Footwear Industry

FOOTWEAR INDUSTRY(photo dalna hai) World footwear market is forecast

to reach US$195 billion by the year 2015.

Volume sales, on the other hand, are projected to reach 13.3 billion pairs by 2012.

Source:www.prweb.com/releases/footwear_athletic/outdoor_casual_formal/prweb8058110.htm

INDUSTRY OVERVIEW (US)

U.S. consumption of footwear declined 1.4 percent, from 2.203 billion pairs in 2009 to 2.193 billion pairs in 2010.

The value of U.S. footwear consumption, as measured by Personal Consumption Expenditures (PCE), increased at its slowest pace in years in 2010, growing only 1.9 percent to $59.2 billion. That increase, however, coupled with the decline in the volume of shoes consumed in 2010, portend growing price pressures for the industry.

Source: www.apparelandfootwear.org (IBISWorld).

Contd.

Rivalry is a high-power threat in the Footwear Manufacturing industry.This is partly due to a diminishing US Footwear Manufacturing industry and the increase in buyer power.

Industry revenue will decline at a five-year annual rate of 1.5% to $1.6 billion by 2015 (IBISWorld).

Nike, Adidas AG, and The Timberland Company are 3 of the largest footwear manufacturers.

Source: (IBISWorld).

Contd.

China remains the single largest importer of footwear into the United States, accounting for 76.3% of total imports, an estimated $14.7 billion in 2010.

The number of US wholesalers will drop to 1,325 in 2015 due to cheaper imports and labor continuing to be ship overseas.


Contd.

Currently, the US Footwear Manufacturing industry is not a very attractive option for new entrants. Because of this, the threat of entry has been classified as low-to-moderate. This will force participants out of the industry at an average annual rate of 1.5% to 662 companies in 2015.

Imports to grow at an annual rate of 2.5% to $21.8 billion from 2010 to 2015.

In order to enter the US Footwear Manufacturing industry, a company would have to identify a niche market and focus their efforts on that.

One benefit to the Footwear Manufacturing industry is that the start-up investment requirement is relatively low

The level of technological advancement in the Footwear Manufacturing industry is low.

Even with benefits such as these, the declining US Footwear Manufacturing industry is not attractive due to the lack of opportunities for profit.


Industry Overview(INDIA)

The estimated annual production capacity of Leather Shoe Uppers is 112 million pairs

India’s export of Footwear Components touched US$ 800.49 million in 2010-2011(6 months), holding a share of 15% in India’s total export of leather and leather products. Nearly 75% of the total export of footwear components is from the Southern Region, followed by the Northern Region, with a share of 13%.

The major markets for Indian footwear components are the U.K., Germany, Italy, the USA, France, and Portugal. Nearly 83% of India ‘s export of footwear components is to the above countries.

India is often referred to as the sleeping giant in footwear terms. It has an installed capacity of 1,800 million pairs, second only to China.

Few Interesting Facts:

The Indian footwear retail market is expected to grow at a CAGR of over 20% for the period spanning from 2008 to 2011.

Footwear is expected to comprise about 60% of the total leather exports by 2011 from over 38% in 2006-07.

Presently, the Indian footwear market is dominated by Men's footwear market that accounts for nearly 58% of the total Indian footwear retail market.

Contd.

By products, the Indian footwear market is dominated by casual footwear market that makes up for nearly two-third of the total footwear retail market.

As footwear retailing in India remain focused on men's shoes, there exists a plethora of opportunities in the exclusive ladies' and kids' footwear segment with no organized retailing chain having a national presence in either of these categories.

The Indian footwear market scores over other footwear markets as it gives benefits like low cost of production, abundant raw material, and has huge consumption market.

The footwear component industry also has enormous opportunity for growth to cater to increasing production of footwear of various types, both for export and domestic market.

Contd.

There are nearly 4000 units engaged in manufacturing footwear in India. The industry is dominated by small scale units with the total production of 55%. The total turnover of the footwear industry including leather and non-leather footwear is estimated at Rs.8500-9500 crore (Euro 551.3-1723.1 Million) including Rs.1200-1400 crore (Euro 217.6-253.9 Million) in the household segment.

India's share in global leather footwear imports is around 1.4% Major Competitors in the export market for leather footwear are China (14%), Spain (6%) and Italy (21%).

