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Footwear industry in China to reach US$ 72.35B by 2021

China manufactured 13.5 billion pairs of shoes in 2017 becoming the largest manufacturer and exporter of footwear worldwide. The export of shoes reached 71.33% of total production. USA is the largest importer of Chinese made shoes Genderwise, Women's shoes accounted for 49% of total retail sales in China. Chinese footwear market is estimated to touch USD 72.35 billion by 2021.

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Definition / Scope

Based on raw materials used and its utilization, footwear is classified into athletic and non-athletic wear. Athletic footwear is mainly made from rubber and wore in a wide range of sports activities. Further, non-athletic wear is divided into formal and casual, the former made up of leather and later made up of textile. Also, the finished shoes are categorized by user as kid's wear, men's wear, and women's wear.

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Market Overview

By far, China is the world's largest producer and exporter of footwear.

  • The industry has employed a total of 2.6 million people in more than 14,400 small and large-scale companies.
  • China holds a 57% share of global footwear production in 2016, of which 21% is consumed in the domestic market and 79% is exported in the international market.
  • In 2017, China manufactured 13.5 billion pairs of shoes.
  • The export of shoes reached 71.33% of total production with 9.63 billion pairs in quantity.
  • Domestic market consumed 29.63% of the total production and an additional 140 million pairs of imported shoes in 2017.
  • Overall, the revenue generated by footwear companies combined with leather and fur finished products in 2017 was USD 203.33 billion (RMB 1.37 trillion).
  • China exported USD 78.7 billion leather and footwear while its imports reached USD 9.8 billion in 2017. The import of raw hides and skins were 1.25 million tonnes valued at USD 2.2 billion and semi-finished leather were 706,200 tonnes valuing USD 1.46 billion.
  • Similarly, finished leather import amounted 116, 800 tonnes in volume and USD 1.99 billion in value.

In 2017, the total sales revenue generated by footwear manufacturers alone rose by 4.41% standing at USD 114.79 billion (RMB 773.8 billion). Out of which the domestic sales stood USD 56.67 billion (RMB 381.86 billion). Exports of footwear of all age group and gender were 9.62 billion pairs in quantity valued at USD 45.59 billion growing by 3.7% and 1.7% respectively from the previous year. In contrast, China imported 139 million pairs of shoes amounting USD 3.20 billion in 2017. The volume and value of import were surged by 23.8% and 18% respectively than in 2016.

The leather shoe export constituted 7.07% totalling USD 9.30 billion while the import of leather shoe was 26.97% valuing USD 1.41 billion.

Among gender categories, the sale of women's shoes accounted for 49% of the total sales while that of men's shoes represented 38% of the total sales. Similarly, children's shoes sales made the least contributing 13% of the market.

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Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

Fake products

The Chinese market is notorious for imitating the global market. A few businesses in China are never willing to take a patent right or design right from the leading brands. However, they emulate the exact copy of the product and sell in the local market and export to poor countries.

9,000 pairs in volume counterfeit Nike sneakers worth USD 1.7 million were seized in customs in New York that were shipped from China during 2017-18. The proliferation of substandard shoes shipped from China to the rest of the world is still even more in numbers. In 2017 alone, Chinese authorities have snatched around 500,000 pairs of imitated shoes including Nike, Vans, and Converse. Further, more than 300,000 pairs of Nike Air Jordan were also seized in US customs office during 2016-18. Such fake goods were valued USD 70 million. Exporting copied brand names without copyright into developing countries from China is rampant.

Market Drivers

Sustained Online Growth:

The convenience of shopping from home, advances in secure payments, flexible returns policies and rapidly improving delivery options are continuously driving growth in internet retailing. Particularly in China, digital evolution is one of the most influential channels shaping local apparel and footwear markets. Globally, internet retailing is forecasted to account for 20% of apparel and footwear sales in 2021. But in China, 90% of the retail sales come from online channels.

Fitness Trend among Millennials

The growing health awareness and increasing fitness trend with the millennial generation taking to aerobics, swimming, running, gymnasiums and yoga-like fitness drills have pulled dramatic growth in footwear sales. The proliferation of international brands represented by sports has kept sportswear in the public eye fuelling this drive as well.

Sports Boom

China's sports industry is booming faster than the economic growth rate. The sports industry is valued at more than USD 300 billion. Furthermore, the Chinese government plans to build USD 813 billion sports industry by 2025.

Market Restraints

Diverging location economy

Until a few years ago, China was considered a cheap labor market where most of the global demand for manufacturing used to appear. But the landscape has changed a lot since then with wages going up. This surge in labor price has urged global brands to migrate their outsourcing elsewhere like Vietnam. Nike and Adidas have shifted their manufacturing in Vietnam and so did other brands. Adidas, for instance, manufacturers 44% of the brand's total shoes in Vietnam compared to only 31% in 2012.

