India's unique dance to footwear dominance

India is often seen by EU footwear manufacturers as the next target for them to defend against competitive forces, after anti-dumping measures were imposed on China and Vietnam manufacturers in April 2006. But the Indian scenario is more difficult to explain away on anti-dumping grounds, given its more commercially exposed nature and higher price trajectory than competitors in East Asia.

Indian producers are not the cheapest and the country has furthermore been unpicking its import and export regulations to make it more flexible - the last issue being the very principle enshrined in WTO liberalization lore.

The irony is that Indian footwear manufacturers could be into a better stride than cheaper and more experienced competitors in Hong Kong, the Chinese mainland and Vietnam. But China is still a significant player in the Indian market - in the footwear component and supplies area, helping to fuel the engine of growth by supplying fabrics and technology.

The US$2.2 billion Indian footwear (leather and non-leather) industry is already witnessing strong growth, following increasing demand domestically and internationally. Almost every player in the organized sector is on an expansion spree, and many are doubling capacities.

Also, nearly every international brand of repute is eyeing the Indian market.

The footwear industry (which had been growing at the rate of between 12% and 15% per annum, is expected to clock a growth of at least 20% in 2006, particularly riding on strong domestic demand.

Also, on the export front, the Indian footwear industry is expecting some real advantages (not to mention a reprieve) from the anti-dumping duties imposed by the EU on Chinese and Vietnamese leather footwear imports.

According to Mani Almal, president of the Indian Footwear Components Manufacturers' Association (IFCOMA): "Indian footwear exporters have been facing severe price competition from China and Vietnam. The latest move by the EU to impose anti-dumping duties will give a level playing field to the Indian industry in one of its largest international markets."

But Almal does not expect a very significant increase in footwear orders suddenly flowing into India. "The duties will only [produce] a correction. There may be some orders because of the anti-dumping duties, but not a very significant increase. The orders that will come in will be because of India's strengths in certain product lines."

V Alexander, executive director, Indian Shoe Federation, a body representing footwear exporters concurs: "China has a very big footwear industry, and there is no way we can compete with China. In the low cost products, orders cannot come to India, not just because of the price, but also because we do not have factories that can undertake such huge orders."

"India is in the mid-priced segment, where realizations are slightly better, and there we are facing competition from Vietnam. So, the anti-dumping duties will help India to that extent," Alexander explains.

India's smaller scope, specialty sector

India's footwear manufacturing, even today is concentrated in the unorganized, small scale sector, which accounts for 55% of the total footwear production. India's share of the global footwear imports is 1.5%, as against China's share of 14%.

However, the industry does expect a significant rise in exports, as the shoe manufacturing industries in US and Europe become ever less viable, and production bases shift to India and other Asian centres.

For instance, Indian shoe manufacturing company, Forward Shoes, recently signed an agreement to manufacture in India shoes for Start Rite, a 213-year-old, UK-based children's footwear brand.

Forward Shoes was manufacturing uppers, and started to get indications from its European buyers that they were either going to reduce production or shut down manufacturing in Europe, so that Forward Shoes should upgrade and forward integrate to extended its shoe manufacturing facilities.

Following this strategy, the company has been receiving very good orders from European buyers and over the last two years has earned additional revenues of between US$10 million and US$12 million annually.

The Indian leather footwear sector has set an export target of US$1.5 billion for the European market by 2008. Europe imports about US$12 billion worth of footwear goods per year.

Muhammad Yavar Dhala, managing director of Forward Shoes believes that the Indian leather industry also needs to focus on women's fashion footwear, where India today faces competition mainly from Eastern European countries.

Retail revolution in India sees battle among global players

Players big and small are today focusing increasingly on India's domestic market, which is witnessing numerous developments. Says Alexander: "the number of people within the country who are today ready to buy high priced shoes, in the range of US$30 to US$45 a pair, has gone up significantly. Besides, the retail revolution is also boosting availability of goods, and the market for branded footwear."

