Expanding domestic sports industry, Winter Olympic Games and new demand inject momentum into China’s footwear sector
Winter Olympic Games, demand uplift inject momentum into footwear industry
Published: Jan 17, 2022 04:42 PM
Foreign merchants visit the 23rd Jinjiang Footwear International Exposition held in Jinjiang, East China's Fujian Province in April. Photo: cnsphoto

Foreign merchants visit the 23rd Jinjiang Footwear International Exposition held in Jinjiang, East China's Fujian Province in April. Photo: cnsphoto

China exported 7.9 billion pairs of shoes and boots in the first 11 months in 2021, which literally means that the country has exported a pair of shoes for everyone on the planet.

But such a huge industry lost about 430 billion yuan ($67.8 billion) in export orders over the past seven years when compared to export orders in 2014, according to data platform Wind.

Industry insiders claim that the Chinese shoe industry has faced increasing pressure since 2005. The exchange rate of the yuan placed considerable pressure on the profits of shoe enterprises. Increasing labor costs in China have forced many domestic enterprises to open factories in Southeast Asia, where labor costs remain low.

Data showed that from 2017 to 2019, China retained its ranking as the world's largest footwear producer, but the output proportion decreased from 57.5 percent to 55.5percent. Meanwhile, the output of Vietnam accounted for 21.4 percent and Indonesia accounted for 21.6 percent of global market share, showing an upward trend.

The COVID-19 pandemic has added insult to injury as shipping costs skyrocketed, which continued to squeeze the low-profit shoe industry. The export value of shoes and boots dropped from 56.3 billion yuan in 2014 to 38.1 billion yuan in 2020, according to statistics released by the customs.

Seeking glory

Although the footwear industry is facing multiple challenges, enterprises vow to bring back their former glory. 

"I remember clearly that in 2005, the yuan to US dollar exchange rate was 8.1-8.3. In October 2006, when the 100th session of the Canton Fair was held, the exchange rate was already 7.9. Export profits of our enterprise fell by about 2 percent with the higher exchange rate," a manager surnamed Liu of a Guangzhou-based footwear enterprise in South China's Guangdong Province, told the Global Times on Sunday.

With the appreciation of the yuan and soaring raw material prices, companies cannot survive without raising prices. But more expensive products mean Chinese shoemakers surrender their advantage in the international market, Liu said. 

According to Liu, the main business of the majority of shoe enterprises was Original Equipment Manufacturer (OEM) before 2010, but such business has been gradually shifted to Southeast Asia, especially after 2017.

A Zhanjiang-based shoe company in Guangdong told the Global Times on Monday that it has set up factories in Vietnam to produce shoes from 2015. 

"Raw materials were shipped from China or directly from Southeast Asia to factories in Vietnam. After production is completed, shoes are exported directly from Vietnam. This is currently the way many Chinese shoe companies reduce costs," an employee surnamed Yuan said.

Analysts believe that breaking through the difficulties still depends on brand building.

"As labor costs in China continue to rise, many OEM factories of international brands begin to shift to Southeast Asia where labor costs are lower. Only by enhancing the value of the brand itself can we achieve high profit returns like international shoes," a veteran footwear industry analyst surnamed Wang, told the Global Times on Sunday.  

Wang cited Bosideng, a domestic down jacket brand, as an example.

"In addition, the homogeneity of low-end shoes is very serious in China. If there is no added value of the brand, shoemakers will fall into a vicious circle of competing only on price, which is not conducive to the long-term development of the industry," said Wang.

New momentum

Since 2011, China's footwear industry entered a difficult period of transformation and adjustment, a "new normal," according to Wang.

Over the past two years, although China's shoe production share in the world has declined, China is still the world's largest footwear producer. 

In 2020, China's shoe industry was dragged down by the epidemic. But against the background of epidemic prevention and control and remarkable achievements in economic and social development, enterprises resumed work and production, industrial production continued to recover steadily, the business environment continued to improve, and the export scale approached the level of the previous year, according to analysts.

Since 2017, domestic brands have experienced rising influence. In early 2021, more Chinese brands showed support for cotton produced in Northwest China's Xinjiang Uygur Autonomous Region following boycotts by foreign brands such as H&M, after which domestic sports brands enjoyed further development, according to a report by Chasing Securities.

Graphics: GT

Graphics: GT

It is estimated that the market size of sports shoes and clothing will reach 598.9 billion yuan in 2025, translating to a compound annual growth rate of 11.62 percent from 2021 to 2025.

The Beijing 2022 Olympic and Paralympic Winter Games will also boost the growth in sport footwear, especially for domestic brands.

Domestic brands are looking to exploit increasing consumer preference, and strengthen product research and development and marketing promotion, effectively improve product and brand power. Over the middle to long term, domestic brands' market share and penetration rate are expected to increase, according to Chasing Securities.

Against the background of high competition with international brands on global resources, domestic companies are seeking to break through from niche market, and innovation that combines Chinese culture with fashion. The competition will be all about brand, sales channels and product design. Leading companies in the Chinese market will achieve a significant increase in market share, Guosen Securities stated in its latest investment report.