Labarinto, Eron John D.BSBA-MM 4-3N

Industry Analysis: Shoe

The Shoe Industry consists of a multitude of footwear

manufacturers, wholesalers, and retailers. The major

wholesalers in the U.S. market are owners of a brand name and

typically source their shoes from independent manufacturers.

The retail segment of the industry ranges from owners of large

multinational chains to small local businesses. Many shoe

companies operate in both the retail and wholesale arenas. Shoe companies covered by Value

Line generally adhere to the standard industrial page format.

Competitive Landscape

Taken as a whole, the Shoe Industry could be described as mature. However, barriers to entry are

far from insurmountable. Since demand is largely driven by fashion and demographics,

newcomers with a hot product may thrive at the expense of a fading rival. Indeed, the

profitability of individual companies depends on their ability to design attractive footwear lines

and remain at the forefront of consumers' consciousness.

There are three major product categories within the Shoe Industry and the dynamics of each may

differ. The athletic shoe segment, which makes up about 30% of footwear sales, is highly

concentrated, as the largest companies comprise a vast majority of the market share. Two players

(Nike and adidas) dominate this category, with the giants slugging it out over sponsorship

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contracts with star athletes and snuffing out the competition using their economies of scale in

distribution and marketing. Men's and women's casual and dress shoes make up about 40% of the

market (15% men's and 25% women's, respectively). The companies within these categories tend

to be smaller than their athletic counterparts and compete on the basis of superior design. Thus,

the market for men's and women's shoes is much more fragmented, consisting of a myriad of bit

players. Women's shoemakers, in particular, must be lean and flexible to meet the changing

tastes of their consumers. Demand here can be fairly cyclical, but the ebb and flow of

performance can be attributed more to the individual product portfolio rather than

macroeconomic factors. The economy does play a role in demand, though, particularly for

products that are more up-market. The remaining 30% is comprised of various niche product

categories and boom-or-bust novelty designs.

Product Innovation

Due to rapidly changing tastes of shoe buyers, it is important for shoemakers to continually offer

better and bolder product lines to catch the consumer's eye. For the athletic shoe companies, this

largely means improving comfort and performance. In the dress and casual markets, it means

offering smart, fashion-forward designs. Superior products also command higher price points,

improving profitability. That said, the worst thing a company in the shoe industry can do is

expect to coast by on the back of a few successful product offerings as the rest of the market

passes it by. Even though this can lead to great short-term growth, it is not a recipe for long-term

sustainability. The success of a company's product offerings can generally be gauged by the

following performance metrics. 

Important Metrics

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For shoe retailers, comparable-store sales is a key measure of revenue performance. Although

this statistic is not displayed as part of our numerical presentation on the Value Line page, it is

often referenced by analysts within the stock commentary. This metric measures top-line growth

at the existing store base over a set period of time, usually on a quarterly or yearly basis, rather

than including newly opened locations. Healthy same-store sales gains indicate that the retailer is

successfully stocking desirable products and provides meaningful insight into future earnings

performance. Although retailers face high fixed costs related to rents and inventory, strong

comparable-store sales growth will dilute the impact of these expenses and improve operating

leverage.

Inventory levels are also of particular concern. Inventory growth is positive, if it is paired with an

increased market presence. However, it may mean a sharp decline in profitability is at hand,

absent a corresponding rise in the store count/distribution footprint. Retailers that misread market

dynamics and order excess product often face the prospect of deep discounts, depleting profits.

The same can be said of wholesalers that overproduce footwear without a corresponding retail

market.

Investors in these stocks should focus on companies with healthy growth and a lean cost

structure. Efficient inventory management is of the utmost importance, as fashion trends may

change seemingly overnight. For retailers, this means maintaining a pulse on consumer demand

and achieving economies of scale in procurement and marketing functions. Within the

wholesaling segment, this means strong supply chain management coupled with an increasing

distribution footprint. This type of flexible structure enables a shoemaker to adapt to changing

trends and come out a relative winner no matter what the economic environment.

