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GROUP PROJECT
PESTLE Analysis of the Footwear Industry for the past few years.
Submitted By
Sachin Mour (12108040)
Gaurav Dogra (12108016)
Sonam Dolma (12108024)
Chiranjeev Singh (12108028)
Sunil Kumar (12104008)
Tanuj Kumar (12104025)
context due to its price-competitive products which are more suitable and attractive to the
price conscious Indian consumer. Their products are cheaper due to involvement of cheap
household labour, lax implementation of tax & labour laws and limited investment in assets.
Further, with almost 2/3rd of Indias population covered under the food security bill which
aims to provide daily nutrition needs to an individual at subsidized prices, such category of
population presents a huge market for the unorganized sector to cater to. Nevertheless, with
increasing brand consciousness amongst Indian consumers, influx of large number of global
brands and increasing penetration in Tier II and III cities by the organized footwear
companies, organised players market share has made significant gains in the recent past and
it continues to be on an uptrend.
India exports largely leather footwear to its main trading partners which include United
Kingdom, Germany, USA, Italy and France. The major dominance is of the European
continent whose share is almost 75% in Indias total exports. This is in contrast to other major
exporters like China, Indonesia and Vietnam which export non leather footwear mainly to
USA. The footwear exports from India have grown at a CAGR of ~14% in dollar terms and
by 20% in Indian Rupee (INR) during the five year period ending March 2015 backed by
growing demand from European nations and increasing focus of main importing countries to
shift sourcing from China to other low cost producing countries. Besides this, the ASP for
exported footwear has also been on an uptrend with rising raw material prices and favourable
foreign currency movements during this period. In absolute terms, footwear exports from
India have risen from Rs. 71.5 billion in FY10 to Rs. 180.0 billion in FY15.
However, the on-going crisis in the Euro zone has led to moderation in footwear demand; the
exports from India were further impacted on account of the appreciation of rupee against
Euro during FY15 as compared to FY14. The footwear exports from India which witnessed a
healthy YoY growth of 36.2% and 36.0% in the FY14 and 1HFY15 respectively; ended the
FY15 with a much lower growth of 17.6% in Indian rupee terms. Our interactions with the
management of leading footwear export companies suggest that there has been an evident
increase in exports to USA, though the footwear demand from the European continent has
weakened in the recent quarters which is a cause of concern. Further, the profitability of
footwear players has also been affected in FY15 due to adverse foreign currency movements,
under absorption of fixed expenses and increase in raw material prices which could not be
entirely passed on to clients.
The strength of India in the leather footwear sector originates from its large reserves of
bovine population, strong network of tanneries, skilled and low cost manpower, and a wellestablished presence in export markets. However, India has been unable to optimally utilize
its resources evident from the low recovery rate of the livestock, use of outdated technology
by most tanneries and footwear manufacturers, weak footwear components industry and
limited presence of large scale manufacturing units. These factors along with steep
transaction cost of doing business in India and high inflationary trends since the past few
years have reduced Indias cost competitive advantage against the other low cost footwear
producing countries like China, Vietnam, Myanmar, Indonesia etc.
Nevertheless, the footwear industry has witnessed healthy growth in export earnings in the
recent past and remains amongst the top ten foreign exchange earners for the country. In
addition to this, the industry has been providing large employment opportunities, especially
for the weaker sections of the Indian society. Direct and indirect employment in Indian
footwear industry is estimated at around 1.1 million people. Acknowledging the importance
of footwear industry, the Indian government has taken various measures and initiatives in
order to support its growth, which has led to structural changes in the footwear industry.
However, for the footwear sector to grow rapidly going forward and compete aggressively
with the other low cost producing nations, strong push is required in various aspects
including favourable policies which would help in rationalising tax structure, providing
infrastructural support in capacity building, reducing transaction costs and increasing the
availability of skilled labour in the country.
Major Markets for Indian Footwear:
The European Union and the USA are the major markets for Indian Footwear accounting for
79.95% and 9.22% share respectively in Indias total footwear export. The major markets for
Indian Footwear are Germany 16.66%, UK 16.31%, Italy 15.32%, USA 9.22%, France
7.81%, Spain 5.10%, Netherlands 4.91%, Portugal 2.50%, UAE 2.48% and Denmark 1.18%.
These 10 countries together accounts for nearly 81.49% of Indias total leather products
export.
The domestic footwear market is driven by growing fashion consciousness together with
increased disposable income among Indias urban middle class, which contributes about 45
per cent of overall footwear market making India the second largest global producer of
footwear across varied segments after China.
Political Analysis
The Government of India is supporting the leather industry in enhancing its competitiveness
through upgradation and modernization by providing financial assistance.
