Footwear Market – China
January 2015
2 FOOTWEAR MARKET IN CHINA 2015.PPT
Executive Summary
Market
Drivers & Challenges
Government
Competitive Landscape
Global footwear market is growing at a CAGR of ‘r1’% and is expected to reach USD ‘m1’ by 2018
Chinese footwear market is the largest in the world, growing at a CAGR of ‘r2’%
China is also the largest exporter of footwear in the world, commanding a share of ‘r3’% in the global footwear exports market
‘c1’ dominates the market, followed by ‘c2’ and ‘c3’
Government Regulatory Organizations
Standards for Footwear Product Specifications
Standards for Footwear Testing Methods
Upcoming Footwear Standards
Drivers
Healthy Economy and Rising Income
Expanding Consumer Base
Accelerating Urbanization and Changing Lifestyle
Rising Demand for Leather Footwear
Growing Retail Industry
Changing Lifestyle and Fashion Trends
Major Players
Company 1 Company 2 Company 3
Company 4 Company 5 Company 6
Trends Shift from Manufacturing-Driven Economy to Consumption-Driven Economy
Integration of Various Business Strategies
Emergence of Green Footwear
Challenges
Huge Importer of Raw Materials
Declining Cost Competitiveness
3 FOOTWEAR MARKET IN CHINA 2015.PPT
•Macroeconomic Indicators
•Introduction
•Market Overview
•Supply Chain Model
•EXIM Data
•Drivers & Challenges
•Government Initiatives
•Trends
•Competitive Landscape
•Mergers and Acquisitions
•Strategic Recommendations
•Appendix
4
Macroeconomic Indicators (1/3)
Current Account Balance
Exchange Rate: Half Yearly
y5
y4
y3
y2
y1
USD bn
2010
u
2011
t
2012
s
2013e
r
2014e
q
2015e
p
5/1/14
y6
y5
y4
y3
y2
y1
1/1/14 2/1/14 3/1/14 4/1/14
USD/CNY
a5
c5
b5 a4
c4
b4
a3
c3
b3
a2
c2
b2
a1
c1
b1
Period Low Period High Period Average
FOOTWEAR MARKET IN CHINA 2015.PPT
5
Global footwear market has been steadily rising,…
• Footwear market falls under the broader segment of
‘s1’
• By type of material used, footwear can be classified
as ‘t1’, ‘t2’, ‘t3’, ‘t4’ and ‘t5’, among others
• Globally, ‘a2’, ‘a3’ and ‘a4’ are the top three
consumers of footwear, constituting nearly ‘r1’% of
the total market
• ‘a2’ and ‘a4’ have the world’s fastest growing
footwear consumption rate and are the top two
exporters of footwear
• By 2018, the market is expected to reach a size of INR
‘m1’, with ‘a1’ controlling a market share of about
‘r2’%
• Footwear market is expected to grow sustainably
over the next few years, fuelled by changing fashion
trends, product innovation, increase in disposable
income and retail boom
Global Footwear Market – Overview (1/2) Global Footwear Market Size and Growth
FOOTWEAR MARKET IN CHINA 2015.PPT
y6
y5
y4
y3
y2
y1
USD bn
r3%
x6
u
x5
t
x4
s
x3
r
x2
q
x1
p
China’s Share in Global Footwear Exports (2013)
r6% r5%
r4%
Others
Country 2
Country 1
6
China is the world’s largest footwear hub, owing to low cost of production and a strong distribution network
• China is the world's largest footwear production hub
• Between 2012 and 2013, footwear production
increased by ‘r1’% to ‘n1’ pairs
• The domestic footwear market is growing at a CAGR
of ‘r2’%, one of the highest in the world
• ‘c1’ accounts for the biggest share of the domestic
footwear market
China Footwear Market – Overview China Footwear Market Size and Growth
FOOTWEAR MARKET IN CHINA 2015.PPT
y4
y3
y2
y1
USD bn
r3%
x6
u
x5
t
x4
s
x3
r
x2
q
x1
p
China Footwear Market – Segmentation (2013)
r6%
r5%
r4%
Segment 3
Segment 2
Segment 1
Labor Cost for Footwear Production (2013)
y6
y5
y4
y3
y2
y1
y7
Country 4
s1
Country 3
r1
Country 2
q1
Country 1
p1
USD/hour
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Supply Chain of the footwear industry comprises numerous stages…
‘i1’ Industry
‘i5’ Industry
Component Suppliers
Manufacturers
‘i2’ Industry
China Footwear Market – Inbound Logistics
‘i7’ Industry ‘i4’ Industry ‘i3’ Industry ‘i6’ Industry
8 FOOTWEAR MARKET IN CHINA 2015.PPT
Manufacturers
Level 1
Level 2
Level 3
Consumers
China Footwear Market – Distribution Strategy
• Companies with small turnover, limited knowledge of
the market, lack of access to distributors or minimum
investment plans usually hire ‘p1’ to distribute their
products
• Such companies are generally domestic start-ups or
foreign players testing the initial market response
• Majority of the footwear companies in China rely on
‘p2’ or ‘p3’ to push their products to consumers
