Currency Fluctuations Review in Various Countries

The appreciation in the value of rupee against main currencies, weak consumer sentiment in the European Union (EU) and significant drop in the British pound (GBP) value has hit footwear exporters hard and they are now focusing on domestic market to fare better. It has been reported in recent past (October, 2017) that leather footwear and leather export has faced significant hurdles owing to challenging external and internal environment. Demand has been impacted owing to weak consumer sentiment in the European Union (EU). This is the biggest destination for India’s footwear exports and a significant drop in the British Pound (GBP) value following the vote on referendum to exit the European Union. Recent unfavorable regulations and restrictions faced on animal slaughter and on leather tanneries has impacted the raw material availability also. Due to these factors, there has been a decline of export figures for two consecutive years, by 9% in FY15 and 5% in FY17. Although in domestic front, the Indian footwear industry has historically recorded a healthy growth driven by increasing footwear demand and average selling price (ASP), growth has significantly slowed down in FY16 and FY17 due to moderation in consumer sentiments. Moreover, there was also an impact on consumer demand for footwear because of the demonetization drive which took place in November 2016. Revenues associated with export-focused leather footwear market participants declined by 2% in FY2017. On the other hand, revenues of players focused on the domestic market involved in leather as well along with non-leather products saw a significant growth of 3 per cent in FY17. There was also decline in the aggregate operating profitability margin of the entities focusing on export coupled with aggregate operating profitability margin of companies focused on the domestic market from 12.2% to 11.9% from FY16 to FY17. Though the company participants focused on leather products and export markets faced headwinds due to combination of both internal and external factors and had seen pressure on net sales/revenues; the credit risk profile remained stable on account of limited leverage and lower expected CAPEX.

Impact of Currency Fluctuations on Footwear Exporters

Currency fluctuations had a profound influence on the sourcing of footwear. Indonesia is probably the best example for this. Countries & areas that has been linked with United States dollar, such as China were able to take advantage of their favorable position with the U.S. compared to countries such as Italy and Spain. Italy’s adhesion to a constant lira-mark exchange rate within the European monetary system, at a time when Italian inflation between two or three times that of Germany (Federal Republic), has caused declines in international competitiveness for all the Italian manufacturers. As a result, the cost of Italian shoes increased a lot in United States and thus the Italians contributed a big downturn at that time in the United States market. Gradually, Italian manufacturers were able to regain their position with their leading European customer, i.e., Germany (Federal Republic), as they did not undergo an unfavorable movement in exchange rate scenario. Above average inflation and interest rates had constrained the competitiveness of footwear industries and leather in some countries.

Chinese Footwear Production Growth

The actual output of Chinese footwear industry in 1997 was 5.252 milliard pairs of shoes. The production increased to 7.65 milliard pairs of shoes in 2005 and further increased to 8.908 milliard pairs in 2009. It has been reported that the actual output has reached to 16.98 milliard pairs in 2015. There are significant areas of China, the demand exceeds supply for labor and therefore the Chinese worker can look forward to secure employment prospects and rising real wages. This is certain to create a market that will consume large quantities of footwear. It is the strength of consumer expenditure and the huge size of the domestic market that makes the Chinese footwear market stand apart from others in Asia. It is essential that this point is understood because it indicates that in the future even if the Chinese footwear industry increases its capacity very rapidly, much of that capacity would be taken up with supplying the domestic market.

Chinese Footwear Exports Statistics

China stood as the largest footwear exporter country in the world. The value from footwear exports stood USD 47202913 thousand in 2016. China footwear exports stand 35.5% worldwide total. China is exporting footwear, gaiters and its parts in more than 200 countries across the world. The Unired States, United Kingdom and Japan are its top footwear importers. However, China is majorly exporting in United States of America and registered 25.7% sales by footwear exports in USA.

U.S.A Import Data Overview

The United States is the largest country in the world which is importing from 130 countries. It recorded footwear export value of USD 26552471 thousand during 2016. USA footwear imports represent 20.9% value from total output.

Mainland Footwear Market Dynamics

The total value of mainland footwear sales in 2016 was RMB360.9 billion, a 2% year-on-year increase. From this, men’s shoes sales delivered RMB136.3 billion in revenue terms, accounting for 38% of the total, while the sales of women’s footwear brought in a further RMB176.6 billion (49%). Increasing disposable income owing to China’s huge population coupled with rising consumer demand for higher quality has assisted the footwear growth in recent past and is expected to follow similar trend over forecast period.

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