Department of Industrial Policy and Promotion (DIPP ) provides a comprehensive
scheme for modernization and technology up gradation in all the segments of the
Leather Industry, from tanneries, footwear, footwear components, saddlery, leather
goods and garments.
This scheme is called Integrated Development of Leather Sector (IDLS). It was
started in 2002 and will be continued till 2012.
Government had sanctioned Rs 290 Crores for this project and will be implemented
through two Program Implementation Units (PIU) namely CLRI and FDDI.
Here, financial assistance will be provided to the extent of 30% of the cost of plant
and machinery for SSI and 20% of cost of plant & machinery for other units (i.e. nonsmall scale units) subject to a ceiling of Rs. 50 lakh for both categories for technology
up-gradation/modernization and/or expansion.
Also, the industry has repeatedly been affected by issues such as workers' rights and child
labor laws. Union workers in clothing manufacturing plants may picket their employers,
especially if their wages or medical benefits are less favorable than workers in comparable
industries. Workers picketing their clothing employers impacts production. This can cause
delays for retailers in getting spring or fall fashions on time. Activists who are not employed
by the companies may also picket retailers who purchase clothing from countries known for
violating child labor laws. This negative publicity may impact a small clothing retailers' sales
and profits. Also, a trade embargo against another company's imports would force clothing
wholesalers to find different suppliers.
Economic Analysis
TRENDS
Rising disposable income, especially amongst the lower- and middle-income classes,
is still allowing consumers to increase their footwear purchases, mostly towards more
added-value products. The economic scenario also started showing positive signs of
recovery leading to consumers increasing spend.
COMPETITIVE LANDSCAPE
Bata India Ltd remained the leader in footwear with a retail value share of 7% in
2014. Bata continues to have a strong presence in terms of number of stores across the
country. The company invests in advertising and in store design. The company
although not the strongest performer in percentage growth terms, managed to register
the biggest increase in absolute terms during the year.
PROSPECTS
Footwear is expected to perform strongly over the forecast period with a constant
value CAGR of 7% growth and sales expected to touch Rs860 billion by 2019. The
latest trends show a compound annual growth rate of about 15 percent and a total
market share of Rs 26,300 crores, according to industry body Assocham and
consulting firms Technopak Advisors and Tecnova India. The Government of India
announced a number of initiatives for the footwear industry in the budgets presented
for financial year 2015 and 2016 including cut in excise duties of footwear products.
Footwear is expected to become more affordable over the forecast period and
government initiatives to attract foreign direct investment would also help propel
growth of the industry.
Bata India Limited, Relaxo Footwears Limited, Liberty Shoes Limited, Banik Rubber
Industries (India) Pvt. Ltd., Bairathi Shoe Company Private Limited , Khadim India Limited
and Paragon Group (Paragon Polymers Private Limited, Preston India Private Limited and
Elastrex Polymers Private Limited ) KH Exports India Private Limited, Mirza International
Limited, Superhouse Limited, Super Tannery Ltd, Rahman Industries Ltd
Our sample of footwear companies have been consistently investing in P&M, increasing
capacity, expanding retail presence and setting up new manufacturing facilities over the
years. The funding of such investments has happened majorly through long term bank debt
besides promoters contribution and internal accruals. Owing to high reliance on external debt
for funding of capital expenditure and working capital requirements, our sample of
companies have reported elevated average gearing levels of ~1.2 times in FY14.
Nevertheless, because of their healthy profitability levels, debt coverage indicators including
Debt/ OPBITDA, interest coverage ratio and NCA/ Total Debt have been comfortable at
~2.23 times, ~4.26 times and 28% respectively in FY14.
Here's the data for Big companies in the Indian footwear scenario:
Every data is in Rs. Crore and as Reported march 2015
Company
Name
Networth
Net
Assets
Liabilitie
s
Income
Debt
Expense
s
Net
Profit
Liberty
Shoes
Bata India
Relaxo
footwears
Mirza
Internationa
l
144.95
178.57
277.47
552.81
132.52
509.31
17.06
995.35
367.82
662.34
104.92
995.35
578.80
2879.34
1554.13
0
210.98
2469.68
1353.10
231.17
103.05
312.51
184.87
496.51
946.10
183.50
803.47
51.16
From the past few years with the advent of technology and increase in average income
levels of the people there has been an upward shift in the lifestyle of the people. Much
of it could be attributed to availability of products at lower prices too. Because of this
upward shift in the lifestyle of the people the Footwear industry in India is going to
prosper.
Consumer attitudes and opinions changing favorably towards branded shoes: - With
the increase in income and modernization, people are getting shifted towards branded
shoes more. They prefer buying a relatively expensive shoe rather than the one which
is cheap with less durability. With all the major brands already having their
manufacturing units in India the sector is set to boom.
