The Italian Footwear Industry
- 3 March 2017
- Written by: Bat Radar Team
The Italian Footwear Industry
The 2016 preliminary results* highlight a lacklustre situation for the Italian footwear industry, as the year closes with figures for the main variables coming in just below the zero mark – at last in terms of quantities.
The last quarter failed to bring about significant variations, thus confirming the unsatisfactory trends for production, exports (despite the slight increase in value) and domestic consumption, as well as a deepening of criticalities pertaining to employment. The year 2016 must therefore be seen as another transitional year, as we await a more favourable economic situation.
The recovery of the internal market – after eight years of constant erosion, where purchases of shoes by Italian households fell by more than 30 million pairs between 2007 and 2015 – has been put off once again: the stagnation in volumes was accompanied by a reduction in expenditure (-2.4%), that clearly shows that price sensitivity remains high (purchases during sales and clearances make up more than 50% of total purchases).
At an international level, the disappointing performance of EU markets – that were held back by France, which is the main end market for Italian footwear manufacturers – was compounded by an unsatisfactory trend for non-EU countries. As well as the continuation of the crisis in the markets of the CIS countries – the collapse in orders seems to have stalled and a hesitant recovery has commenced, but overall sales are still 40% lower in volume and 50% lower in value than they were three years ago – after six years of consolidation there has been a reversal in the trend for the US (and the menacing shadow of protectionism looms large over the future) and there has been a sudden slowdown in the Middle Eastern markets.
In a scenario as challenging as this, the sector has at least succeeded in limiting losses in production to 2% on volumes, confirming a value of 7.5 billion euro, a +0.3% increase. Thanks once again to exports (+2.5%), the balance of trade surplus has consolidated slightly (+1.3%) to a level approaching 4.2 billion euro.
But inevitably tensions have resurfaced in terms of employment.
PRODUCTION AND PRICES OF THE ITALIAN FOOTWEAR INDUSTRY
The 2016 preliminary results estimates – which were calculated on the basis of sample responses and weighting mechanisms – show a 2% reduction in volumes, which equates to a production level of 187.5 million pairs of shoes (3.7 million less than 2015).
The overall average level conceals as ever very different situations amongst respondents.
Companies that have experienced a reduction in output still represent the majority (56%), as was the case with previous quarterly surveys. Compared to the recent past, there was a slight increase in the number of companies that went from a situation of stability (which in this case made represented 21% of respondents) to one of growth (23%).
Overall it is not a very rewarding situation and this reflects the difficulties that companies have had to face as a result of below par demand in a number of major end markets.
By adding to the above dynamics pertaining to price that were reported by companies (+1.1% within Italy and +2.5% in foreign markets, on average), we can estimate a Made in Italy value of production for 2016 of 7,515 million euro (+0.3%).
Comparing this with 2015, therefore, the reduction in volumes is slightly less pronounced (-2% compared to -2.9%) while the change in value for 2016 is slightly positive.
The ISTAT figures show, for the period January-October, an increase in value of exports of 2.6%, against a reduction in volumes of -1%. The average price – 42.29 euro/pair – is up by 3.7%.
Approximately 178 million pairs were exported, 1.8 million less than in the same period in 2015, for a total value of 7.53 billion euro. This data includes, as always, both sales in foreign markets of shoes produced in Italy and operations involving pure product commercialization.
By analysing the data for the last decade, we can see that – despite a decrease in quantity that is fairly limited compared to the previous year– the current result is clearly unsatisfactory: export volumes have only been lower than they are now during the first 10 months of 2009, in the midst of the global economic crisis (the level was 167.1 million pairs at that time). In terms of value, however, following a progressive shift of products towards higher price bracket, a new record was reached and the value now stands at its highest level for the last fifteen years, even if we discount inflation.
In terms of EU markets (-0.9% in quantity and +2% in value overall), which account for 7 pairs of shoes out of 10 that are sold abroad, there was a slowdown in France (which remains the leading destination, despite a reduction in both volumes, -5.7%, and value, -1.2%), while Germany remains positive (+0.8% and +2.9% respectively).
The situation is positive in the Netherlands (+4.4% in quantity); poor in Belgium and Austria (-12% and -5.2% respectively); Spain and the United Kingdom were fairly stable (both with -0.5% in volume). With regard to the latter, the trade flow analysis for the period does not yet feature negative trends or particular effects linked to the outcome of the Brexit referendum on 23 June: indeed, from July to October Italian exports to the United Kingdom increased by 2.9% in quantity, against a -2.4% reduction in the first semester.
Outside the borders of the EU, the situation is generally lacklustre, as was also the case in 2014 and 2015: in the first 10 months of 2016, non-EU exports fell by 1.2% in volume, with a +3.3% increase in value.
