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How Footwear Production Countries Can Get a Leg up on China, Vietnam

The U.S. is a highly attractive target market for footwear exporters. In 2019, American consumers spent about $86 billion on shoes. Creating additional opportunity for international manufacturers, 99 percent of all shoes sold in the U.S. are imported rather than domestically produced.

While the U.S. might be a massive market for footwear, it’s also highly competitive. Just three countries—China, Vietnam and Indonesia—accounted for roughly 90 percent of the more than 2 billion pairs of shoes imported to the U.S. in 2019. Due to the dominance of these three nations, the countries following them command a much smaller market share. However, gaining even a tiny percentage of total U.S. business can make a difference.

“If you’re Mexico or the Dominican Republic or Thailand, if you add one or two large orders from a brand, that could change your entire year and start to really generate opportunity and jobs within your country,” said Matt Priest, president and CEO of the Footwear Distributors & Retailers of America (FDRA). “Don’t aim to be China; you can’t be everything to everybody at once. Find your unique value proposition, grow that, invest in that, and then start to really communicate.”

Value, not costs

The three leading suppliers of footwear to the United States have grown to their position partly thanks to their ability to deliver large volumes of mass-market-priced footwear. But the countries that trail close behind them in the rankings have their own unique benefits to trade on.

For instance, nations such as Mexico, the Dominican Republic and Brazil are positioned near to the U.S., enabling footwear manufacturers to deliver shoes to buyers in shorter timeframes.

“Since 2019, with the escalation of the trade war between the United States and China, Brazilian shoes have been attracting more attention from American buyers, both to escape the imposed surcharges and because they are a competitive, quality alternative outside the Asian country,” said Letícia Sperb Masselli, coordinator of the trade promotion unit at Brazilian footwear organization Abicalçados.

“Brazil still has a very small share of U.S. footwear imports—around 1 percent,” Masselli added. “There is room for improvement since we have a very complete, agile, competitive chain, which makes the Brazilian product a relevant alternative to Asian suppliers.”

Meanwhile, companies located in farther away sourcing destinations like Thailand or Italy can lean on a differentiator such as delivering high-quality footwear. Jose Suarez, founder and CEO of quality assurance firm Impactiva, sees the answer in digitization. “Build a zero-defect culture,” he said. “You have to digitize the shop floor, so that you get real-time data, so that you can build a culture of continuous improvement using the data.”

Italy’s market positioning is focused on quality over quantity. When comparing the dollar value of export volumes to the U.S., Italy comes in fourth, with $1.17 billion worth of shoes in the first 11 months of 2020. However, in the same time period, the nation was in sixth place for the number of pairs imported to the U.S.

While U.S. buyers tend to be driven by price consciousness, Antonino Laspina, Italian trade commissioner, noted that some retailers and brands might turn to China or Vietnam for mass produced shoes, but those same brands work with Italian manufacturers for smaller, higher-end collection runs. Small- to medium-sized manufacturers in particular focus on delivering fresh, innovative designs.

“Although the quantity they can manufacture is limited, they are able to set the pace, to set the trends,” Laspina said. “We see the big names that play with a big quantity going to these big manufacturers in Asia to ask for an imitation of the same model or sometimes to try to satisfy the new trends, because they are aiming at the general public, while the Italian companies are by nature…always aiming at the certain strata of the market, because this is where they can find people that can appreciate the quality of the Italian product.”

Another boon for Italy and nations such as Brazil is verticality. With a domestic supply chain that encompasses raw material suppliers and manufacturers, the supply chains in Italy are tightly controlled and collaborative. This close proximity also unlocks the ability to better trace the origin of a product and innovate for sustainability.

“More and more, people would like to know how sustainable is the product that they are going to use for their feet, how sustainable is the process of making shoes, and how green is the approach,” he said. “This is something that has been a plus for Italian companies; it’s going to be in the future an additional plus, because the awareness in the market in the new generation of consumers is becoming bigger and bigger.”

