China is increasingly negotiating on price

China is increasingly negotiating on price

China looks set to remain the powerhouse of global footwear manufacturing and a key supplier to the US, despite Vietnam gaining ground, a new report has found. 

Thanks to record consumer demand, US imports of footwear continued to grow in 2015, climbing to unprecedented highs in both volume and value, according to a report by the Footwear Distributors and Retailers of America (FDRA). Shipments climbed 5.7% to 2.5bn pairs last year, and increased 6.3% by value to $27.7bn.

The key categories were athletic shoes, boots and children's shoes, with growth in the former nearly double the growth rate of the other two, reaching a record 518m pairs.

In terms of suppliers, China, the world's largest footwear manufacturer, remains the largest footwear supplier to the US, with value 1.2% higher for the 17th time in the last 19 years. Volume also rose last year, rebounding 2.8% to a four-year high of 1.9bn pairs. 

But while shipments of footwear from China to the US grew in 2015, imports from other suppliers fared even better, the report found. This implies China's dominance is sliding, with the country's share of total footwear imports continuing to wane as sourcing shifts elsewhere. 

Last year, China's share of global footwear shipments to the US slid to 62.5% in dollar terms, and 76.3% in volume terms, both multi-year lows. And early evidence suggests this trend will persist in 2016. 

Vietnam, the US's second largest supplier of footwear, saw volume grow 19.3% last year to 331.2m pairs, while value grew 23.5% to $4.5bn.

"These shipments have grown as the average landed cost of Vietnamese footwear entering the US has risen each of the last six yeas," report authors noted. "Rapidly growing shipments in spite of rising unit costs for footwear suggest the country will remain a formidable competitor in coming years."

As a result of this growth, Vietnam has taken share from the rest of the world, typically China. While the East Asian powerhouse remains dominant, Vietnam is closing the gap. Over the past decade Vietnam's share of the US market has more than tripled from 5% to 16.2%. 

Other suppliers include Indonesia, India, the Americas, and the "rising star" that is Ethiopia. Indonesia's footwear sector, in particular, has enjoyed a revival over the last decade, growing in each of the last eight years to reach 99.8m pairs in 2015. Positives and negatives include the erosion of its currency, which has boosted export competitiveness, and sharp increases in the minimum wage. The country is also restrained by the availability of foreign inputs for manufacturing, particularly leather and rubber. 

"The industry is seeing paradigm shifts ranging from trends in initial commodity input prices to an evolving retail shopper that will colour the footwear landscape for years to come," report authors note. "Seldom have the evolutions of different linkages across the supply chain been as rapid or as tectonic for the industry. The ability to anticipate these shifts and navigate through these contrasts will reap the bounty of selling to the largest footwear market in the world."

With this in mind, the pressure on designers and factories to automate in order to increase productivity will no longer be a luxury but a necessity over the next ten years, the report suggests. 

China, however, continues to present new types of opportunities for companies, with such a desire to fill orders it is increasingly negotiating on price. While Vietnam continues to grow, it is nearing a tipping point, authors say, where capacity is being reached so quickly that prices may rise faster than expected. 

"Global production will continue to increase, but is clearly only seen by many US companies as a way to do one product line or small batch orders to relieve price and capacity constraints from their suppliers in Asia," report authors explain. 

Vietnam's textile and apparel industry, meanwhile, says it expects to miss its export target in 2016 due to slowing consumer demand and increased competition – and has proposed a freeze on wages to address the issue.

Vietnam mulls wage freeze to boost competitiveness