Micam Shoeventfiera - Milano
The Italian Footwear Industry - Preliminary figures for 2007
*(Figures referring to trends in production, prices and orders have been processed based on the results of a survey performed on a sample of the Associates).
Introduction
Following a decidedly negative five-year period and the year 2006 marked by an initial strong "slowdown in the crash", 2007 can be considered a "provisional" year for the footwear sector. Many of the basic values have remained at the levels of the previous year and there have been signals of growth (notably those pointing to a positive trade balance), but there have been no signs of a radical change in the short term.
The official figures that are currently available and the results of the most recent survey conducted among Associates confirm the trends that had already been noted in previous commentaries: export dynamics (with increases in terms of volumes and, to an even greater extent, value) and domestic consumption (after a long period of stagnation) are unquestionably more favourable than in the recent past; dynamics related to production, orders and financial aspects are essentially stable; and the trends in imports (which has reached yet another record, stimulated by the influx of products from the Far East) and employment continue to be negative.
Within this scenario, however, the positions of companies are differentiated, as some companies have been better than others at tapping into more rewarding dynamics on certain markets, while others have paid the price of the extended crisis that has affected the sector.
The new shadows of recession that have started to loom in recent months have affected the recovery rates posted in early 2007 and during the summer. A slowdown in demand not only on various foreign markets but also the domestic one, coupled with the discouraging indications for the world economy, coming above all from the United States, have dampened optimism.
Consequently, businesspeople's expectations for the first half of 2008 are marked by extreme caution: unfortunately, the earliest figures merely confirm the current phase of stability, again postponing more substantial recovery of the sector's economic dynamics.
Let's take a closer look at the individual variables.
Production and prices
The preliminary survey regarding the twelve-month period (2007) showed a slight average drop in terms of volume (approximately -0.6% compared to 2006) for the sample examined by the study.
Most of the footwear companies that were contacted said that they had a stable trend: for 53% the production levels were the same as last year, 19% reported an increase and the remaining 28% cited a decrease in the quantities produced.
Although these results cannot yet be considered satisfactory, they are nevertheless among the least negative of the past few years, a period that has been marked by far worse decreases in volume. While the final figures for 2006 showed a moderate decrease in volume (-2.5%), the same thing cannot be said for the preceding four years, in which domestic production by volume dropped by 1/3 as a result of decreases that were often in the double digits.
This marked a considerable decline - although these figures do not include Italian production that is entirely delocalised abroad - that particularly affected categories with lower added value and lower-priced products, which have faced increasingly aggressive Asian competition in a scenario of stagnant international demand.
In reference to prices, an economic picture that is no longer negative, coupled with efforts involving product and process innovations undertaken by companies, permitted a slight increase in rates in 2007, above all on foreign markets (for which the sample reported an average increase of 3.8%); growth of the domestic market has been more moderate (+1.6%). These trends seem to be confirmed in the first half of 2008.
If we combine price and quantity dynamics, for 2007 we can estimate a tangible increase of approximately 2.9% in the value of production compared to the previous year.
With regard to production in the first half of the current year, the companies' expectations eloquently point towards a substantially stable picture: nearly half of those interviewed do not expect any changes in production levels, just over 28% of the sample expect a slight increase, and the share of pessimists - i.e. those who expect a further slowdown - approaches 23%.
Capacity use has remained high in absolute terms (approximately 86%), consolidating efficiency levels and restructured production processes. Expectations for the first half of 2008 tend to confirm these utilisation rates in terms of production capacity.
Commercial trade
Following six years of continued and sometimes marked decreases, official ISTAT figures for foreign sales in the first 10 months of 2007 showed a positive sign in terms of both volume and, to an even greater extent, value.
Exports - which include not only foreign sales of items produced in Italy but also simple marketing following importation - increased in value by 7.9% between January and October compared to the same period in 2006, with a volume increase of 1.7%.
Overall, we exported 216.8 million pairs of shoes (an increase of 3 6 million pairs), for a value of 6,056 million euros. The average price per pair rose to 27.94 euros (+6.1%), confirming the constant improvement in product quality.
In terms of merchandise categories, all areas showed increases in value in terms of sales, although they vary in intensity. As far as volume is concerned, the least satisfactory trend involved slippers, whose exports dropped by 3.7%.