Demographics: - Consumer demand is driving industry trends that affect footwear
manufacturers. These demographic trends relate to the size of the various
demographic groups and their particular wants. The Indian footwear market is
dominated by mens segment, which accounts for about 55 per cent, followed by
ladies and kids segments, which account for about 30 per cent and 15 per cent
respectively. The demographic structure of India is as follows: 0-14
years: 28.5%
(male
187,016,401/female
165,048,695)
15-24
years: 18.1%
(male
118,696,540/female
105,342,764)
25-54
years: 40.6%
(male
258,202,535/female
243,293,143)
55-64
years: 7%
(male
43,625,668/female
43,175,111)
65 years and over: 5.8% (male 34,133,175/female 37,810,599)
(Source: CIA World Factbook)
Meaning that the major portions they can target while considering the designs and
type of their footwear is that of kids and adults who comprise of approximately 85%
of Indias population. Moreover, approximately 50% of the population is in the
working class. Because of this the dependency ratio is less and hence the standard of
living of the people is increasing with the increase in demand of basic necessities like
footwear.
workers have increased many folds. Many industries like Nike has
been criticized for crimes like child labour. This results in creation of
bad image of the brand among the consumers resulting in the fall of
market share of these brands.
So we can say that all these social factors like the demographic dividend
of India, Educational and Career Trends among the people, the cultural
Trends, Employment Levels, consumer Buying Patterns have all affected
the growth of the footwear industry in India. But as far as the present
scenario is concerned the footwear industry is set to prosper.
Competing technology development: - The industry is poised for adopting the modern
and state-of-the-art technology to suit the exacting international requirements and
standards. . Many units are equipped with In-house Design Studios incorporating
state-of-the-art CAD systems having 3D Shoe Design packages that are intuitive and
easy to use. Many Indian footwear factories have also acquired the ISO 9000, ISO
14000 as well as the SA 8000 certifications. Excellent facilities for Physical and
Chemical testing exist with the laboratories having tie-ups with leading international
agencies like SATRA, UK and PFI, Germany. Technological competence of India,
particularly for mid and high priced footwear segments has proven beneficial in the
boom of this industry.
India offers benefits like low cost of production, abundant raw material, and a huge
consumption market: - With its immense populations and abundance in leather the
consumption market of the footwear has increased many folds in the previous years.
India offers cheap labour resulting in low cost of production, which is the main prerequisite for any industry. This has attracted many multinational footwear brands to
come and establish in India. Along with these many local footwear brands have also
cropped up and entered the market. Strength of India in the footwear sector originates
from its command on reliable supply of resources in the form of raw hides and skins,
quality finished leather, large installed capacities for production of finished leather &
footwear, large human capital with expertise and technology base, skilled manpower
and relatively low cost labor, proven strength to produce footwear for global brand
leaders and acquired technology competence, particularly for mid and high priced
footwear segments. Resource strength of India in the form of materials and skilled
manpower is a comparative advantage for the country.
Manufacturing maturity and capacity: - The footwear sector has matured from the
level of manual footwear manufacturing methods to automated footwear
manufacturing systems. There are approximately 4500 units involved in
manufacturing footwear in India. India is often referred to as the sleeping giant in
footwear terms. It has an installed capacity of 2,000 million pairs, second only to
China. The bulk of production is in mens leather shoes and leather uppers for both
men and ladies. It has over 200 fully mechanized, modern shoe making plants, as
good as anywhere in the world (including Europe).
visit the outlet for purchasing as you can now purchase from your home or office.
Secondly, it gives them a lot of variety to choose from. Other policies like 30 day
replacement guarantee also adds to the benefits of using E-Commerce websites. Nike
partnered with online retailers such as Myntra and Bigshoebazaar to expand
distribution beyond the conventional multi-brand outlets and large retailers.
Digital Marketing: - Many companies are using digital media for their product
advertising and sponsoring at major events organised in India. In 2012, Puma tied up
with tow IPL teams Sunrisers Hyderabad and Rajasthan Royals. It is also the official
licensing partner for Ferrari and the supplier of team and race wear for Scuderia
Ferrari. Adidas is Official sportswear partner for Force India, Reebok has dedicated a
collection of apparel and accessories inspired by the Force India F1 team. With the
use of digital marketing along with the famous and peoples favourite local superstars
and sports-stars there has been constant growth in this industry.
Technology brought innovation and invention in the footwear industry of India. The
producers shifted towards designing of products based on the cultural and
demographic need of the country. This coupled with cheap labour and rise of ecommerce has resulted in growth of this industry in India. Not only the MNCs but
also the local manufacturers have also been benefitted from the technological
advancement the country has witnessed.
According
development
will
to
be
government
given
budget
big
2009-2010,
boost.
IIFCL
to call for investors at home and abroad encouraging the involvement of domestic
foreign economic sector in investing in footwear industry.