Vietnam factories capture greater share of China’s footwear market

Vietnam factories capture greater share of China’s footwear market

HONG KONG — U.S. footwear import data have revealed the extent of the shift in sourcing that last year saw manufacturers steadily expanding production in Vietnam at the direct expense of China’s market share.

According to the U.S. Department of Commerce, Office of Textiles and Apparel, 1.767 billion pairs were imported from January through November, the latest figures available. Vietnam was the second largest supplier with 249 million pairs of shoes entering the U.S., or 14.5 percent.

But the year-over-year comparisons show that although total U.S. footwear imports have remained virtually flat — 1.166 billion pairs January through November versus 1.163 billion pairs in the same 2013 period — China’s loss of market share is almost equalled by Vietnam’s gain.

The U.S. imported 50 million fewer pairs from China while it imported 40 million more pairs of shoes from Vietnam, an increase of 16 percent over the same 11 months in 2013.

Matt Priest, president of the Footwear Distributors and Retailers of America (FDRA), said the industry was in a “tumultuous period” when it came to footwear sourcing. For years production has been well entrenched with 95 percent of the shoes imported by the U.S. in any given year originating in China. 

“But about the time the recession hit, we started to see a migration out of China that has started to pick up in recent years,” he said. “The central government’s desire to double the minimum wage in five years had an impact on low level manufacturing, and its focus on developing high end brands and pushing manufacturing into more inland areas also had an effect.

“A labor shortage has also been a problem, and rising costs have challenged our companies to find alternative sourcing places. When you depend so heavily on one country as an industry, as we do, you are beholden to whatever economic whirlwinds are blowing in that country at any time.”

China’s share of U.S. footwear imports has fallen to 79 percent, with 95 percent of the shoes imported into the U.S. coming from three countries — China, Vietnam and Indonesia.

For consumers in the U.S., prices will not change much because the manufacturers will either try to absorb rising costs in China or relocate to maintain the margins that enable factories to make shoes at prices U.S. consumers are prepared to pay. And the margins are very small, Priest said. 

“For a country the size of the U.S. with 320 million consumers, that is a lot of feet you have to put shoes on and it has to be done in a relatively inexpensive and in a mass way.”

Mike Jeppesen, president of global operations at Wolverine Worldwide, acknowledged that there was also a significant shift occurring within China.

"The cities and provinces in China where the industry produces footwear is shifting dramatically,” he said. “Companies which have been sourcing for decades in the Pearl River Delta are now having to understand and address new cost structures and compliance challenges as they work with more and more factories in inland China.”

In the latest edition of JOC Insights, JOC Group economist Mario Moreno said costs of foot wear production were rising in China’s coastal regions, and that was influencing manufacturing tome away.

“Rising labor costs and serious labor shortages in China’s coastal areas negatively impacted export volume to the U.S. in recent years,” he said. “China, however, continues to have the infrastructure, which is now more focused on the production of medium-priced goods.”

Priest said the footwear industry was doing its best to adapt to the changes, both inside China and in Southeast Asia. Some of the components of shoes, such as stitching, have seen production moving inland and that has added time to shipments.

“The supply chain is lengthened and runs out the efficiencies that we have worked so hard to develop in Guangdong or other coastal provinces over the years,” he said. 

“Even though there are challenges in China, it has been decades since this infrastructure was built up and it is well entrenched, the flow of goods is well known and the investment is there. When you look elsewhere you start getting away from all that.”

Moreno is forecasting a 3.7 percent increase in dollar value of footwear imports into the U.S. this year. Measured by this dollar value, Moreno said China remains the largest supplier for U.S. footwear imports, accounting for 70.1 percent of the market year-to-date through October, down from 74.1 percent in 2011.

“Because of not-so-stellar economic conditions in the U.S., demand for low- to medium-priced goods manufactured in China, Vietnam and Indonesia continued to increase as consumers chose low-value imported footwear instead of more expensive, locally produced brands,” he noted in JOC Insights. 

“Vietnam’s share of U.S. footwear imports rose to 14.3 percent year-to-date from 9.1 percent in 2011, while Indonesia’s share rose to 5 percent year-to-date from 3.4 percent in 2011. Furthermore, footwear imports from Cambodia are jumping from a very low base, up 119 percent year-to-date, accounting for a sourcing share of a still small 0.5 percent.” 

Yet relocating a footwear factory is no easy task. Priest said moving into a new country required solid investment in infrastructure, but also the production capacity, and that took time to develop.

“It takes a lot of labor to put together a pair of shoes, and it takes a lot of capital and infrastructure to house the workers to make the shoes, so it is not an industry that can just pick up and leave when something goes wrong or when margins start to get squeezed even tighter,” he said.

Priest said factories shifting inland or moving to another country would initially have to import raw materials, but would want suppliers to be close at hand.

“It takes time to move that infrastructure. It has been happening slowly and is basically because of Taiwanese and China investment where their factories say to customers, if we provide the infrastructure, will you back that up with orders? That provides comfort to the industry and is a way they can diversify their sourcing base,” Priest said.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.

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