RAPID ECONOMIC SURVEY FIRST 9 MONTHS 2021 Economic survey

Footwear industry: double-digit recovery in 2021 (turnover +16.2% over 12 months, according to the earliest projections) despite a -10 to -15% gap compared to 2019. Recovery is uneven: the big names are making great progress, while 2 out of 3 companies close the year with revenues below pre-Covid levels. Uncertainty is caused by a fresh outbreak of the pandemic. Higher raw materials and energy costs are slowing recovery.

The footwear sector got going again in 2021 after the shock of 2020: the figures for the first 9 months – despite a weak third quarter, when domestic and foreign demand was not much higher than in the previous year, after the strong recovery of the previous quarter (compared to reduced business during the lockdown) -reveal double-digit recovery in the principal economic variables, though the gap compared to the situation prior to the pandemic has not yet been closed. The best results were achieved by exports, which – led by the big international luxury brands – registered +17.6% by value over 2020 and almost reached pre-pandemic levels (-2.7%, despite a drop of -7% in volume); France (+25%) and Switzerland (+19%), markets traditionally associated with work on contract, performed well, as did the USA (+38%) and China (+50%, abundantly exceeding 2019 levels, by +26%).

The positive balance of trade is stronger this year (+24.6%). Domestic demand, on the other hand, is slow to recover: +10.5% in household spending, still, 15% less than two years ago; shopping by international tourists remains low. Recovery appears not to be for all, and is proceeding more slowly for many companies: 3 out of 10 companies have experienced further shrinkage of sales; only 46% of them saw growth above +10% (a fairly modest rate in view of the low levels of 2020).

According to the panel of member companies surveyed by Confindustria Moda Research Centre, the initial projections for the end of the year as a whole suggest a rise in sales of +16.2% over 2020, while maintaining a gap of -10 to -15% below pre-pandemic 2019 levels (-13.1% is the average estimated percentage). 2 out of 3 companies are still seeing lower sales than in 2019 (“significantly lower” according to 42% of the sample).

Fears of a new wave of the pandemic hindering the return to normality are added to increased raw materials and energy costs.

The results of long months of unusual crisis are beginning to show: -82 footwear companies and -940 employees in the first three quarters of 2021, including both industrial and craft operators, while the use of wage support instruments in the leather industry, though -8.7% lower than in 2020, is still exceptionally high (60.8 million hours authorised, more than 9 times the figure for 2019).

The July-September quarter saw recovery continue, though much more slowly than the previous quarter, due to physiological flattening of the curve, also confirmed by Istat figures on trends in industrial production in the summer months. The sample surveyed by Confindustria Moda Research Centre revealed that 2 footwear companies out of 3 registered growth of revenues (56% of respondents) or at least no change (10%) compared to the third quarter of 2020.

The average growth of turnover was around +15.3%. The order portfolio also grew (+14%).

The panel of companies surveyed estimated that sales were about +19.5% higher in the first 9 months of the year than in the first 3 quarters of 2020.

While the majority of companies reported at least some signs of recovery, registering an increase over the heavily penalised figures for the first 9 months of 2020, recovery was not equally vigorous for all, and above all, in many cases, it was not sufficient to make up for the losses suffered in the previous year. Only 1/3 of companies declared that it had passed, or at least reached, the sales reported in January to September 2019, before Covid.

A further slowdown of recovery is expected for the fourth quarter, somewhat attenuating the intensity of growth experienced in previous months.

Asked to offer an initial assessment of the end of the year, 3 out of 5 footwear companies responded that they expected to see sales up over 2020; specifically, 30% of the interviewees expect to close the year 2021 with an increase of more than +20%, and 16% of the sample expected to see a growth rate of “between +10% and +20%”. If respondents are weighted by size, the Research Centre estimates an average annual growth rate for the panel of around +16.2% over 2020, which is not negligible, but neither is it sufficient to reach 2019 levels (-13.1% compared to them).

A fresh outbreak of the pandemic and the spectre of new restrictions – in Italy and in countries which import Italian footwear, with consequent effects on local commerce and distribution – and the rise in raw materials prices, which shows no signs of attenuation, and in energy costs constitute elements of uncertainty and risk compromising the current scenario. According to 96% of the respondents, the increase in raw materials prices will have an impact on their company’s recovery; there is similar concern about increased energy costs (80%).