• However, many also prefer to skip ‘p2’ and retail
their products through ‘p4’
• Recently, a large number of footwear companies
have identified ‘p5’ as a lucrative and additional
source of revenue with minimum operating cost
• Some of the prominent footwear companies that
have presence in online retailing include ‘c1’ and ‘c2’
…before it reaches the ultimate users
China Footwear Market – Distribution Channel
9
Exports – Footwear Total Exports (Value)
FOOTWEAR MARKET IN CHINA 2015.PPT
r7%
r6%
r5% r4%
r3%
r2%
y5
y4
y3
y2
y1
USD bn
s r q
2012
p
2013 2011 2010
Note: Figures are for the respective calendar years
r10%
r13%
r11%
r12%
r9%
r8%
Others
Country 5
Country 4
Country 3
Country 2
Country 1
Country 4
Others
Country 5
Country 3
Country 2
Country 1
Note: Total Exports includes exports to Hong Kong SAR and Macau SAR
Exports – Country-Wise Segmentation (2011-12) Exports – Country-Wise Segmentation (2012-13)
Rise in footwear production in China…
• China has witnessed a CAGR of ‘r1’% in exports in the
last 4 years, owing to a large manufacturing base of
footwear, skilled labor and price competitiveness
• Primary export destinations include ‘c1’, ‘c2’, ‘c3’,
‘c4’ and ‘c5’
• The most exported products are ‘p1’
10
…has resulted in eventual rise in exports
FOOTWEAR MARKET IN CHINA 2015.PPT
r12% r11%
r10%
r9%
r8%
r7%
r6% r5%
r4%
r3%
r2%
r1%
Exports – Product Segmentation (2011-12)
Exports – Product Segmentation (2012-13)
Product 6
Product 5
Product 4
Product 3
Product 2
Product 1
Product 6
Product 5
Product 4
Product 3
Product 2
Product 1
HS code Particulars
HS Codes for Footwear Products
11 FOOTWEAR MARKET IN CHINA 2015.PPT
Drivers & Challenges – Summary
Drivers
Healthy Economy and Rising Income
Expanding Consumer Base
Accelerating Urbanization and Changing Lifestyle
Rising Demand for Leather Footwear
Growing Retail Industry
Changing Lifestyle and Fashion Trends
Challenges
Huge Importer of Raw Materials
Declining Cost Competitiveness
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A number of national and regional footwear standards guide the footwear market of China
Government Regulatory Organizations
Industry Regulations
• x
• x
• In terms of proclaimed legal operations, the most relevant bodies of law regulating the Chinese footwear sector are ‘b1’, ‘b2’ and ‘b3’
• Items within these bodies contain policy guidelines for production and distribution of shoes, as well as clauses demarcating registration and inspection
13
All domestic and international players are subject to a host of national standards…
• The government of China has adopted various standards, specifying product classification, technical requirement,
test methods, inspection rules and marking issues, among others
• All local and imported footwear products must be in compliance with the national standards
Standard No. Standard Name
Note: The list is not exhaustive
FOOTWEAR MARKET IN CHINA 2015.PPT
Standards for Footwear Product Specifications (1/2)
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Trends – Summary
Key Trends
Shift from Manufacturing-Driven Economy to
Consumption-Driven Economy
Emergence of Green Footwear
Integration of Various Business Strategies
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Porter’s Five Forces Analysis
Competitive Rivalry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of New Entrants
Impact i4
Impact i2
Impact i1
Impact i5
Threat of Substitutes
Impact i3
16
Competitive Benchmarking (1/5)
Public Trading Comparable (FY 2013)
Company 1 Company 2 Company 3 Company 4 Company 5
Market Capitalization (USD mn)
Share Price (USD)
EV/EBITDA (x)
EV/Revenue (x)
PE Ratio
Note: Top 5 Public companies based on the Market Capitalization; Market Capitalization, Share Price and PE ratio is as of 30/10/2014
FOOTWEAR MARKET IN CHINA 2015.PPT
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Key Ratios of Top 3 Companies – Operational Basis (FY 2013) (1/3)
Competitive Benchmarking (2/5)
y4
y5
y3
y2
y1
%
Company 3
c3 b3
a3
Company 2
c2 b2
a2
Company 1
c1 b1
a1
• Company 2 recorded gross margin of ‘a2’%, higher than both Company 1 and Company 3 which recorded gross margin of ‘a1’% and ‘a3’% respectively
• Company 1 recorded operating margin of ‘b1’%, higher than both Company 2 and Company 3 which recorded operating margin of ‘b2’% and ‘b3’% respectively