According to representatives of The Loft, (a pioneer branded store specializing in footwear): "it is only now that there has been a demand shift from low priced footwear to medium and high priced products. And the demand potential is still unexplored. [India has] a population of one billion, and even if we take an average of one pair of shoes at a price of US$15.5 a pair per person, it shows the magnitude of the market."

This market size and developing infrastructure has resulted in almost every Indian and international brand focusing on the domestic market. It is already seeing a competitive tussle between major global brands.

Reebok, which already accounts for 47% of the premium sports shoe market in India, has around 130 franchise stores, and is planning to open one store per week, to widely cover all the metro cities in the country. Reebok has identified India as one of the largest and fastest growing markets globally for footwear.

Similarly, Adidas is expecting strong double-digit growth in the sports shoe segment for at least the next five years. According to Andreas Gellner, managing director, Adidas India: "[the country] is one of the most important markets for Adidas in Asia. With an enduring focus on our product and our retail channel, we hope to become the third largest Asian subsidiary after China and Japan within the next five years. Adidas is committed to this market."

Bata, one of the first international brands to have entered India, sells over 60 million pairs per year throughout India and in overseas markets such as the US, the UK, Europe, the Middle East and East Asia.

Bata India Ltd (BIL), which was in the red for quite some time, is finding its feet again. As part of its survival strategy, the company is planning to strengthen its retail network in rural areas, where it does not have a major presence, in keeping with the unfulfilled demand for branded footwear across the country.

Bata has products that straddle price-points. About 80% of its volumes continue to be dependent on footwear that caters to the cheaper segment, where it faces stiff competition from the unorganised sector.

At the premium end, too, Bata has the likes of Woodland and Gaitonde competing for market share. Bata, however, finds itself on a better footing vis-a-vis other competing brands, on a number of counts.

As part of the Bata Shoe group, the company enjoys access to new designs, technology and brands. It has licensing agreements to brands such as Hush Puppies, Body Shoe and Dr Scholl as a result of its tie-ups with Wolverine World Wide and Dr Scholl's.

Bata continues to have a strong hold on the school footwear market.

It also has a superior distribution network, with more than 1,000 of its own outlets spread across the county. This makes it a preferred marketing partner for several well-established brand names such as Reebok, Adidas and Lotto, to name a few.

Distribution of these brands earns margins ranging between 35% and 45%. As part of its cost-cutting measures, to rein in losses, the company is outsourcing a part of its manufacturing to facilities in tax-free zones, and is upgrading its inventory management systems.

Bata is also offering voluntary redundancy deals to its workers, to bring down staff cost. The company hopes to wipe out accumulated losses of around US$9 million by 2006.

India beginning to see up-market brands

The potential of the Indian footwear market is evident from the fact that many international high-fashion brands are expanding their presence in the Indian market.

UK-based Carlton London is introducing its products into the Indian market, what has already been tried and tested in overseas markets, and is mainly targeting the women's footwear segment, where demand is still unfulfilled. The company's footwear range is priced at between US$16 and US$115 per pair.

According to Baljeet Virk, managing director, Carlton Overseas Pvt Ltd: "India is a big market and is fast emerging as an important fashion centre on the world map. But we find that the market for ladies' footwear is still an untapped one, and there is hardly any national brand offering the variety and designs demanded by women.

"We will fill this gap," says Virk. The company has responded by opening exclusive outlets in Mumbai and Gurgaon, and is fast expanding its retail presence.

India is also witnessing an influx of very low priced footwear from Malaysia, Vietnam, Indonesia and Nepal. After the anti-dumping duties of 47% to 67% on Chinese footwear, imports from the Chinese mainland have started going down.

A large number of retailers are selling sports shoes costing between US$2 and US$3 a pair from all these cheaper sources. However, industry analysts believe quantities coming in are becoming less significant, with the quality reportedly so bad that the products would probably be competition only for the unbranded sector.

The Indian footwear component industry is also facing stiff competition from China in a number of shoe components - cellulose insole fabrics, coated, impregnated fabrics and interlinings, where the price of the imported materials is between 40% and 50% lower than the indigenously produced materials. Components worth US$35 million were imported into the country last year, and IFCOMA expects a 100% increase in imports in the component area from China this year.

Date : May 2, 2006