Trade blocks against China spell opportunity for Indian footwear sector

India's footwear industry ranks high by volume, placing the country amongst the top three producers. However, its position as an exporter lags far behind China, the global market leader.

The short term slump in Indian footwear sector’s performance in fiscal 2020-21 is likely to be due to the Covid-19 pandemic, according to ICRA, which recently said revenues for the fiscal are expected to drop by 10-15 per cent over the last fiscal, with a larger impact on profitability.

The silver lining, however, is that if the industry checks certain boxes it could over time tap the export vacuum China will leave behind. However, manufacturers say that if they are to catch up, they need an ecosystem of components for the sector, as well as a shift in focus from low-value slippers, and sandals to upper end shoes, children's footwear and most importantly shoes for women.

Vietnam for example, which started some two decades ago making sports shoes for Nike is now a large global hub for making athletic wear for the biggest manufacturers.

Sandeep Kataria, Bata India CEO, says that India’s opportunity in footwear manufacturing in the current context seems promising. "The government’s intent to promote local manufacturing though appears to be robust," he said. "The chain of Tier 1 suppliers of finished goods and Tier 2 suppliers of Raw material, moulds, accessories need to evolve and ramp up the speed to market for global and local markets."

Technology can be the differentiator, Ritesh Dua, Executive Director with market leader Relaxo says. "We need the necessary technical knowhow in case we need to migrate up the value chain for global exports which demands time," he said. "The other factor that can be considered is that the components/raw materials for closed shoes are mostly imported today, so we need to create footwear ancillary hubs that supports the big manufacturing units with an ecosystem of supply chain like in China."

Key manufacturing local hubs in India include Ambur in Tamil Nadu, Mumbai in Maharashtra, and Kolkata. About 1.10 million are engaged in the footwear manufacturing industry.

Yavar Dhala promoter of Forward Shoes, former suppliers of leather uppers to Clark's and Marks & Spencer, says that India's output is mostly for local consumption while China's local consumption accounts for 35 per cent of production. "If that paradigm is to shift then local players have to move away from lower segment products like chappals, rubber slip ons, synthetic  plastic footwear," he says. The other is ramping up on manufacturing discipline. "In my experience global buyers have found it easier to deal with Chinese producers because of their ability to deliver on time, as per specification," he says.

The other necessity is the creation of a component ecosystem. "Foot beds, metal trims, embellishments, outsoles, new-age materials like phylone, blown rubber, expanded rubber, other new compounds are not easily available here and add to lead manufacturing time," Dhala says. "There has to be a shift in supply chain if India is to take on China on exports."

Others agree. Alisha Malik, Vice-President-Marketing and E-commerce, at retailer Metro Brands says exports for the world will only take on a larger role when manufacturers across the board move up the value chain.

That is happening in bits and pieces. Sunil Suresh, founder of Stanley Lifestyles, which imports around 8 million square feet of leather annually, recently started a premium shoe business and has begun by investing in high-tech shoe-lasts, devices uses to make and repair footwear.

Sameer Javeri, partner with Mumbai-based premium retailer Joy Shoes, says that bigger players depend on migrant labour as well and so far there has been no trickle-down effect from the government for the footwear industry.  The recent budget has hiked duties for imports to 35 percent in addition to other excise slabs that add up to about around 28 percent but there has to be a quicker off-take from local manufacturers to benefit from that.

There are large manufacturers in India such as Tata International, Sara Suole and the Farida Group, which supply to Florsheim, Clarks, Rock Port, Hush Puppies but their numbers for export are under 10 million pairs each annually, which means the market has to get much bigger if it is to pick up China' slack. Analysts say that the country exports around 140 million pairs of shoes a year. "That is small when you consider that the world population potential market in billions of people," he said.

Malik goes on to say that the sector is still very dependent on labour and not as mechanised as it is ought to be, which it will have to work on, if it is to make high volume products like athletic shoes.