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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
Womens casual shoes
Womens dress shoes
Womens athletic shoes
Mens athletic shoes
Mens casual shoes
Mens dress shoes
Other 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. Mens 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