Industry Challenges

  • China is facing a trade war with the USA and trade with other countries is slowing. The growing trade protectionism and the increase of geopolitical uncertainty are causing Chinese leather industry faces a great pressure.

The USA had imposed tariffs on about USD 250 billion worth of imported Chinese goods affecting approximately 6,000 items in 2018.

  • There has been regulatory enforcement that requires strict pollution control especially in tanning and footwear production which means producers need to upgrade much more technology and equipment that reduce such emission.

China has enacted environmental protection law during 2017-18 to mitigate industrial emission and water pollution under which the penalty for breaking the rule is up to USD 150,000 for illegal discharging of pollutants. More than 80,000 factories had been closed by authorities for not meeting the pollution concerns.

  • The increasing cost of raw materials makes lower profit margins.

Energy price, oil price, for instance has climbed up USD 56 in 2018 from USD 53 in 2017. Furthermore, raw material prices have gone up from 4%-19% in 2017.

  • Presence of omnichannel sales point is threatening the mom and pop store sales revenue.

More than 70% of the footwear is sold online in China. The leading online players Alibaba and JD.com are not only capturing the online market but they have been establishing physical stores with cheaper price.

Technology Trends

Low-Carbon and Eco-Friendly Source Material

Various brands have introduced low-carbon products using green raw materials, energy conservation, and recyclability to attract more responsible consumers. Reebok, for instance, has developed a system for making leisure shoes using industrial corn and organic cotton. When such products are discarded after use their biodegradable material turn into fertilizer.

3-D Printing

Domestic companies are beginning to make greater use of innovative production technique to remain competitive in the market. For example, Shoe Cubeset made footwear which uses a 3D foot scanner to measure clients' feet to produce a shoe that lasts and custom-fitted. Meanwhile, domestic brand Peak produced the first pair of 3D-printed running shoes in China in 2017.

Knitting technology

The shoe knitting technology is gaining traction with companies like Nike, Adidas among others have adopted the knitting technology to minimize waste generation and labor cost. In this technology, filament yarns, mostly polyester are used to knit uppers of the shoe. The yarn is comparatively cheap and wastage is also very less. The energy consumed in circular knitting comparing flat knitting is significantly five times less. Nike Flyknit is developed with this technology. It has a single-layered upper whereas, in another traditional knitting, there is a multiple layering of padding. Mayer & Cie is the leading supplier of circular knitting machines.

Pedometer Smart Wear

A shoe is embedded with a chip that keeps track of every step, the technology includes a built-in Bluetooth pedometer within the sole. It never has to be charged and lasts about three years. It tracks every step accurately because it’s under the foot unlike wrist band and application on a smartphone which doesn't give an accurate result.

Smart Sensor

Many brands such as Nike, Li Ning, and Xiaomi has launched a smart shoe where the brains of the smart shoe is an Intel Curie module, a coin-sized 32-bit SoC based on the Quark SE platform that has a 6-axis sensor, accelerometer, and gyroscope and is inserted under any side sole. The module can run for up 60 days on a standard coin battery, and it has enough computing power to crunch all the data recorded from the bevy of sensors and transmit it over Bluetooth LE.

Pricing Trends

A majority of footwear produced in China is exported abroad. The order size for export is of high volume and the price is subject to bargaining power. Generally. the wholesale price for shoes ranges in a bracket of USD 2-USD 60 with minimum order size falling between 100 pairs to more than 1,000 pairs.

In the local retail market, the retail price is similar to that of wholesale for Chinese brands and the price becomes expensive for imported European brands of footwear.

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Regulatory Trends

Under the Standardization Law of the People's Republic of China, there are four levels of standards mainly national, industry, local, and corporate. Overall, footwear falls into the light industry category, where the local standards are mandatory standards enforced within a particular region, while the corporate standards apply internally within any given enterprise.

The State Council has cut Most- Favoured Nation (MFN) tariffs for 1449 taxable items including footwear implementing in 2018. The average tariff was reduced from 15.9% to 7.1%. The Tariff on the import of waterproof with outer soles and uppers of rubber footwear is 10% while on other footwear with outer soles and uppers of rubber is in the bracket of 4%-24%. Similarly, import tariff on footwear with outer soles and uppers of leather is charged 14% while tariff on parts of footwear is levied in 5%-15% range.

The latest updated footwear product standards and their related testing method are shown in the figure:

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Market Size and Forecast

In terms of value, the worldwide footwear market was USD 222.4 billion in 2017 and expected to reach USD 292.7 billion by 2026. Retail sales in China grew by 7.8% in 2017. Similarly, the annual growth rate for production stood at 5%. Import grew by 17.5% but export declined by 3% in 2017.