Actual Exports & Target of the Footwear Industry In IndiaProduct 2006-07 2007-08 2008-09 2009-10 2010-11

(In Million US$)

Actual Export Actual Export

Actual Export

Leather 688.05 726.85 785.00 847.80 915.63

Footwear 1212.25 1967.88 2597.60 3428.83 4526.05

Garments 308.98 358.53 372.87 387.78 403.30

Leather Goods

690.66 733.34 798.69 870.06 948.04

Saddlery & Harness

81.85 105.66 127.85 154.70 187.19

Total 2981.79 3892.26 4682.01 5689.17 6980.21

Organized Sector vs. Unorganized Sector

The Indian footwear market is estimated to be worth Rs.21,750 Crore and constitutes just about one percent of Indian retail.

The ladies footwear segment still remains the most untapped as nearly 80-90 percent purchases happen in the unorganized market

Source: Indian Retail Report 2011

Market Share in the Footwear Industry

Volume Share of Products Segments in Footwear Volume Share in Footwear

Source: http://indiaretailing.com/news.asp?id=1611&topic=3

Employment Scenario

The Footwear industry has made a strong contribution to the Indian economy, India's share in global trade remains low, however being a labour intensive industry, its contribution to employment is significant.

Total employment in this sector would amount to 2.5 million (30 percent of which are women).

Footwear industry provides employment to the uneducated population - 40 percent of employment is represented by unskilled workers doing table work operation in the assembly line.

The Footwear industry has potential to provide employment across all sections of the economy Industry estimates of employment potential 2 lakh jobs in next upcoming years

Source: www.footwearsinfoline.com

Nike

Nike, originally known as Blue Ribbon Sports, was founded by University of Oregon track athlete Philip Knight (born February 24, 1938) and his coach Bill Bowerman in January 1964.

The company's profits grew quickly, and in 1966, BRS opened its first retail store, located on Pico Boulevard in Santa Monica, California.

Key people Philip H. knight(Chairman) Mark Parker(CEO & President)

Knight's stake in Nike gives him an estimated net worth of US$12.7 billion, making him the 70th richest person in the World and 23rd in United States. Source: Forbes

Company Overview

Nike Inc. is in itself the world’s largest athletic footwear supplier, holding an astonishing 50% of a 20 billion dollar global industry and 40% of the US market

Nike powers its massive lead on the market with innovative technology and product creation often bringing all new ideas and offerings to the market before any other.

As of 2010, it employed more than 34,200 people worldwide. (excluding the outsourcing )

Source: (IBIS, 2010), (S&P, 2010)

Contd.

Nike Inc. describes their principle business activity as “the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory products” Nike earned 2009 revenues of $19,014,000,000, netting $1,906,700,000 in profits (Nike 10-K, 2010).

Nike boasts an extremely lucrative stable of world renowned endorsers. Those endorsers include Tiger Woods, Michael Jordan, Roger Federer and Kobe Bryant to name a few.

Nike also outfits high profile sports teams such as the U.S. National basketball and soccer teams. In 2012, Nike Inc. will also equip the National Football League (NFL) for all on-field and officially licensed apparel.

Nike’s world headquarters are located at Nike World Headquarters, One Bowerman Drive, Beaverton, OR 97005.

Contd.

Nike is a global sports shoe giant company. It is the largest seller of athletic footwear in the world, holding the lion share of 33% of the global market.

The company has production facilities in Asia, sales facilities in almost 200 countries, and customer service and other operational units worldwide

SWOT ANALYSIS

Number 1

Nike being a competitive organization has a healthy aversion towards its competitors i.e. during Beijing Olympics, Reebok expensed on sponsoring the games; Nike however sponsored the top athletes and due to this step, it gained valuable coverage.

Nike has no factories All products are outsoucred.\

strongest research and development.

It belongs to the Fortune 500 companies. Nike employs about more than 30.000 people worldwide.

It was charged with the violation of overtime and minimum wage rates in Vietnam, 1996, that was seen as having poor working conditions, and that it was also charged for exploiting cheap workforce overseas.

Nike was also reported to have applied child labor in Pakistan and Cambodia to produce soccer balls.

It was positioned as a subject of criticism by anti-globalization groups due to its unruly and exploited manner that was quite a disaster for its reputation.

Strengths Weakness

Contd.

• There are many international regions that still need tapping and there is need for sportswear and with Nike’s strong global brand recognition, it can initiate in many markets that have the disposable income to spend on high value sports goods.

• Nike gives a lot of effort on its corporate marketing mainly through the promotion of corporate brand and sponsorship agreements.

• Nike is exposed to the international nature of trade so it sells its product in different currencies which destabilizes the costs and margins for profits over long periods of time.

• The market for sports shoes and sportswear is quite competitive; the competitors are constantly developing alternative brands and techniques to take away Nike’s market share.