The sector of leather shoes - which predominated once again, with an incidence of more than 66% with respect to total quantity - posted a 7.8% increase by value, despite a slight decrease in real terms (-0.2%).
Good results were seen especially with women's leather walking shoes (+16.6% by value and +8.8% by volume) and sandals (+11.7% and +2.6%, respectively), whereas the most penalising trends were observed in the area of boots and ankle boots (-0.2% by value and -7.3% by volume).
Analysis by export country revealed a heterogeneous situation.
Moderate increases in value were reported for Germany (+2.7%) and France (+4.7%: with the figure of 830 million euros, it is our top market) versus essentially stable figures in terms of volume (-0.6% and +0.2%, respectively).
In the wake of unsatisfactory results in 2006, there was a significant recovery in exports to the United Kingdom (+11.2% by value and +8.1% by volume).
The growth in EU countries (more than 5% by value and equivalent to 2.3% by volume) was accompanied by decreases on North American markets, which were greatly penalised by currency dynamics related to the dollar (United States- -1 3% by value, with a much more marked decrease of 16.7% by volume; Canada: -1.4% by value and -6.5% by volume), and in Japan (decreases of approximately 6%).
As to the Far East, there was a generally stable trend (+0.1% by volume, with +6% by value), in which exports to China - despite the figure of +30% by volume - remained at rather low levels (389 thousand pairs in 10 month). Instead, the Middle East showed a recovery of +6.6% (with +21% in terms of value and the noteworthy figure of +41% for the United Arab Emirates).
Although they were still marked by moderate volumes, decidedly favourable rates characterised exports to Central and South America (+24% by value, driven above all by Mexico, the main reference market for this area).
In Africa, there was a 5.2% increase in sales value, rising to 3.5 million pairs (+16%). Significant growth trends also characterised exports to Eastern Europe (+33% by value and +18.6% in terms of overall volume). Notably, the favourable trend seen on the Russian market continued, with +31.4% by value, confirming it as the fourth most important end market for our products, and +26.4% by volume. Alongside the United Kingdom, Russia is also the only major market that did not show a slowdown in demand for the two-month period of September/October 2007.
In fact, after the positive results posted in the summer, the months of September and October were marked by a downturn in foreign exports (-3.3% by volume), which we fear may also have characterised the remainder of the year, further decreasing the growth rates posted so far for Italian exports.
During the same two-month period, imports also decreased significantly, but not enough to prevent yet another record.
The figures for the first 10 months showed an increase in imports of 8.4% by volume (348 4 million pairs of shoes entered Italy, an increase of nearly 27 million) against +0.9% in value (and an average price decrease of 6.9%). Although these figures also include reimports of products that are partially made abroad, they are nevertheless significant.
There has been a strong increase in synthetic and canvas footwear, whereas imports of leather shoes dropped 3.8% by volume (-0.4% by value).
In terms of geographical area, it can be noted that EU imports have risen a little more than average (+13.1% by volume), with significant peaks for Belgium (+22.4% due to triangular trade) and France (+21.1%). Significant rates - approximately 25% in terms of both volume and value - were observed for Africa, driven by Tunisia (our sixth leading supplier by volume). The influx from South America also rose (+33% by volume from Brazil)
The competitive pressure exerted by the Far East continues to be strong: in terms of volume, double-digit increases were seen for China (+17.5%, with an average price decrease of 11.6%) and Vietnam (+15%, with a price decrease of 6%), despite the specific drop in leather footwear, influenced by Europe's current antidumping measures (-17.6% by volume from China and -9.7% from Vietnam, for an aggregate figure of -15.4%).
It must be noted that 56% of footwear imported to Italy comes from China (196.2 million pairs), reflecting an incidence of 21% on total value.
On a European level, Eurostat statistics parallel ISTAT figures, indicating a decrease in the entry of leather footwear to the EU25 from China (-15.3%) and Vietnam (12.6%).
However, investigations are underway regarding possible attempts to circumvent measures by assigning the codes for uppers made of synthetic or other materials to goods that are actually made of leather.