• On the domestic market, household spending has grown in the first 9 months of the year – according to the Sita Ricerca Fashion Consumer panel – by +10.5% in terms of value over the same period in 2020 (+8.8% in terms of quantity). After leaping up in the second quarter (+43%), in the third quarter spending remained the same as in the previous year (-0.5%), slowed by September’s negative trend (-3.7% year-on-year). The gap compared to the pre-pandemic situation, which already showed the effects of a decade of continuous erosion of spending, remains around -15% by value (-11% by volume).

The breakdown by product category reveals increases of around +6% in expenditure over the first 9 months of 2020 for classic men’s shoes and +10% for classic women’s shoes (although both items are still down more than -20% compared to pre-pandemic levels); there were also increases of +7.6% for children’s footwear; +14.2% for sports shoes and sneakers (which are down -7% compared to 2019); there was a limited increase in sales of slippers (+4.2%), the type of footwear that was used most prevalently during the lockdown, and which is unsurprisingly now closer to its pre-Covid levels (-2.8%).

• Once again, the most positive results came from exports, which still represent the driver of the sector (with more than 85% of national production destined for international markets).

The foreseeable rise in the months of March and April (when sales were double the 2020 levels, severely compromised by the lockdown) and the robust recovery of May and June (+35% year-on-year, in terms of both volume and value), was followed by a rather weak third quarter (also as a result of comparison with months in 2020 that showed an initial rise in sales), displaying only modest increases over the same period in the previous year (+0.6% in terms of value, +2.7% in terms of quantity). Istat’s official cumulative figures register a year-on-year increase in the first 9 months of the year of +17.6% by value (only slightly weaker than the performance achieved by-products of Italian manufacture in general in the period under consideration, +19.5% in terms of value), with a figure of +16.3% more pairs (average prices up by +1.1%).

Including pure trading operations, a total of just under 148 million pairs of shoes was exported, and the threshold of 7.5 billion euro was exceeded once again, a result second only to the record level achieved in 2019 (both in absolute terms and taking inflation into account).

Compared to the pre-crisis situation of January-September 2019, although current levels are approximately 7% lower in terms of volume, they are only down -2.7% in terms of value.

This result is made possible primarily by the brilliant performance of the big international luxury brands, which have in a number of cases already reached and gone well beyond their pre-pandemic revenues. It is no coincidence therefore that Switzerland – the leading export destination in terms of value, and a traditional logistics and distribution hub for many top fashion brands – has not only experienced an increase of almost 20% compared to January-September of last year but already exceeded the same period in 2019 by 8.1%.

But the average performance of sales abroad conceals a highly diverse situation, in which many small to mid-sized companies (as demonstrated by the survey responses) still have a long way to go before returning to the number of customers and orders they were seeing before the crisis began.

Practically all of the top 20 destinations for Italian footwear exports reveal a positive trend (almost always with two-digit recovery rates, at least in terms of value) compared to the first 9 months of 2020. Exceptions include:

• the United Kingdom, which left the EU last year and has fallen behind by -25% in terms of value, -16% in terms of quantity, presenting gaps of more than -40% compared to 2019;
• Japan (-7.5% in terms of value, -14.5% in terms of the number of pairs, with a gap of around -30% compared to pre-Covid 2019 levels). Partly as a result of the very gradual reduction in tariffs, and especially because of the pandemic, the trade agreement that came into effect in 2019 between Japan and the EU has not yet generated any improvements in the sale of Italian footwear in this market;
• South Korea, which, after steady rises in recent years (growing fourfold in value between 2011 and 2019 and growing +12.3% even in 2020, in the midst of the pandemic), saw expansion halted in the first 3 quarters of 2021 (-5.4% in terms of value, -9.2% in terms of quantity).

Both European Union markets and those outside the EU revealed double-digit growth in value over 2020 (+19% and +16.3%, respectively); but only the EU markets have closed the gap with two years ago.

Within the EU27, recovery was good in France (+25% in value over 2020; another destination for manufacturing on contract for big international fashion brands) and, to a lesser extent, in Germany (+11%), which have always been the two strongest foreign markets by far for Italian footwear manufacturers in terms of volume (together, they account for 1/3 of the pairs sold abroad). Poland, Belgium and Greece stand out for exceeding 2019 levels in terms of both value and number of pairs.

On the other hand, the analysis of flows to non-EU countries shows:

• a continuation (and consolidation) of the very positive trends that emerged in the Chinese market towards the end of 2020. In the first 9 months of the year, there was a +31% increase for China in volume and a +50% increase in value compared to 2020, particularly for high-end products (as the average price of sale on this market, already high, increased by another 15%). The main winners are therefore luxury brands as opposed to companies with their own brand, which have always struggled to get a foothold in this market.

