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.

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.

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. It is therefore conceivable that Chinese production for export might not increase much above current levels because:

• Domestic demand is strong
• Prices are generally better in the domestic market
• There are capacity limitations
• Production for the domestic market can take place in regions with less good logistics and lower labor cost.

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. As per the footwear export data, the product under HS code 6402 has most exported product by China.

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. USA imports footwear, gaiters and its parts from China only with value of 57.9% i.e. USD 15372404 thousand. Generally, the product under HS code 6403 is more in demand in United States. As per the footwear import data, USA has imported this product in 2016 with the value of USD 11629605 thousand.

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 the similar trend over the forecast period. The mainland footwear market is dominated by domestically made products. There are four major footwear industry clusters in the country, predominantly located in the southeast coastal regions. The Guangdong footwear industry base, with Guangzhou and Dongguan at the heart of it, focuses on medium to high-end shoes, while Zhejiang, with its footwear sector centered around Wenzhou and Taizhou, primarily produces medium to low-end men’s shoes. The western region, is spearheaded by Chengdu and Chongqing, with medium to low-end women’s shoes accounting for the majority of its output. Led by Quanzhou and Jinjiang, meanwhile, Fujian’s footwear industry specializes in sporting shoes.

Vietnam produces more than 900 million pairs of footwear each year, over 80 percent of which is sent overseas. From 2014 to 2016, annual exports of the footwear industry exceeded US$10 billion.

In 2016, Vietnam ranked as the second largest exporter of footwear in the world in terms of export value. The country sent abroad nearly US$13.0 billion worth of products during the period, up more than 8 percent from 2015, according to data from the General Department of Customs, Ministry of Finance of Vietnam. Between January and September 2017, Vietnam’s footwear exports grew 13 percent year over year to exceed $10.6 billion. Growth for the year is expected to remain at double-digit level.

In the year 2014, Nike produced more than 365 million pairs athletic shoes, while at the same time refusing to make a single sneaker in the United States. Meanwhile, they are making these shoes at a tremendous profit while paying their overseas workers pennies. In fact, Nike’s largest production center is Vietnam, where more than 330,000 workers, mostly young women, toil in 67 factories making goods for Nike. The wages paid for the same where as low as 27 cents an hour in the year 2012 which slightly increased to 48 to 69 cents an hour in January 2015 which is below the subsistence level. USD 1 is equivalent to USD 21,476 Vietnamese Dong as of 3/24/2015.

Generally, the Mexican Peso weakened in Wednesday, 11th January, 2017. This record lows against the U.S. dollar, crossing the psychologically key level of 22 pesos to the dollar. We would be providing you with a case study, where laborers work in the foot wear industry. This would enable you to have a clear idea on how the U.S. vs Mexican Peso. We first estimate that the base wage any worker get is 56 to 73 cents an hour. Now in Mexico, this wage differ in different places or areas. The aforementioned wage is given on the basis of 8 hour day which equals 40-hour workweek.