A strong and abnormal increase has also been seen in imports to Europe from Macao (+73% by volume) and Cambodia (+91%). Here as well, EU investigations are underway, as triangulation to circumvent current legislation is suspected.
Returning to Italian statistics, as already noted elsewhere the marked decrease of approximately 30% for Romania and Bulgaria must be interpreted in light of a change in the surveying system (now Intrastat) that was adopted following the entry of these two countries into the EU on 1 January 2007. Consequently, this change does not permit uniform comparisons of interim figures with past data
Given the importance of these countries in commerce with Italy, the balance of trade must also be interpreted with due caution.
Combined, the official figures on imports and exports, discussed above, show a positive trade balance of more than 3.2 billion euro for the first 10 months of 2007 (up 14.7% over the same period in 2006).
Attempting to eliminate distortions tied to the deferred registration of influxes from Romania and Bulgaria (which are strategic due to production delocalisation), we can estimate an increase of 6.9% by value in the positive balance for this sector. In any event, this performance is encouraging and it reinforces the 2.2% increase in the yearend figures for 2006, following four years of constant erosion.
Orders and domestic spending
Although the survey conducted among Associates regarding their order books for the last quarter of 2007 (not deducting repeat orders) did not present an overall negative trend, it nevertheless sketched out less-than-brilliant dynamics in various markets: the average order book showed a modest increase (+0.7% by volume) compared to the fourth quarter of 2006.
The domestic market is confirmed as a relatively rewarding area, with real growth of approximately 1.3% in terms of orders.
Unfortunately, the order book generated by the German market is still declining, although to a lesser extent than seen in previous periods (-0.8%). Instead, orders from other EU countries show a positive trend, with an increase of 2.4% by volume.
In line with export trends, orders from the American market were not favourable, showing a further decrease of 2.2%.
Instead, the trend in orders from Japan grew slightly, with a rate of approximately 1.5%. The remaining data for "Other non-EU countries" were similar, with a 1.4% increase by volume.
Nevertheless, the decreased size of the order book itself is worrying, as it presents a carnet - i.e. the period of production guaranteed by the order book - with an average duration of less than 3 months (2.7).
Although they must be viewed cautiously given the fact that the data reflect a sample, forecasts for orders in the first half of 2008 essentially seem to indicate consolidation of the definitive figures.
With regard to the domestic market, 62% of the surveyed companies said that they do not expect any substantial changes in the number of orders, 22% expect the current situation to improve, and the remaining 16% expect the orders from the Italian market to get worse.
As to expectations regarding the trend of foreign orders, 50% of interviewed companies foresee stable order books, 32% expect an increase in orders, and 18% were pessimistic.
Moving on to examine trends in domestic spending, following an extended period of stagnation the figures for purchases by Italian households now show an annual increase of 3.9% by volume and 6.2% in terms of expenditure. Purchases of footwear for men (0.1% by volume) and children/teens (+0.2%) remained at the same levels as 2006, whereas they increased in the areas of women's shoes, sports shoes and sneakers.
As noted for exports, consumption also faced a slowdown in the final months of the year (-0.1% by volume in September/October and -2.4% in November/December), with marginal increases in nominal terms.
Employment
Indicators regarding the job market are unfortunately still struggling to become aligned with the rebalancing scenario sketched out so far, not only with regard to the footwear industry but also the entire production chain.
Although there has been a significant decrease in recourse to the Cassa Integrazione Guadagni, Italy's redundancy fund, the latest available figures on the employed workforce, referring to September 2007, show a 3.5% decrease in the number of employees at footwear manufacturers compared to December 2006, which brings the overall number of employees in this sector to less than 91,000. In fact, 3,289 jobs were lost.
Furthermore, there were 6,472 fewer employees in the same period for the entire leather production chain (footwear manufacturers + components + tanneries + leather goods), reflecting a 3.9% decrease compared to the final figures for 2006.
The survey conducted among ANCI Associates offers a snapshot of the tension that is felt in the area of employment: although 35% of interviewed companies reported an essentially stable employed workforce, a full 55% of our sample said that they had cut staff, whereas only 10% reported that they had hired new staff in 2007.