In the first 10 months, in the US market there were reductions of 5.2% in quantity and 3.6% in value and the country lost two positions – compared to 2015 rankings – in the league table of the main customers in terms of value (and now sits in fourth position behind both Germany and Switzerland).
There was also a major setback in the Middle East (-15.5% in quantity overall), in particular in the Emirates (-24.3%) and Saudi Arabia (where there was a fall in volume of one third, -32.2%).
The CIS is a separate argument: ISTAT data shows that, after the collapse in the last two years, there has been a very gradual recovery: +10.4% in volume for sales in the first 10 months, with Russia +9.9% and Ukraine +44.2% leading the way (while Kazakhstan was -15.6%).
Coming to the positives, there were only two macro-areas with increases in terms of both quantity and value compared to 2015: “Other non-EU European Countries” (+12.7% in value), driven by Switzerland (+15.5%, a traditional logistics platform), and the markets of the Far East (+4.1% in volume and +6.5% in value). Although the increase is much less significant than it has been in the past (between 2008 and 2015 exports to the area grew by 57% in quantity and 168% in value), the Far East has confirmed its status as one of the most dynamic end markets. When considered as a whole, China (+5% in volume, albeit stable in value, -0.3%) and Hong Kong (+1.7% in quantity and +6.1% in value) represent our fifth largest market in terms of value. South Korea (+14.4%) and Japan (+9%, -1.9% in volume) also grew.
In the first 10 months imports increased by 2.8% in quantity and 3.8% in value, to 297.5 million pairs (including reimports), 8 million more than January/October 2015.
The league table of suppliers is once again led by China, which accounts for 4 pairs of shoes out of 10 that are imported, which remained at the same level as 2015 in terms of volume (-0.5%), but suffered a reduction of more than 9% in the average price (which fell to 6.41 euro/pair, almost three times less than other Countries of origin). Romania (-5.5% in quantity, the traditional European partner for delocalization), France (-3.5%) and Vietnam (-0.8%) are all down. There was an increase, however, there were trade improvements with Belgium (+3.3% in volume) and the Netherlands (+8.7%).
DOMESTIC CONSUMPTION OF THE ITALIAN FOOTWEAR INDUSTRY
Consumption levels for Italian households have yet to get off the mark: after eight years of constant decline, even 2016 closed with results that fell short of expectations. According to the data prepared for Assocalzaturifici by the Fashion Consumer Panel of SITA RICERCA, purchases of footwear remained at 2015 levels (-0.1%), but there was a further reduction in terms of expenditure (-2.4%, the same as the fall for the previous year) caused by a new fall in average prices (-2.3%).
COMPANY DEATH RATES
During the course of 2016 the number of active shoe manufacturers fell by 97 units (across the industry and craftsmanship sectors), to 4,839 (-2%) at the end of December.
The average number of workers per company is 15.86 (+1.6%).
Extending the area of observation and including producers of components, i.e. the entire Ateco CB152 entry “Manufacturing of footwear”, the negative balance between companies increased to -203, while the balance of the number of workers is -708.
The latter data, which comes from chambers of commerce, can be broken down by area and enable us to highlight the general nationwide fall in the number of companies: of the seven main footwear manufacturing regions, only Campania is positive (but is limited to just 1 more unit compare to the end of 2015). Marche (-101 companies), Tuscany (-44) and Veneto (-38) are the areas to report the largest falls in absolute terms.
The 2016 preliminary results provide a contrasting snapshot.
The sector is once again propped up by exports, but 2016 was characterised by serious difficulties in many important end markets, that limited the range of markets and niches offering profitable penetration margins, and have made competition even more fierce.
CIS, Middle East and USA are now the areas with the greatest criticalities. The overall picture is completed with the slowdown in Chinese growth – that is no longer at double-digit levels – European stagnation, and the latest botched recovery of the Italian market.
2017 has begun without any major illusions, with a number of economic and political question marks on the horizon in terms of the international scene – including a possible return to protectionist policies – that make any type of forecast very difficult.
The increase in orders within the manufacturing sector, the improvement in consumer confidence and the recovery that has been predicted by ISTAT’s economic growth forecasting instruments led to it declaring at the end of 2016 that there is evidence of a consolidation of the positive signs within the Italian economy. Coming, as they do, on the back of an extended period of challenging economic circumstances for the manufacturing sector, we hope that these favourable dynamics can soon extend to all production sectors and help footwear manufacturing companies recover their sparkle through a long-awaited recovery in demand.
* The data relating to trends for production, prices and orders were calculated by Assocalzaturifici on the basis of the results of a sample survey that was carried out with Assocalzaturifici Members).