OPPORTUNITIES Threats

COMMENCEMENT DATE

Thomas Bata, founder of the Toronto-based Bata Shoe Company - which has hundreds of manufacturing units and retail stores globally, including India -- is 93 years old.

"People in India consider Bata to be an Indian company,"

Overview Incorporated as Bata Shoe Company Private Limited in

1931, the company was set up initially as a small operation in Konnagar (near Calcutta) in 1932

Bata India is the largest company for the Bata Shoe Organization in terms of sales pairs and the second largest in terms of revenues

Bata India Limited is the largest footwear retailer in India. Bata India has more than 1250 stores across the Country Corporate office: Gurgaon

CEO: Mr. Thomas G Bata

NUMBER OF EMPLOYEES

giving a livelihood to over 40,000 employees. workforce in India would be around 8,000

people.

TURNOVER PER ANNUM

27.10.2010Bata India Q3 net profit up at Rs 20.7 cr

30.07.2011Bata India reports Rs 351.20 crore turnover for quarter ended Jun 2010

29.06.2011Bata India Q2 net profit up at Rs 24.9 cr

:Improving Market Share

Bata today… Serves 1 million customers per day Employs more than 40,000 people (more than 8000 in India)Operates 5000 retail stores Manages a retail presence in over 50 countries Runs 40 production facilities across 26 countries.

OverviewMarket segment low to medium priced

footwear for the common person across the globe

Local Strategy Bata runs semi-autonomous companies targeted at the low to medium end of the scale.

Marketing Approach Bata clusters countries geographically into groups; the expatriate would build regional specialization & training activities would be more relevant on a regional basis for similar counties

International strategy Bata follows a multi domestic strategy. It stands for low integration across country units & high local responsiveness

Challenges in the Indian Footwear sector

Low quality of shoes – threat of shift in production to other areas or countries where wages levels are low if the quality is maintained at same level

Most companies work on subcontract basis – design, component selection and methods of production are given by the buyers and do not provide their own fashion collections, however companies are able to make prototypes based on ideas provided by the buyer

Strong requirement to increase quality as well as quantity

Availability of right raw material (finished leather) at right time

Under developed designs for footwear components sector

Meeting manpower requirement under the state of affairs of rapid industrialization

Forecasting Footwear Industry 2012 India is standing on the threshold of a retail

revolution and witnessing fast changing retail landscape, with footwear market is set to experience phenomenal growth in coming years.

Moreover, most of the global footwear manufacturers, particularly European manufacturers who were sourcing from China, have now turned to India. Nike, Adidas and Puma are some of the footwear majors are expected to route parts of their production and purchase out from China to India.

Recommendations for BATA

Abundant scope to supply finished leather to multinationals setting up shop in India

Use the Growing fashion consciousness globally

Use more of information technology and decision support software to help eliminate the length of the

production cycle for different products( Focus More in R&D)

Product diversification - There is lot of scope for diversification into other products, namely garments, side products etc

Their Aim should be to present the customer with new designs, infrastructure, country & company profiles

Exhibit strengths in manufacturing, for example, strengths in classic shoe manufacturing, hand crafting etc

Recommendations for

Nike should be more aware of their bad reputation in the labor practice and try to come out with solution for the unethical business.

Nike is a well known for their product all over the world. However, Nike must be more careful in releasing the advertising because such big reputation

Costumer price sensitivity is a potential treat to Nike, thats why Nike need also to consider their product price in order to compete with the other sport brand products.

Try to think solution in case for the big treat of the merger of other sport brand.

Focus on their product development is very good, but they have to consider also what are the costumer really needs

Case Study Low internal cost is a key success factor that a company must be

strong on when competing in the footwear manufacturing industry. 2nd key success factor is economies of scope. Footwear

manufacturing firms that produce a wide range of footwear products can satisfy various segments of consumer demand.

Economies of Scale are based on achieving a lower cost of production due to an increased amount of production. Producing footwear items at the lowest marginal cost is an important competitive factor. A larger amount of production spreads the costs of production over a wider range and thus reduces the cost of production per product.

The final key success factor is outsourcing a portion of manufacturing. This can be seen by looking at the total amount of production done within the United States compared to production done. In order to keep input costs down, manufacturers must be willing to source their products from low-priced foreign providers, either by establishing supply contracts with third parties or moving their own facilities overseas. This is vital for success in the footwear manufacturing industry because approximately 67.7% of manufacturers business comes from wholesalers and retailers who typically look to purchase the cheapest product (IBISWorld