Recovery is already underway and, even if it is occurring at two different speeds – more rapid in Asia and the Americas, slower in Europe – and with the threat of inflationary spikes, footwear and leather goods manufacturers feel extremely optimistic about the future. This is what emerged from the survey conducted by Enrico Cietta for Expo Riva Schuh – Gardabags: Chairman of the new Scientific Committee that will develop the Expo Riva Show programme of contents and CEO of Diomedea, he presented the data collected over the last few months from institutions and producer/retailer trade associations from the four continents (for more info, see below), during the live talk: ‘The footwear, leather goods, and accessories market: what to expect over the next few months’. The meeting’s panel included also the Vice President of the Scientific Committee and CEO of Edizioni AF and Arsutoria School, Matteo Pasca, the Chief Executive Manager of BFA-British Footwear Association, Lucy Reece Raybould, and Manfred Junker, General Manager of HDSL, the Federal Association of the German Footwear and Leather Goods Industry.
“For footwear, 75% of those polled look with optimism to the future and expect to see production grow in the second quarter of 2021 – explains Enrico Cietta. Exports will also accelerate, though to a lesser degree when compared to production, while consumption will reflect the same trend as production, with a growth that is less polarized”. The leather goods sector and above all travel industry, which suffered the most from the restrictions placed on international travel, are instead expected to experience a slower and non-systematic recovery connected to the conditions of the different national markets, since for such products it is easier to push back their purchase to a later date in the future.
Inflationary spikes, which are increasing the costs of raw materials and the cost of transportation, represent another unknown that might have eventual negative repercussions on consumption and on the export trend, which it is forecasted will be more intra-area oriented. Another consequence of the increased costs will be the erosion of sales margins.
Digitalisation is another element destined to play an increasingly important role in the future: “Without a doubt, online sales are destined to grow further, also once the crisis is over, and it is forecasted that 80% of the market will go online in the near future – explains Matteo Pasca. Players coming from traditional retail must digitalise themselves as soon as possible, dedicating personnel and expertise to the evolution of this channel, while those who are digital born must focus on greater interactivity to improve their performance and rate of conversion”.
Although the UK is no longer considered to be in crisis, Lucy Reece Raybould is rather sceptical about the effective recovery of the market: “Our companies are still working three days out of five – she explains – and footwear sales are mostly made up by slippers, sneakers, and comfort shoes. Unsold stock is still high in numbers… In any case, we continue to focus on innovation and sustainability, which represents a challenge, but also an opportunity in reaching different markets. On the domestic market, high logistical costs are favouring the national product compared to those coming from Spain, Portugal, and Italy”.
In Germany, the most important European market for footwear and leather goods consumption, during the pandemic, there was a sharp drop-off in fashion and business footwear purchases to the benefit of comfort, athletic, children’s and safety shoes. At the same time, the luggage industry dropped-off because of the halt in tourism. “We are however optimistic for the future – explains Manfred Junker. Our Government supported workers who were unemployed during the crisis and since stores were closed, they were unable to spend their money and even ended up saving. According to a recent study carried out by the Deutsch Research Institute, Germans can hardly wait to spend their money: first on smartphones, then on luxury footwear! So, we are convinced that consumption will grow significantly over the next few months. Instead, as far as foreign sales are concerned, there are different factors that will have an impact: without a doubt, the rise in the cost of raw materials and logistics, but also the emergence of protectionist measures”.
Footwear and leather goods market. 2021, the year of recovery
Having reached the lowest level in 20 years of footwear production in 2020 due to the Covid-19 pandemic, it is not surprising that footwear production in the first half of 2021 has accelerated sharply. The research conducted by the Scientific Committee of Expo Riva Schuh & Gardabag highlights that the 51% of the producing countries were already growing at the beginning of 2021: especially Asia, the first to emerge from the epidemic, and America, albeit in an uneven way, depending on the restrictions adopted by the various countries. Europe, instead, is the one that has been most penalised by the situation.
For the second half of 2021, the market survey predicts a strong recovery in production volumes, with three quarters of the producing countries growing: recessive trends are limited to a few cases only and, in general, most of the interviewees are optimistic. At this point, the scenario between Asia and Europe is approaching, while Latin America remains uneven.
There are four reasons for the recovery at this stage:
Recovery in national consumption: with first comers continuing the long wave of recovery and with Europe facing growth, the balance of optimists worldwide rises to 84.9%. There is a significant growth in domestic consumption (between + 5% and + 9%), which is everywhere related to the trend of the pandemic and vaccination campaigns.Inflation trends: according to respondents the increase of commodity and logistics prices, even if it poses a threat to producers, should not stop growth. Exports, already recovering in the first half of the year and at this stage more aimed at individual continental areas, should grow further in the second half (62.1% of respondents are positive, a lower percentage if compared with production but clearly higher than the one of the first half attested to 49%). There will thus be an improvement, but with areas of uncertainty linked to possible lockdowns for the return of the pandemic and consequent slowdowns in trade at regional or national level. It should also be noted that the closure of some borders has changed export flows, allowing the growth of new client countries. Export and trade recovery between companies: the increase in export flows is more contained than the growth in domestic demand. The responses of the producing countries suggest that stocks destined for internal consumption will be more easily reconstituted than those linked to international trade. The leather goods sector shows significant differences compared to the footwear sector: in the first half of 2021 it still marks production volumes in recession and is characterised by a polarised recovery being exports a growth driver. But already the second part of 2021 will reverse the trend.
As for production: in the first half of the year the balance of respondents was clearly negative: -81%, while in the second one it jumped to + 57.5%, but the growth varies from country to country and not by geographical area as is the case for footwear. It is less generalised and systemic, as well as less intense. This is related to several factors:
customers’competitiveness: the good health of reference markets makes the difference. The specialisation of some production systems by type of product, price positioning or distribution channel will promote recovery, while others will make it more difficult and less secure. Domestic demand and exchange rates: they will impact less. However, without prejudice to Europe which has a single currency, other national systems depend on the volatility of their own exchange rates and those of direct competitors. Exports: they are the great growth driver. In the first half of the year, export flows exceeded those of production, and the forecasts for the second half of the year reinforce the positive trend above all thanks to the recovery of demand in key markets (80% of respondents are optimistic, a percentage even higher compared to the one related to footwear). The return to growth of the leather goods sector, therefore, seems to depend on the ability to have bet on the “right” market. The polarisation between rapidly accelerating countries and those in recession will slowly ease over the second half, with positive countries reducing their growth rate and those that were in recession over the last half year returning to substantial stability. In particular, in some coutries the fate of traditional retail channels appears to be a decisive factor: the adaptation to digital by the retail system seems to have been slower, thanks to the fact that consumers have been more willing to postpone the purchase for this type of product. In the second half of the year, even if accelerating, domestic consumption will be subject to factors such as price increases, consumer income and the economic crisis.