As footwear brands and retailers look to spread out their sourcing, there’s both risk and reward in trying to leave China to make shoes elsewhere.
For one, China still has a threefold lead on the second largest supplier of footwear to the U.S., Vietnam. And though its share is slipping, China’s capabilities and capacity can’t be matched for certain types of shoes and, namely, components, meaning some brands have little option than to grin and bear the tariffs.
Still, footwear manufacturing countries around the world are angling to benefit from the U.S.-China fallout and the latter’s rising costs, so opportunities are expected to expand in the coming years.
Here’s a look at the world’s top 10 footwear producers—ranked by U.S. import volume—and what each has to offer.
As much as the industry would like to deny it, or avoid it, China still commands 69.2 percent of U.S. footwear imports, according to the Footwear Distributors and Retailers of America (FDRA), which said China’s shoe shipments to the U.S. have hit a 16-year low and its market share a 24-year low.
The U.S. imported 1.6 billion pairs of shoes from China in 2019, and the average landed cost for shoes from the country, according to FDRA, is $8.09 per pair.
But if you ask Mike Jeppesen, president of global operations at Wolverine Worldwide, whose career in footwear dates back to the ‘90s, China is “stuck in the past.”
China, Jeppesen said during FDRA’s Global Shoe Sourcing Digital Series, “Hasn’t been able to move forward to the extent that is necessary, not from a technology or people perspective, but more from location.” And that, coupled with its ongoing trade battle with the U.S., has sent the country’s attractiveness down several notches. “That really makes it very, very highly unattractive for us to invest in China for the foreseeable future.”
Vietnam, the pick to win what China loses, exported 502 million pairs of shoes to the U.S. last year, which according to FDRA, marks “19 straight years of impressive growth.” The country now commands a 20.4 percent share of US footwear imports.
“Even with declining shipments in 2020, Vietnam is still likely to see its share of the pie continue to grow because its shipments are not likely to decline as much as from the rest of the world,” FDRA chief economist Gary Raines said.
The challenges in Vietnam are that average landed costs remain high and its capacity is steadily being called to question—though some believe the gripe about Vietnam’s inability to produce more shoes is overblown.
“I do not think Vietnam footwear output is at capacity yet,” Raines said. “I do think that in a post-Covid world, if we happen to see a resolution of this or a vaccine come about and things kind of return to a bit of a pre-Covid normal, I think there’s a potential for Vietnamese output to continue to grow beyond the record level we saw in 2019.”
For companies that have already established production in Vietnam, the capacity condundrum may be different than for new entrants.
“We have had no problems getting capacity out of Vietnam,” Jeppesen said. “We were an early mover and we established very strong contact with our core factories that were setting up facilities there. I think if you’re new to Vietnam today and you’re desperately trying to move out of China, it can be hard to find partners that can do the production for you. Because we’ve had a multi-year approach to the increases in Vietnam, it really has not been a capacity concern for us.”
The talk of already high costs climbing may have some truth to it, though.
“We’re seeing a little bit of that but the dong is devaluating in line with the minimum wage increases, so it helps kind of neutralize the cost structure coming out of Vietnam,” Jeppesen said.
An FDRA fact sheet on footwear sourcing in Vietnam said, “The quality is good but the average landed cost into the U.S. ($13.75/pair) is well above the average world cost ($10.87), let alone China ($8.09).”
In 2019, Indonesia shipped 114 million pairs of shoes to the United States.
According to FDRA, this marks 12 straight years of gains, including a record high in 2019. Though the average landed cost there is still above the world average, the country may be regaining favor.
“It fell out of favor as China built up, and that’s kind of what happened with Indonesia, with the Philippines, with Thailand, as China became stronger in the ‘90s and early 2000s, those countries just fell out of favor and now they’re coming back again,” Jeppesen said. “The big athletic houses are still betting highly on Indonesia, as are we in terms of a country that offers up a stability, a political stability, and a vast amount of people that can help us make shoes.”
Cambodia may be the next market for footwear sourcing executives to keep their eyes on.
