Is the footwear industry putting their best foot forward?

Why should one care about the footwear industry?

The Indian footwear industry commands a huge market. Apart from being the 2nd largest footwear producer (after China), India is also the 2nd largest consumer of footwear globally. The footwear industry, being labour intensive, contributes to the employment of approximately 2 million people, thus becoming an important source of employment. Apart from this, it gains attention for an important source of foreign exchange because of its significant contribution to the exports of the country. 

How does the government look at this industry? 

The industry can be understood as being one of the primary focus of the government as evident by the liberal government policies of allowing 100% FDI through automatic route. Besides, it also holds an important place in the Prime Minister’s drive to Make in India, and has been chosen as a Champion Sector. The government has approved a special package for employment generation in the leather and footwear sector called Indian Footwear, Leather & Accessories Development Programme (IFLADP) with an approved expenditure of INR 2600 crore (USD 348 Million) over three financial years from 2017-18 to 2019-20. In order to support the domestic industry, Union Budget 2020 increased the custom duty on footwear from 25 to 35 per cent.

State of the industry:

The global footwear market is segmented as follows:

TypeAthletic and non-athletic 
MaterialLeather and non-leather 
Distribution channelSupermarket, speciality stores, brand outlets, online sales channels etc. 

The non-leather footwear industry in India is fragmented and about 75 per cent of the production comes from the unorganised sector. The footwear sector in India is de-licensed and de-reserved, showing the path for growth of capacities on modern lines. 

Changing trends in the industry:

In worldwide consumption terms, 86 percent of global footwear consumption by volume has become non-leather. India can see growth coming from the non-leather segment. India is a leader in the leather sector, it is now gaining steady ground in the production of non-leather footwear. The transition from leather to non-leather footwear is mainly led by environmental concerns. Different performances within the two categories were registered as exports of leather footwear declined by 4.4 per cent in the period, while exports of non-leather footwear increased by 42.7 per cent. Amongst the different categories of products of the industry, the export of leather footwear (accounting for 38.57 per cent of total exports) increased by 0.95 per cent in the period.

Impact of Covid-19 on the industry:

Covid-19 impacted the exports of the country, too. January and February are peak months for manufacturing exports during summer, however, Covid-19 impacted operations. This becomes serious given that footwear alone accounts for 46 per cent of the overall exports from India’s leather industry. Supply of raw material imports such as laces, buckles, ornaments, insoles, outsoles, cellulose board, shank board, foam and packing material from China had stopped completely since January. Agra, which is the largest footwear hub in India, got severely impacted. Raw material worth Rs 15 crore (USD 2 Million) for manufacturing finished footwear is imported from different parts of China to Agra every month. Footwear components can be imported from Italy or Spain, but they are costlier than China and these are not manufactured in India, as it is too expensive for domestic production. 

How are the organised players shaping up with the industry trends? 

The main footwear players in the organised segment are Bata, Relaxo, Liberty Shoes etc. Bata commands about 35% of the market share followed by the rest. It is interesting to note how Covid-19 has impacted the operations and the sales of these companies. 

Relaxo, in their latest earnings call for Q2 FY 2021, shared that their sales had come down from Rs 622 crores in Q2FY20 to Rs 576 crores in Q2FY21. They are witnessing  good demand in their open footwear segment, which includes footwear like slippers, sandals etc. because of the increasing number of people staying at home. The demand for shoes and closed footwear is still very low. They believe that the work-from-home culture is here to stay and thus, expect increased demand for open footwear for at least 1-2 years. The benefit they have here is that open footwear contributes 80% to their revenue mix. Seeing the impact on their brands, Schoolmate was impacted because of the negligible demand from school going students for shoes, while their open footwear brands like Bahamas, Hawaii and Flite have been seeing good demand. 

Exports: 

In terms of Relaxo’s exports, which contribute about 4% to their revenues,  focus is on the Gulf market, African region, Oceania, and Central America. They believe they are better placed than their Chinese counterparts because they can get sustainable growth. China and other countries provide footwear under a private label, whereas Relaxo sells under their own brand name giving an advantage in future. Quality standards are the same as what they have been in India. Price points are higher than the Chinese counterparts, but they are able to get sales due to good quality standards. Overall, Asia is the largest exporter of footwear having a world share of 83.8 per cent. India exported 262 Million pairs in 2018, making it the 6th largest exporter of footwear, having a world share of 1.8 percent having an export orientation of 10.2 percent. 

Relaxo is well-placed in terms of its distribution network, which they claim is one of the largest in the Indian footwear industry. However, they have a lower penetration in the Southern regions of the country, as indicated by the chart below. They have been expanding their network and have opened 6 new stores in the first half of this year. Their Southern and Western markets have had a bad hit, while the North and East have seen a better revival of demand post-covid. 

Relaxo’s distribution network 

Role of E-commerce in the footwear industry:

10% of Relaxo’s sales come from the e-commerce channel, which they aim to expand in the future. When one compares this with Bata, digital is getting more traction, but the focus still largely remains on retail. This is because, in absolute numbers, digital constitutes very less – E-commerce sales for Bata constitute approximately 5 percent of the top line as compared to 85 per cent retail channel. Rest 10 percent is wholesale business. Bata has also been making sales through its newly introduced Whatsapp Chat model. The advent of e-commerce has democratised the shopping space and reduced the go-to-market barriers for new players. Internet penetration in India grew from just 4 per cent in 2007 to 52 per cent in 2019, registering a CAGR of 24 per cent during the same period. A young population, with increasing internet access, smartphone penetration, and better economic resources would drive growth through this channel. 

To deal with the current situation,  companies have come up with interesting ways to maintain their sales. Bata launched makeshift stores, though not comparable with a normal retail store, had a good mix of articles for both men and women. The makeshift store, which Bata calls it as the ‘store on wheels’, is something which the company has come up with to take a new look to deal with pandemic blues. But this is definitely not the only change the footwear brand is wearing!

Future opportunities in the industry:

Due to the recent anti-China sentiment, companies want to shift their production base from China, and India being the second largest manufacturer of footwear can act as a beneficiary. Recently, a German shoe brand, Von Wellx shifted its manufacturing units to Agra from China. The brand claims that it will provide direct and indirect employment to 10,000 people. Data highlights that the per capita footwear consumption in India is estimated to have grown from 1.7 pairs in 2016 to 2 pairs in 2019, as compared to the developed nations which have a per capita footwear consumption of 3 pairs. 

Thus, India has loads of opportunities here. India’s footwear market is estimated to reach USD 15.5 Billion by 2022, from USD 10.6 Billion in 2019. It is expected to grow at 11 percent over the next five years. India’s non-leather footwear industry is expected to cross USD 6 Billion mark by 2024. The footwear sector can create up to four million jobs in the next five years in India by imparting basic training and creating blue-collar jobs in a span of just six weeks. This industry, apart from having the potential to grow up to eight times more than its current size by 2030, has the added benefit of not causing any harm to the environment nor heavily utilising resources such as land, water, energy.

Ashu Jain is a second-year student at Ashoka University pursuing a major in Economics and Finance.

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