe manufacturer: the Bata shoe Organization (BSO). Bata industries has operations and production facilities in most of the

countries worldwide. Bata India Limited is the largest footwear retailer in India. Bata India is a manufacturer of footwear. Types of footwear offered by the company include rubber, canvas, leather and plastic footwear. The company also markets apparel under the brand names of North Star, Power and Ambassador. Bata India has five manufacturing plants and acquires its leather from two tanneries in Mokamehghat (Bihar) and Batanagar. It is headquartered in West Bengal, India.

Relaxo: Relaxo entered into footwear industry in 1976. It started off with the manufacturing of Hawaii slippers and subsequently diversified into manufacturing casuals, joggers, school and leather shoes. Relaxo has the capacity to manufacture over 100 million pairs, per annum. It has the customer base of around 100 million.

COMPARISON OF COMPANIES:

Companies

Average Growth Rate(200508)

Nike

10.5%

Adidas

22.46%

Bata

7.8%

Liberty

11.16%

COMPARISON OF COMPANIES (PORTER’S MODEL):

Basis of Nike comparison

Adidas

Relaxo

Action

Bata

Liberty

Barriers to

Absent

Absent

Absent

Absent

Absent

Absent

Entry Bargaining Power of buyers

Low

Low

High

High

High

High

Bargaining power of suppliers

Low

Low

High

High

High

High

Threats of Substitute

High

High

High

High

High

High

Rivalry among the existing competitors

High

High

High

High

High

High

SUPPLY CHAIN IN FOOTWEAR In nutshell the supply chain in footwear starts from the farmers end and ends with finished goods in the customer’s hand. The farmers who tame the animals send the skins to skins & hides collector in their respective area, then these raw materials are sent to the tannery which transforms these skins into raw material for the shoe manufacturing companies, which in turn convert this into finished goods in the form of footwear. Further these footwear are sent to warehouse of the manufacturing companies, after that these goods are supplies to customers through various channel members like retailers, wholesalers,

retail chains, department stores. The diagrammatic illustration is shown below:

KEY ISSUES: Employment of children in the footwear industry: Children are employed in the manufacturing of shoes, particularly in the Agra area of U.P. where approximately 25000 children are estimated to be involved in the process of shoe making for domestic as well as international markets. These children are between the age group of 10 – 15 mainly employed for

the assembling shoes process. Furthermore these children are exposed to physical factors like leather dust, benzene and p-tert butyl phenol, poor illumination. Thus these children suffer from problems like respiratory problems, skin infections etc.

Occupational Health Hazards in Footwear Industry: Occupational Cancer: Studies have proved that employment in the shoe production and repair plants is associated with enhanced risk for cancer. The exposure to leather dust which contains several harmful compounds can lead to lung cancer to both male and female. It also causes aplastic anemia, leukemia and other health problems. Neurotoxicity: The organic solvents present in the adhesives and glues are mostly neurotoxic, causing shoemaker’s paralysis that is more or less form of paralysis. Injuries: The children employed in the footwear industry usually carry out the sewing process manually. During this they are susceptible to injuries from sharp special needles. Exposure to adverse physical factors: As discussed above about 80% of the child labours work on contract basis, thus they do some extra work at their home in order to generate some money where they work in poor illumination which results in eye-strain, headache and communicable diseases. Skin Ailments: Footwear workers develop dermatitis due to exposure to chemical present in the additives used in processing of leather and rubber footwear which results in occupational vitilgo.

MARKET FORECASTS Market Value Forecast:

In 2010, the Indian footwear market is expected to have a value of $4,380.3 million, an increase of 62.1% since 2005. The compounded annual growth rate of the market in the period is to be 10.1% India Footwear Market Value Forecast; $ million, 2005-10 Year

$ Million

INR Billion

Growth

2005

2701.5

119.2

9.10%

2006

2960.4

130.6

9.60%

2007

3256

143.6

10%

2008

3589.7

158.4

10.2%

2009

3963.8

174.9

10.4%

2010

4380.3

193.2

10.5%

CAGR,2005-10

10.1%

Market Volume Forecast: In 2010, the market is expected to have a volume of 3.2 billion pairs, an increase of 59.2% since 2005. The compound annual growth rate of the market volume in same period is predicted to be 9.7%

India Footwear Market Volume Forecast: Pairs billion, 2005-10 Year

Pairs billion

% Growth

2005

2.0

8.80%

2006

2.2

9.40%

2007

2.4

9.70%

2008

2.6

9.80%

2009

2.9

9.90%

2010

3.2

9.90%

CAGR, 2005-10

9.7%

RECOMMENDATIONS • • • •

Prohibit employment of Children in Footwear Industry Provide hygienic environment for workers in the industry Indian Footwear companies should opt for modern technologies Companies like Bata, Relaxo, Liberty should focus on Upper class customers also.