In 2017, China manufactured 13.5 billion pairs of shoes. The total sales revenue generated by footwear manufacturers alone rose by 4.41% standing at USD 114.79 billion (RMB 773.8 billion). Out of which the domestic sales stood USD 56.67 billion (RMB 381.86 billion). Exports of footwear of all age group and gender were 9.62 billion pairs in quantity valued at USD 45.59 billion growing by 3.7% and 1.7% respectively from the previous year.

The USA is the top importer of Chinese manufactured footwear. In 2017, it imported sneakers worth USD 15.99 billion. UK and Japan were the second and third largest importer of Chinese shoes import value standing just under USD 3 billion.

In contrary, Vietnam and Indonesia remained the top exporter of footwear to China representing USD 1.51 billion and USD 592 million respectively.

In China, sports footwear market stood at USD 15.9 billion in 2017. Nike dominated this segment with 28.6% market share while Adidas captured 20.4% of the sportswear segment. The Chinese brand ANTA is struggling the race with international brands constituting only 7.3% share followed by Li-Ning which further took a 5.3% share. Japan-based Asics was lagging behind Nike, Adidas, and domestic competitors in China market with an insignificant market share below 1%.

Leather shoes dominated the market with 59% market share in terms of sales revenue followed by a 14% market share of textile shoes. Rubber shoes held a 10% revenue share in 2017.

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Market Outlook

By 2021, it is estimated that the Chinese domestic footwear market will reach around USD 72.35 billion (RMB 487.4 billion). The market is growing at a CAGR of 3.1% for during a decade since 2018.

Technology Roadmap

Additive Manufacturing

It refers to the process by which digital 3D design data is used to build up a component in layers by depositing material. This technology will be used for decisions on product aesthetics and functionality. 3D technology will enable customize parts of a sneaker such as an insole, midsole, and outsole. This technology will get mainstream to transform the product design and automation.

Most of the companies still use traditional methods. But Adidas will be making 100,000 pairs of 3D printed shoes in the USA in 2018-19. It is also planning to set up a factory wholly run by robots and using 3D printing in Germany. These shoes were tested to reduce injury. Peak, a sports brand has tested additive manufacturing in China so far till the end of 2017.

Biologically Interactive

Materials used in shoes will become biologically interactive. For instance, MIT Lab and New Balance partnered to come up with a material called Biologic infused with bacteria, which releases or contracts by heat. It will help to relieve excess sweat. Puma and New Balance are still on the prototyping phase in collaboration with MIT Lab that will probably commercialize in the market after a decade in China.

Soft Sensor Networks

In the near future shoes will basically evolve to become wearable data centers that monitor our body and arrange its interaction with the outside world. This is done through so-called soft sensor networks. Many brands in China already equip this technology but the range of data that consumes is limited to counting footsteps. The scope where the shoe tracks data on the injury pattern and movement of feet is yet to be developed that will transform the diagnosis and treatment of sport players.

Self-lacing shoe

The Adapt BB — the BB stands for “basketball” is a Nike’s latest innovation in sportswear which is an auto-lacing smart shoe that adapts to wearers’ feet that will come in market in 2019. Except for counterfeit products this technology has not yet entered China. In the next 2-3 years, it will become mainstream in the Chinese footwear market.

Distribution Chain Analysis

The value chain of the footwear market size includes various stakeholders, such as raw material suppliers, footwear manufacturers, distributors, and end users. Each of these players adds a specific value to their business operations, in turn, contributing to the competitive value of the product. The R&D activities, innovations and constant efforts for improvement, collectively enhance the values associated with the final product deliverables.

Raw material supplier

Various raw materials, such as skin, jute, leather, rubber, plastics, synthetics, and PVC soles among others are used for manufacturing footwear products. The footwear manufacturing companies including PUMA, Adidas, Crocs, and Timberland procure all these materials from different vendors to manufacture different footwear. India is among the largest supplier of leather and rubber supplier in the world.

Manufacturing Companies

Footwear manufacturer Companies are responsible for designing, manufacturing, and packaging footwear with all necessary requirements. To innovate and conceptualize new designs, footwear manufacturers keep track of changing consumer preferences to keep pace with their tastes. Attractive designs are important yardsticks taken into consideration while purchasing specific footwear.

Distributors

Distributors of footwear supply shoes, sandals, and boots to different entities, such as retail stores, brand outlets, discount stores, online stores, and manufacturer owned online web portals. With the retail platforms, manufacturers understand the overall market demand and have opened their own outlets across various potential markets. The online store is an emerging channel of distribution and is a convenient medium for customers to purchase footwear items.

The rise of e-commerce and increased online orders has left many footwear distribution centers stretched to keep up with nationwide demand. In many cases, footwear companies only have a single distribution center located on one of the median geographies. This oftentimes causes customer service issues, slow and/or expensive shipping to customers, and an overall network that is not optimized for the new business reality. In fact, 90% of retail sales were through online channels in 2017.