• Company 3 recorded net margin of ‘c3’%, higher than that of Company 2 which recorded net margin of ‘c2’% but lower than that of Company 1 which recorded net margin of ‘c1’%
FOOTWEAR MARKET IN CHINA 2015.PPT
Net Margin Gross Margin Operating Margin
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Key People
Products and Services
Company Information Locations – China
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
Ticker Symbol
Stock Exchange
Public: Company 1 (1/4)
Category Products/Services
Headquarters
Name Designation
Chairman and CEO
Deputy Chairman and VP
CFO and VP
COO and VP
FOOTWEAR MARKET IN CHINA 2015.PPT
H1
19
Financial Snapshot Key Ratios
Financial Summary
• The company earned a net profit of USD ‘d’ in FY 2013, as compared to net profit of USD ‘c’ mn in FY 2012
• It reported total income of USD ‘s’ in FY 2013, registering a decrease of ‘r1’% over FY 2012
• It reported an operating margin of ‘r2’% in FY 2013, an increase of ‘r3’ percentage points over FY 2012
• It reported debt to equity ratio of ‘n1’ in FY 2013, a decrease of ‘r4’% over FY 2012
y3
y2
y1
z4
z3
z2
z1
y4
USD mn USD mn
2012
d
s
2011
c
r
2013
b
q
a
p
2010
Improved Decline
Particulars y-o-y change
(2013-12) 2013 2012 2011 2010
Profitability Ratios Operating Margin
Net Margin
Profit Before Tax Margin
Return on Equity
Return on Capital Employed
Return on Working Capital
Return on Assets
Return on Fixed Assets
Cost Ratios Operating costs (% of Sales)
Administration costs (% of Sales)
Interest costs (% of Sales)
Liquidity Ratios Current Ratio
Cash Ratio
Leverage Ratios Debt to Equity Ratio
Debt to Capital Ratio
Interest Coverage Ratio
Efficiency Ratios Fixed Asset Turnover
Asset Turnover
Current Asset Turnover
Working Capital Turnover
Capital Employed Turnover
Indicators Value (30/10/2014) Market Capitalization (USD mn)
Total Enterprise Value (USD mn)
EPS (USD)
PE Ratio (Absolute)
Public: Company 1 (2/4)
Key Financial Performance Indicators
FOOTWEAR MARKET IN CHINA 2015.PPT
Profit / Loss Total Income
20
Key Business Segments Key Geographic Segments
Business Highlights
100%
50%
0%
2010
p4%
p3%
2009
p2%
p1%
Segment 2 Segment
y3
y2
y1
2013
p1% The company operates
through single reportable segment, namely Segment 1
Segment 1
Public: Company 1 (3/4)
Note: Business Segments and Geographic Segments are based on total revenues, Geographic Segments for years 2011, 2012 and 2013 are not available
FOOTWEAR MARKET IN CHINA 2015.PPT
Description News
Overview
• Company 1 is a subsidiary of ‘n1’
• The company was listed in ‘n2’ in ‘y1’
• It holds trademarks for the footwear brand ‘n3’ in China
• In ‘d1’, the company became the official marketing and merchandising partner of ‘n4’ and also raised USD
‘a1’ through sale of shares
Operations
• Company 1 operates ‘a2’ retail outlets under the brandings ‘n5’ and ‘n6’
• It also operates ‘a3’ kids sportswear outlets and ‘a4’ outlets under the brand ‘n3’
• The company also retails its products online through ‘n7’, ‘n8’, ‘n9’ and ‘n10’, among others
21
T O
W S
Public: Company 1 – SWOT Analysis (4/4)
FOOTWEAR MARKET IN CHINA 2015.PPT
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Key People
Products and Services
Company Information Locations – China
Private: Company 2 (1/3)
Category Products/Services
Headquarters
FOOTWEAR MARKET IN CHINA 2015.PPT
Name Designation
President
H1
Corporate Address
Tel No.
Fax No.
Website
Year of Incorporation
23
Description News
Overview
• Company 2 was founded in ‘y1’ and is one of the oldest footwear companies in China
• It was acquired by ‘n1’ in the year ‘y2’ Subsequently, all of its subsidiaries, namely ‘n2’, ‘n3’, ‘n4’, ‘n5’ and ‘n6’ were moved out of the parent
and made subsidiaries of ‘n7’
• Company 2 retails its footwear under the brand ‘n8’
Operations • Company 2 distributes its products through ‘a1’ retail outlets all across China
• In FY 2013, the company generated revenues of USD ‘a2’
Business Highlights
FOOTWEAR MARKET IN CHINA 2015.PPT
Private: Company 2 (2/3)
24
T O
W S
Private: Company 2 – SWOT Analysis (3/3)
FOOTWEAR MARKET IN CHINA 2015.PPT
25
Mergers and Acquisitions (M&A) (1/2)
Note: Data for the years 2014, 2013 and 2012
FOOTWEAR MARKET IN CHINA 2015.PPT
Announced Date
Closed Date Transaction
Type Target Buyer/Investors Sellers
Deal Size (USD mn)
26
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FOOTWEAR MARKET IN CHINA 2015.PPT