Coping with the pandemic
The world had hoped that the pandemic would have been beaten before the summer of 2021. Gradually the realisation came that we were in a longer game and that we would have to live with it, certainly in the short to medium term. Furthermore, the ‘tab’ has not yet been submitted and picked up so doubt exists as to investment potentials, availability of disposable income, ways of working and other factors.
As regards production, the footwear industry in 2020 saw a 15.1% decrease in output which, of course, was not good, but was nevertheless better than imagined at one time. In 2021, whilst significant disappointment has existed as covid-19 has dragged on with new variants, a general opening up of markets has seen some bright spots and some not so bright. Countries, such as Peru, USA and India for example, were still recording high levels of new cases and deaths per thousands of population.
USA
One of the leading drivers of global footwear trade and development is the US market. In the first nine months, January to September 2021 shoe imports into the US showed a marked improvement on the corresponding period in 2020. Total imports rose by 30.0% (380.1 million pairs) due in significant part to imports from China contributing an extra 221.1 million pairs (up 29.8%). As to be expected, Vietnam was the next contributor with an extra 88.5 million pairs (up 26.8%). The third major country was Indonesia which landed an extra 25.6 million pairs (up 35.3%).
Early signs from these results suggested that, although the US market was recovering from the depths of 2020, it was still not likely to have reached the levels of other pre-covid years. Taken in that context, there is some way still to go, but it is nevertheless moving in the right direction. China was again outstripping its closest challengers Vietnam and Indonesia, both in absolute volume and percentage growth. Whilst new suppliers such as Cambodia (up 13.4%) and Bangladesh (up 72.9%) were positive, they are still way down the list of major suppliers. Brazil sought to re-stake its claim with an increase of 53.6% albeit this represented only 3.3 million pairs. Shoe exports from the US itself in the same period also showed growth on 2020, although more modestly with an extra 2.2 million pairs being shipped out, an increase of 8.0%.
Vietnam
Vietnam was doing well during the early stages of the pandemic with relatively few cases and deaths. In 2020 footwear exports had dropped to $16.6 billion from $18.3 billion in 2019 due to decreased overseas orders. However, this was still more than in 2018 ($16.2 billion) and all previous years. 2021 therefore looked promising with predictions pointing at $20 billion leather and footwear exports. However, raging outbreaks of the coronavirus in the second half of the year saw orders piling up, customers switching to China and Indonesia, Pou Chen closing its HCM plant and rumours suggesting that Nike might move away. In fact, factories were being reopened by November. At one point, however, 80% of factories in the south of the country were closed and 30% to 50% in the north.
China
As already remarked, China had strengthened its exports to its main market the USA in the first eight months of 2021, both in percentage terms and absolute pairage compared to its main challengers Vietnam and Indonesia. Its exports in this period were 962.5 million pairs which represented a rise of 221.1 million or 29.8% over the corresponding period in 2020. However, the 2021 level is still far below that of 2019 and was in fact 155 million pairs or 15.5% below the equivalent level in that year. Going further back, the 2021 level of 845 million pairs is dwarfed by 2015’s 1.9 billion pairs. Pou Chen reported a 5% increase in shoes produced in the first half of 2021 (136.4 million pairs) but then the Vietnamese situation in the second half put the brakes on.
Global supply chain
The importance of the global supply chain came once more into focus in 2021 with, for example, panic buying in UK petrol stations, empty shelves in supermarkets and concerns about the availability and rocketing price of energy supplies. All this followed concerns about supply chain working conditions. Although disruptions in the UK in particular were partly caused by Brexit, the working conditions of truck drivers as well as factory workers was instanced as a deterrent to the recruitment of people to fill job vacances. The pandemic only further highlighted these concerns. Retailers such as Boohoo, Zara and H&M subsequently signed up to the new International Accord for Health and Safety (replacing the Bangladesh Accord which had been introduced in 2013 following the loss of 1,100 lives in one of the country’s garment factories). Under this accord, retailers are deemed responsible for labour conditions in their supplier factories.
Free trade
Another factor in 2021 was the ‘free trade bloc’. After President Trump’s cancelling of US involvement in the proposed TTP group in 2017 and talks of protectionism by nationalists in various countries, 2021 saw the UK seemingly looking to join any bloc including the Comprehensive and Progressive Agreement for Trans Pacific Partnership (CPTPP) and also NAFTA. The latter has been established for some years but the CPTPP was agreed only in 2018 by the 11 countries of the original TTP (Trans Pacific Partnership). The countries still covered are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. It covers countries responsible for 13.5% of the global economy but does not include China, India or Indonesia.
Winners and losers
Who has gained in the shoe industry in 2021? With the pandemic still not defeated in 2021, although (hopefully) on a slow retreat, the situation was still not back to normal and even in the same country there were still ups and downs. Vietnam, for example, had suffered less in the period up to 2021. However in July 2021 the so called Delta Variant had caused lockdowns and slowdowns in shoe production leading to companies facing fines for delayed deliveries. Sectors in the shoe industry which fared well included supermarkets and hypermarkets, which tended to remain open as they sold food, indoor footwear because people were working or staying at home, on-line retailers and companies which were more reliant on on-line sales, athleisure and sports footwear. The need to be ‘outside’ encouraged high uptake of individual sportswear in particular and even safety footwear as construction work continued. With a generally greater opening up during 2021, there was also an upturn in business for all retailers, although there were less of them after the effects of the pandemic in 2019/2020.
Adidas achieved net sales of €10.3 billion (up 33.8% from €7.7b) in the period January to September 2021. This increase was partly due to the holding of more events in 2021, more stores open and a continued surge in health and wellness product buying as well as athleisure. On the other hand, there were still supply chain problems and autumn concerns about gas prices and deliveries. Adidas also completed the sale of Reebok to the Authentic Brands Group.
Nike’s financial year runs to end of May 2021 so to look at the year 2021 (to date) means looking at the third quarter 2020 (December 2020 to February 2021 and so on. The third quarter 2020 registered $10.4 billion (+3% or -1% currency neutral), the fourth quarter reached $12.3 billion (+96% or +21% currency neutral), followed by the first quarter 2021 (June to August) that achieved $12.26 billion (+16% or +12% currency neutral). A little complicated but so far so good, with the company stating that the “market opportunity is as large as it’s ever been.”
Of course these two examples are leading sports shoe companies but if they were struggling then probably most other companies would be too. The ‘losers’ in 2021 have tended to be those companies in sectors not covered by the above. Fashion shoe producers and retailers may well have found the going more difficult as there were few events to go to and less retail outlets to visit at least until some way into the year. 2021 at the time of writing is therefore balanced on a knife edge with events likely to change situations quite suddenly. However, there has been a move to some normality and it has been a better year in general for the footwear industry than was 2020. So far, though, it is still not quite at the level of 2019 and certainly not at that of previous years.
Despite the pandemic, adidas recorded solid growth between January and September 2021.
Credit: Shutterstock / 2P2PLAY