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Concluding Considerations

Companies within the Shoe Industry are impacted by a variety of factors, from the

macroeconomic environment to fashion trends within particular footwear categories. That said,

investors should pay close attention to same-store sales and margin trends, as well as inventory

management. The companies that succeed in these areas tend to be the best run and, thus, are

more likely to stay ahead of fashion trends and remain competitive in the marketplace. Strong

brand recognition is another factor to take into consideration, as these names are more likely to

resonate with consumers when faced with similar product offerings.

17%

13%

10%

20%

9%

6%

25%

Shoe Category Market Share

Women’s casual shoesWomen’s dress shoesWomen’s athletic shoesMen’s athletic shoesMen’s casual shoesMen’s dress shoesOther styles

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Top Ten Footwear Consumption Countries

In Europe, the footwear industry has declined in the last years. While in 2005, there were about

27.000 firms, in 2008 there were only 24.000. As well as the number of firms, the direct

employment has decreased. The only factors that remained almost steady was the value added at

factor cost and production value.

In the U.S., the annual footwear industry revenue was $48 billion in 2012. There are about

29.000 shoe stores in the U.S. and the shoe industry employs about 189.000 people.Due to rising

imports, these numbers are also declining. The only way of staying afloat in the shoe market is to

establish a presence in niche markets.

Footwear Market – Global Industry Size, Market Share, Trends, Analysis, and Forecast, 2012 - 2018: Transparency Market Research

According to a new market report published by Transparency Market Research ”Footwear

Market – Global Industry Size, Market Share, Trends, Analysis, and Forecast, 2012 - 2018,” the

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global footwear market was worth USD 185.2 billion in 2011 and is expected to reach USD

211.5 billion in 2018, growing at a CAGR of 1.9% from 2011 to 2018. In the overall global

market, Asia Pacific is expected to maintain its lead position in terms of revenue till 2018. Asia

Pacific is expected to enjoy 30.1% of the global footwear market revenue share in 2018 followed

by Europe.

The global footwear market is experiencing a stable growth rate due to changing fashion trends.

This market has exhibited sustainable development owing to driving factors such as rising

demand for innovative designs, growing awareness about healthy and active lifestyle, rising

population and disposable income levels, and rise in retail culture.

The athletic footwear market is expected to grow at a CAGR of 1.8% from 2011 to 2018 to reach

USD 84.4 billion by 2018. Non-athletic footwear is the largest market segment and is expected

to grow at a faster CAGR as compared to the athletic footwear segment. Various fashion trends

in the market such as demand for innovative designs and styles, and celebrity endorsement is

driving the non-athletic footwear market.The global footwear market is segmented into Men,

Women and Kids footwear. Men’s footwear market is a leading segment with 52% market share

of the overall footwear market. Kids footwear market is expected to grow at a CAGR of 3.7%

due to the high demand of comfortable and designer footwear for kids.

.

Based on type of distribution, footwear retailing is sub-divided into store-based and non-store

retailing. Store-based footwear retailing accounted for most of the footwear market revenue and

is valued at USD 173.6 billion in 2011. Non-store footwear retailing is expected to gain pace in

future and is expected to grow at a CAGR of 6.9% from 2011 to 2018 to reach USD 18,588

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million by 2018.The Asia Pacific region holds the largest share at 42% of the overall footwear

market and is expected to grow at a CAGR of 2.1% from 2011 to 2018 followed by Europe with

21% of market share. The Asia Pacific region remains the point of focus for footwear

manufacturers due to the cheaper cost of manufacturing and faster growth in population and

disposable income of consumer groups.

Nike is the world leader in athletic and non-athletic footwear segment and comprehensively

leads the overall global footwear market. The footwear market is largely consolidated with top

five players including Nike, Adidas, Reebok, Puma and New Balance holding around 70%

market share. Other major players in the footwear market are Asics, Converse, Sketchers and K-

Swiss. The popularity of local manufacturers and growing piracy in developing countries

remains the major challenge for global footwear manufacturers.

REFERRENCES:

http://www.valueline.com/Stocks/Industries/Industry_Analysis__Shoe.aspx

http://www.statisticbrain.com/footwear-industry-statistics/

http://www.slideshare.net/annavarghese1485/analysis-on-shoe-industry-based-on-porters-5-force

http://www.prweb.com/releases/2013/9/prweb11094057.htm

http://en.wikipedia.org/wiki/Footwear

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