Expanding the footprint to the other locations and/or distributed from the center of the country where overall shipping costs are less due to the closer proximity to customers’ homes would help save millions of dollars.

Consumers

Consumers of footwear consist of individuals of different age groups and gender. The improved spending capabilities of individuals, changing lifestyles, and a rising number of working professionals has increased the spending capability of individuals. This is occurring especially in the developing countries and leading to further expansion of the overall market for footwear.

Competitive Landscape

The Chinese footwear market is dominated by domestic players. There are currently four major footwear clusters in China, located predominantly in the Southeast coastal region. Imported brands, which mainly customed from the USA, Italy, and Spain target high-end customer segment.

Then there are joint venture enterprises headquartered in Hong Kong and Taiwan which dominate the mid-market segment.

And finally, there are a huge number of local manufacturers primarily serving the lower-end of the footwear market. As competition continues to thrive, the market is expected to targeting niche segment.

Competitive Factors

Companies compete with each other on the basis of price, quality, and service. A firm can gain an advantage in the market by providing good quality products at a reasonable price.

The main factor for imported footwear having such a strong competitive position is that generally, footwear comes from low labor cost countries such as China, which allows consumers in developed nations to take purchase cheaper shoes. At the other end of the market is high-quality footwear, which is usually sourced from Western European countries such as Italy and Spain who are renowned for high-quality inputs such as leather and fabrics.

Product innovation is another significant factor. Design teams are constantly creating a various range of new style footwear, which includes augmented features like sweat-free, auto-lacing, etc.

Apart from innovation, product branding is a crucial competing factor. Established brands such as Adidas, Nike have created a strong brand image globally. Further, a company that supplies retailers and fills the order in a timely manner can also gain a good reputation and achieve repeat orders.

Key Market Players

Belle International Holdings Limited

Belle is the largest women's shoe manufacturing brand constituting about 25% of the market share. It was established in Guangdong province in 1991. Its shoes are sold in both domestic and international market with a brand extension under Belle, Staccato, Joy & Peace, Millie's, Jipi Japa, etc. It also distributes shoes for many international brands such as Bata, Caterpillar, Fitflop, Hush Puppies, etc. under private label branding.

Daphne International Holdings Limited

Daphne is a Hong-Kong based investment company which is also a footwear manufacturer in China and operates in Asian, European, and North American market. Its footwear products are sold under Daphne and Shoe Box brand dominating women's footwear segment.

Red Dragonfly

It is one of the leading leather shoe manufacturers in China. Its core businesses include manufacturing of leather shoe and apparel under the brand name Red Dragonfly. Main products comprise men's shoes, women's shoes, kid's shoes, leather belts, and wallets.

Yue Yuen Industrial *Holdings) Limited

The company though headquartered in Hong-Kong its production facility is located in China and is the world's leading athletic and casual footwear manufacturer. It has one of the largest footwear retail chains in China. It is known for Original Equipment Manufacturer (OEM) and Original Design Manufacturer (ODM) for world's leading shoe brands like Nike, Adidas, Reebok, Puma, etc. Its production volume was 324.6 million pairs in 2017. Production saw a 0.8% increase from the previous year. There was a 7.6% growth in revenue in 2017 totaling USD 9121.4 million. Majority of the profit came from athletic shoes constituting 46.1% of total revenue while casual shoes accounted for 13.1% of the revenue.

Zhejiang Aokang Shoes Co. Ltd

The company was founded in 1988 in Zhejiang province and manufactures leather shoes for the domestic and international market. It provides pedometer shoes for men and women. Its brand extensions include Aokang, Kanglong, Redess, MeiRei, etc.

Anta

Anta was set up in 1994 and now listed in Hing Kong Stock Exchange since 2007. It is one of the leading brands among sports shoe manufacturers in China. The company designs, develops, and manufactures sportswear under its own brand name. It captures 7% of the market share in China.

Strategic Conclusion

Competition is becoming fiercer in this industry coming from both domestic businesses and international market. Companies need to innovate products to retain customers, re-engineer and automate production process to hold cost advantage, and in the mean time, adopt new materials towards sustainability.

The challenge for competitors is to address rapidly changing customers’ demands and shopping experience. With 90% of the sales happening through online channels, they need to integrate omni-channels that is ‘brick-and-mortar’ and e-commerce in urban and rural China. Most of the world’s leading brands are pouring into Chinese market considering it as a world’s largest market in terms of population, and Chinese consumers getting involved in sporting activities, the domestic brands need to focus equally on home market and away from China.

Government initiative such as “Fitness for All” that was included in the 19th CPC National Congress policy report coupled with engaging millennial, the demand for sportswear in China is going forward and will cross USD 70 billion by 2021.

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