Laspina noted that Italian factories are open and transparent, allowing brand partners to come see production for themselves. Because they are typically smaller than mega factories in Asia, Italian producers typically have leadership that is more directly reachable, he noted.

Communication is a key competitive advantage, particularly as supply chains speed up.

“In today’s world of fast fashion, if you have to consistently hold the hand of your factory as it relates to sampling and to product development, and to ensuring that you get that product right at every level, and there are delays and there’s non-responsiveness, and there are cultural challenges, then all that plays into delay that impacts the bottom line,” Priest said.

Even if their wages might be higher than parts of Asia, factories can make themselves competitive through operational efficiencies that reduce waste and overproduction.

“You have to be able to produce faster and give better value so that you become more attractive to the retailers or brands that are trying to move out of China, or trying to speed up their supply chain,” said Suarez. “You have to lean out your factories and produce more with a lot less resources so that you can give competitive prices.”

U.S. footwear is dominated by China, Vietnam and Indonesia, but other nations can leverage unique value propositions to gain market share.

Production partnerships

Part of ramping up exports to the United States is finding American brand and retail partners.

When it comes to expanding to new sourcing destinations, most companies want to go where others have been before. Using the analogy of multiple roads all leading to the end destination of selling footwear to U.S. consumers, Priest noted that brands typically won’t go where infrastructure doesn’t already exist.

“Some highways are really well developed, and you get on them and those trails have been blazed and they’ve been built out, and there’s a ton of opportunity, and it’s easy to…make your way all the way to that end goal or location,” said Priest. “And then there are others that are kind of a trail through the woods and you are waiting for other people to start walking down that trail and for that trail to be built out. And so, the trailblazers are few and far between, and then most of our companies are the ones that kind of fall in once trend lines are set up.”

Part of the reason for this reluctance to expand geographically into uncharted territory is tied to the significant capital needed to set up footwear manufacturing operations.

Some forward-looking firms are willing to be the first, similarly to how athletic shoe companies entered Vietnam early. However, the pioneers in a particular location will usually choose to partner with known entities that have a strong understanding of the U.S. buyer. This could mean partnering with an Asian group that has a factory in South America, rather than working with a native Latin American manufacturer.

This preference can change over time. Priest pointed to what happened in Mainland China, as companies at first preferred to work with familiar Taiwanese producers. Eventually, as mainland factories gained more understanding of American retailers’ needs, companies ramped up their use of local Taiwanese manufacturers.

Given the funds needed to open a new footwear factory, brand support can make a difference in diversification moves. While they might not be fronting the capital to get a facility set up, retailers can help factories get off the ground by committing to orders.

Public sector support

Though retailers and brands can partner with individual factories to ramp up production in a particular country, some strategies to grow a nation’s footwear export industry can only be achieved at the government level.

Verticality positions countries to better deliver on speed. But establishing domestic sources for all of the numerous components needed for shoes—from soles to polyurethane and leather—is an undertaking that requires more heft than a lone factory. “If I were a Thai manufacturer and I really wanted to build up footwear, I’d be speaking to the government, and the government would have to make a huge investment to convince major material manufacturers to bring their operations to my country,” Suarez said.

Governments can also assist footwear industries through eased trade. Suarez suggests making machinery imports duty-free to reduce the capital expenditure needed to open a factory. To further incentivize the creation of local factories, governments could offer land to manufacturers at low or no cost, with reduced taxes. Materials are another import that Suarez believes should be tax-free if they are going to be exported again in a finished product. Without as much capital going to physical infrastructure and duties, factories can take those funds and invest in expanding their production capacity.

The public sector also has an opportunity to ensure the right talent exists for the footwear industry by establishing technical schools for designers, merchandisers and technicians. Pointing to India as an example of government-led education, Suarez noted that this training can lead to the creation of a vertical cluster. It can also teach individuals how to engineer and manage factories most efficiently, such as improving attendance and speeding up changeovers.