Another sign of the current difficulties comes from figures on the evolution of companies that are being created and closed. According to the databank of the Chambers of Commerce, in the footwear industry the number of active companies dropped by 2.3% in 2007 (with a negative balance of 156 companies between January and September), further testifying to the restructuring processes underway in the industry despite an improved economic picture. The production chain has faced a similar situation, as 406 companies closed in Italy in 9 months (-1.8%).
As to forecasts for the first half of 2008, further decreases are expected in the number of companies as well as employees.
As already mentioned, in terms of the use of supplementary salary tools, in the first 11 months of 2007 the total hours of CIG (Cassa Integrazione Guadagni or Redundancy Fund) requested by companies in the leather area decreased significantly (-39%). This average value is the result of a significant decrease (-49%) in the use of extraordinary instruments and an equally significant decrease in ordinary instruments (-28%).
An examination by region shows strong decreases in all of Italy's main shoemaking areas.
Collections and payments
Survey responses regarding the collection/payment cycle for the second half of 2007 were also in line with the economic trends described above.
Relations with Italian suppliers confirm a generally stable trend as to payment (74%), although a significant number had to request extended payment terms (21%). A similar trend can be noted for transactions with foreign suppliers, among which the stability of terms was even more significant (81% of those interviewed).
Instead, figures regarding extensions granted to customers show a more marked trend towards longer terms (which had already emerged in previous surveys), above all on the domestic market, where 39% of responding companies reported longer collection periods. The percentage dropped to 29% of those interviewed - and thus an increase in those who reported stability - when it came to collection periods from foreign customers.
Conclusions
The dynamics in the footwear sector throughout 2007 were characterised by slow economic recovery. A number of final year-end indicators revealed trends that were positive or at least marked by stability: exports and a positive trade balance, the trend in production volumes, pricing policies and domestic spending. Nevertheless, there are
no tangible signals that there will be a trend reversal in the near future, as also r:
witnessed by the situation with orders. The lack of such signals means that the early
months of 2008 will again be a "provisional" period for footwear manufacturers.
An average picture of this kind can be considered favourably by solid competitive companies with adequate financial resources, but it can penalise weaker or smaller companies, due above all to the fact that the short-term scenario lacks dynamism.
Therefore, this is a delicate moment in which companies must continue to work on the competitive repositioning of supply so that they will be ready to tap into more rewarding dynamics in demand - which we hope will also emerge in new markets - and to fight the increasingly aggressive international competition.
Main economic indicators of the footwear industry
Preliminary figures for 2007 and forecasts for H1 2008
table test
Volumes produced preliminary figures for 2007
|
-0.6%
|
Volumes produced H1 2008
|
Stable
|
Production value preliminary figures for 2007
|
+2.9%
|
Domestic prices Jan-Dec 2007
|
+1.6%
|
Domestic prices H1 2008
|
Stable
|
Foreign prices Jan-Dec 2007
|
+3.8%
|
Foreign prices H1 2008
|
Stable
|
Production capacity December 2007
|
86%
|
Production capacity June 2008
|
86%
|
Household consumption (vol.) Jan-Dec 2007
|
+3.9%
|
Household consumption (spending) Jan-Dec 2007
|
+6.2%
|
Exports (volume) Jan-Oct 2007
|
+1.7%
|
Exports (value) Jan-Oct 2007
|
+7.9%
|
Imports (volume) Jan-Oct 2007
|
+8.4%
|
Imports (value) Jan-Oct 2007
|
+0.9%
|
Domestic payment terms
|
Stable
|
Foreign payment terms
|
Stable
|
Domestic collection terms
|
Slight increase
|
Foreign collection terms
|
Stable
|
COMPANIES/EMPLOYEES
(September 2007)
Shoe factories
Leather supply chain
|
No. of companies
6.501
(-156 vs.Dec.2006; -2.3%)
22.733
(-406 vs. Dec. 2006; -1.8%)
|
No. of employees
90.854
(-3.289 vs. Dec. 2006; -3.5%)
160.436
(-6.472 vs. Dec. 2006; -3.9%)
|
Employment H1 2008
|
Slight decrease
|
Use of CIG Leather Area Jan-Nov 2007
of which:
Ordinary CIG Jan-Nov 2007
Extraordinary CIG jan-Nov 2007
|
-39.0%
-28.1%
-48.9%
|