Aside from ‘revenge spending’ by Chinese consumers and the importing of products from luxury brands, which local consumers previously purchased during journeys abroad, these performances were driven by the direct entry into China of goods that previously went through Hong Kong. Current exports to China are significantly above 2019 pre-pandemic levels (+26.4% in value and +4.5% in volume);

• strong recovery for the US (+38% in value, with +67% in volume, permitting an 8% increase in total footwear exports as compared to the first 9 months of 2019), where the government cancelled in October (after temporarily suspending in June) the decision to apply an additional 25% customs duty on imports of certain consumer goods from Italy (including clothing, bags and footwear), in connection with disputes on digital taxes;
• a fairly lively performance in the Arab Emirates (+30% by value), back to 2019 levels.

The breakdown by product type reveals significant increases in sales of footwear made out of non-traditional materials (+31% in terms of value for exports of products with fabric or synthetic uppers, +41% for rubber shoes), which have all grown abundantly beyond pre-Covid levels in terms of both quantity and value. On the other hand, the recovery for leather footwear was more disappointing, with a +10.4% increase in value over 2020, meaning that the figure is still down -14% compared to 2019 sales (-21% in terms of volume). In this category, it is sports footwear, along with boots and booties, that are achieving the strongest growth (around +25% by value). The performance of walking shoes was unfortunately lacklustre (+5.1% in terms of value, with an even more modest +2.1% in terms of volume), a segment still about 20% worse than two years ago. The performance of this category is even more disappointing if we look at women’s walking shoes only (+3.6% by value and -0.8% in terms of the number of pairs, compared to January – September 2020). Slipper exports did not perform well: a recovery rate of less than +10% left this category still well below 2019 pre-pandemic levels.

• Like exports, imports got going again, though at reduced speed (in view of the unspectacular performance of consumption): in the first 9 months they recovered +4.3% in terms of quantity (down 3.1% in the case of leather shoes, however, the only segment to perform worse than in 2020) and +11.7% in terms of value. The gap compared to 2019 volumes remains around -14%.

Imports from China, already the top supplier by far, grew quickly in the third quarter, closing the first 9 months of the year with +2.4% more pairs than in 2020, reversing the negative trend of the first half of the year.

• The trade balance for the sector for the first 9 months of the year was positive by 3.64 billion Euro (+24.6%). For the first time since the start of the year, it was even higher than two years ago: +2.1% higher than the figure for January-September 2019.
• Figures on company demographics and employment clearly reflect the effects of the long period of exceptional crisis induced by the pandemic emergency. The effects of the pandemic have sorely tried companies’ resistance, starting with the small to mid­sized enterprises that have always formed the fabric of the Italian footwear industry.

Compared to the results of 2020, the figures published by Infocamere, representing the official statistics of Italian chambers of commerce, registered a negative balance of -82 enterprises, including both industrial and craft operators, and -940 employees. The number of active footwear companies has therefore fallen to 4,070 (-2% compared to December of last year), with 70,942 direct employees (-1.3%).

Taking into account not only finished shoes but makers of footwear components, the chamber of commerce figures for the first 9 months of the year reveal a negative balance of -186 companies and -1,544 employees.

This unfavourable employment trend is also reflected in the survey of a sample of member companies: while half of the interviewees expect to see stability in the number of employees at the end of 2021 compared to the beginning of the year (53%), 29% report a reduction in the number of employees, 10% more than the number reporting growth (18%).

• After the record-breaking 2020 figures, the number of hours of wage support for companies in the leather industry authorised by INPS, Italy’s national social security institution, in the first 10 months of 2021 was down -8.7% to 60.8 million (still more than nine times the pre-Covid figure of 6.5 million hours reported in January-October 2019, +840%). The decrease was lower than the total for all national sectors of industry (for which a -34.7% decrease was reported in the first 10 months of the year compared to the previous year).

In the leather industry (footwear manufacturers and makers of components+leather goods+tanneries), a strong increase in the first quarter (+1130%) was followed by a drop in the second (-50%) and third (-11%) quarters of the year, confirmed in the month of October (a -51% reduction). In addition to the ordinary component (-8.1% over the first 10 months of 2020), the extraordinary component was also down (by -27.7%); breakdown by beneficiary reveals similar trends for factory workers (-7.8%) and office staff (-11.8%).

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Source:www.assocalzaturifici.it