“It starts with people. And if you can create that fiber of knowledge, then that attracts the [retail brand owner] because they see that people understand,” said Suarez. “In the United States, we’re losing the knowledge of fabrics, of product, whether it’s footwear or apparel, and so they’re depending on the countries and the factories to provide the knowledge.”

Financing these nation-level investments comes back to brands. Speaking hypothetically, Suarez explained that a head of industry for a country could create a plan covering aspects such as education, verticality and tariff incentives and convince around 10 brands to commit to orders based on these actions. With this agreement in place, the nation can then get funding from an international organization such as the World Bank.

When it comes to attracting American buyers, trade policy also comes into play.

“We believe in an increasingly less bureaucratic trade,” said Masselli. “The signed ‘trade facilitation’ agreement is a step in this direction. Furthermore, we evidently aim for an evolution towards a free trade agreement, including tariff issues in the near future.”

Even if free trade doesn’t come through, historically, tariffs haven’t been a hurdle to gaining U.S. business. Per Priest, 99 percent of footwear imported to the American market arrives at full duties, or even elevated duties in the case of China. This leaves room for U.S. retailers to take more advantage of the free trade agreements that do exist with destinations including Mexico, Nicaragua and the Dominican Republic.

Aside from trade policies, political, currency and wage stability can also factor into U.S. buyers’ decisions on sourcing locations.

U.S. footwear is dominated by China, Vietnam and Indonesia, but other nations can leverage unique value propositions to gain market share.

Research and outreach

One crucial step in courting U.S. retail buyers is getting to know the local consumer. American customers are diverse, with a wide variety of style preferences.

Even with the plethora of shoe designs on the market, one general trend for would-be exporters to take note of is casualization. Priest noted that leather footwear imports have been fairly flat in recent years, while fabric styles are rising. “If your exporters are not thinking about how they do more casual footwear or how they incorporate more textile upper footwear or athleisure or outdoor…then I think you’re doing yourself a disservice,” said Priest. “We see the retailers themselves trying to adjust their assortments, and to be responsive to the new climate we’re in. Why wouldn’t the factories do the same?”

Getting insight into the American consumer often requires an on-the-ground approach. This could mean traveling to the United States or hiring local executives to represent the country in the U.S. market and in local time zones. For instance, as part of its investment in the U.S. market, the Italian Trade Agency (ITA) has created a new desk in New York focused on helping footwear brands make inroads in the country.

“Not every company in these countries has a desire to export; they want to serve the domestic market,” said Priest. “So, when they decide they want to do that, there’s a jump in sophistication often that happens as it relates to engaging with American companies.”

As part of outward education, Abicalçados and ITA both noted their reliance on trade shows.

With business still largely remote for the time being, getting in front of U.S. buyers right now is largely virtual. Countries are also embracing new forms of trade.

The pandemic has prompted Italian manufacturers to develop new digital skills, with funding from the government. As part of this push, in September, ITA launched Extraitastyle, a platform that allows brands to showcase collections to buyers online. Meanwhile, Abicalçados recently announced a partnership with B2B platform Joor to digitally market Brazilian footwear globally.

Digital trade is opening up new opportunities in the U.S. For instance, Italian footwear’s distribution has traditionally been focused more on the coasts of the country, but there are customers elsewhere with the financial means and design appreciation for Italian-made shoes. With the addition of online sales, Laspina said Italy is now looking to tap into the previously underserved audience in metro areas including Dallas, Houston, Austin, Phoenix and Minneapolis.

“Italian companies were not well trained in the digital business and the online trade,” Laspina said. “This has been for them a big push to move, to shift into this business model. And in the future, what was done by necessity is going to be done by strategy. Companies will be able to combine the traditional trade offline with the trade online, and this mix is going to be…the winning formula to conquer new customers.”

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