China exported 7.9 billion pairs of shoes and boots in the first 11 months of 2021, which literally means that the country exported a pair of shoes for every person on the planet. However, according to the Global Times, such a large sector has lost about 430 billion yuan ($67.8 billion) in exports over the past seven years compared to export orders in 2014, according to data platform Wind.
Industry experts say China’s footwear industry has come under increasing pressure since 2005. The yuan’s exchange rate has put considerable pressure on the profits of footwear companies. Rising labor costs in China have forced many domestic enterprises to open factories in Southeast Asia, where labor costs remain low.
The data showed that from 2017 to 2019 China maintained its position as the world’s leading footwear producer, but the percentage of production decreased from 57.5% to 55.5%. Meanwhile, Vietnam’s production accounted for 21.4%, and Indonesia accounted for 21.6% of the global market share, showing an upward trend.
The COVID-19 pandemic added insult to injury as shipping costs skyrocketed, which continued to squeeze the low-profit footwear industry. The value of exports of shoes and boots fell from 56.3 billion yuan in 2014 to 38.1 billion yuan in 2020, according to statistics released by the customs.
In search of glory
Although the footwear industry is facing multiple challenges, companies vow to return to their former glory.
“I clearly remember that in 2005 the exchange rate from yuan to US dollar was 8.1-8.3. In October 2006, when the hundredth session of the Canton Fair was held, the exchange rate was already 7.9. Our company’s export profits fell by about 2 percent with the highest exchange rate,” a manager named Liu of a guangzhou-based footwear firm in Guangdong province in southern China told the Global Times on Sunday.
With the appreciation of the yuan and rising commodity prices, companies cannot survive without raising prices. But more expensive products mean that Chinese shoemakers give up their advantage in the international market, Liu said.
According to Liu, the main business of most footwear companies was the Original Equipment Manufacturer (OEM) before 2010, but that activity was gradually moved to Southeast Asia, especially after 2017.
A footwear company based in Zhanjiang, Guangdong, told the Global Times on Monday that it has opened factories in Vietnam to produce shoes starting in 2015.
“The raw materials were shipped from China or directly from Southeast Asia to factories in Vietnam. After production is completed, the shoes are exported directly from Vietnam. This is currently how many Chinese footwear companies reduce costs,” said an employee named Yuan.
Analysts believe that overcoming difficulties still depends on building the brand.
“As labor costs in China continue to rise, many OEM factories of international brands are starting to move to Southeast Asia, where labor costs are lower. Only by increasing the value of the brand itself can we make profits as high as international shoes,” a veteran footwear industry analyst named Wang told the Global Times on Sunday.
Wang cited Bosideng, a national brand of down jackets, as an example.
“In addition, the homogeneity of low-end shoes is very serious in China. If there is no added value of the brand, shoemakers will fall into a vicious circle of price-only competition, which does not favor the long-term development of the industry,” Wang said.
New momentum
Since 2011, China's footwear industry entered a difficult period of transformation and adjustment, a "new normal," according to Wang.
Over the past two years, although China's shoe production share in the world has declined, China is still the world's largest footwear producer.
In 2020, China's shoe industry was dragged down by the epidemic. But against the background of epidemic prevention and control and remarkable achievements in economic and social development, enterprises resumed work and production, industrial production continued to recover steadily, the business environment continued to improve, and the export scale approached the level of the previous year, according to analysts.
Since 2017, domestic brands have experienced rising influence. In early 2021, more Chinese brands showed support for cotton produced in Northwest China's Xinjiang Uygur Autonomous Region following boycotts by foreign brands such as H&M, after which domestic sports brands enjoyed further development, according to a report by Chasing Securities.
It is estimated that the market size of sports shoes and clothing will reach 598.9 billion yuan in 2025, translating to a compound annual growth rate of 11.62 percent from 2021 to 2025.
The Beijing 2022 Olympic and Paralympic Winter Games will also boost the growth in sport footwear, especially for domestic brands.
Domestic brands are looking to exploit increasing consumer preference, and strengthen product research and development and marketing promotion, effectively improve product and brand power. Over the middle to long term, domestic brands' market share and penetration rate are expected to increase, according to Chasing Securities.
Against the background of high competition with international brands on global resources, domestic companies are seeking to break through from niche market, and innovation that combines Chinese culture with fashion. The competition will be all about brand, sales channels and product design. Leading companies in the Chinese market will achieve a significant increase in market share, Guosen Securities stated in its latest investment report.