The country exported 46 million pairs of shoes to the U.S. last year, and FDRA calls it a rival for China as a “key low-cost supplier.” The average landed costs for footwear from Cambodia is $10.41 per pair.
“They are just growing and growing and growing,” FDRA president and CEO Matt Priest said. “They’ve grown 683 percent over the last six years.”
For Jeppesen, however, Cambodia holds less appeal in isolation.
“We see Cambodia mainly as an extension of Vietnam today. It’s landlocked with Vietnam to a large extent, most of the transportation goes over the border to Vietnam, Phnom Penh is not a great shipping port,” he said. Wolverine’s supplier partners in Cambodia are typically right along the border with Vietnam or closer to Phnom Penh, but either way, Jeppesen said the suppliers use their Ho Chi Minh sourcing offices to manage their production. Still, the experience has been good for the company “in most cases,” Jeppesen said. “I think Cambodia is one of the countries that can benefit greatly from the footwear industry over the next five to 10 years.”
Last year, India shipped 28 million pairs of shoes to the U.S., rebounding to a record for the year. Alongside that, FDRA said the country’s average landed costs fell to a nine-year low on the heels of a record-low rupee.
What’s more, its indigenous inputs (read: lower reliance on China) help position it ahead of some of its footwear manufacturing counterparts.
“India has such great access to a number of raw material inputs—particularly on the leather side that so many other countries around the world (with maybe the exception of Brazil) don’t have,” Raines said. “So India certainly has a real competitive advantage in that way that a Vietnam does not have.”
While Jeppesen said Wolverine wants to source more in India, it won’t come without its challenges.
“We love India, we want to expand our production in India. I’m not sure if India always loves us,” he said. “It’s one of those countries that can be a little bit of a handful to deal with.”
Wolverine has a country manager running its operation in Chennai, but one of its challenges has been the size and scale of the factories there. Since most are local factories and there’s little investment from outside of India into the industry, according to Jeppesen, Wolverine works with factories with 500 to 1,500 workers, a contrast to the upward of 15,000 it finds in Taiwanese-owned factories.
“There’s some growing pains when it comes to that,” Jeppesen said, adding, however, that the government there has been more commercially-minded in recent years, and more flexible with import quotas and duties for foreign players. We’re seeing an enormous opportunity for India as China’s falling out of favor with the industry…We’ll see India grow significantly. We believe that shortly it will be 5-6 percent of our sourcing scene, so not a small amount of pairs.”
Italy, long the leader in luxury shoes crafted by bespoke shoemakers, may only be an option for high-end footwear purveyors to entertain. The average landed cost for shoes there, according to FDRA, is $68.64 a pair, more than eight times China’s $8.09.
In 2019, the country—which is the sixth largest supplier of shoes to the U.S. by volume—shipped 23 million pairs stateside. Despite its landed cost holding the highest average among key U.S. suppliers, FDRA said its volume of exports to the U.S. last year “still reached a 12-year high.”
“In a global industry of often commoditized products where cost often is the main driver, Italian footwear naturally cannot compete with cheaper Asian rivals,” FDRA said. “Instead, Italy has managed to grow to become the dominant supplier—by far—of high-end footwear to markets in America and around the world.”
The United States’ nearest neighbor for footwear manufacturing, Mexico, saw its shoe shipments to the country drop to 18 million pairs, an eight-year low in 2019. At the same time, FDRA said, its average landed cost climbed to $22.80 per pair, a four-year high, “well above world average landed cost.”
“On paper Mexico should be the biggest sourcing country for the industry right, it’s nearshore, it’s land transportation into the U.S. The problem we are finding down there is not dissimilar to what we are seeing in India,” Jeppesen said. “It’s relatively small facilities that are family owned with very sketchy cash flow situations and funding. It’s not a ramp up that you can do very quickly.”
Some larger footwear players are coming on the scene, Jeppesen added, and 11 out of 12 of Wolverine’s brands have some production in Mexico—but it’s not the windfall companies keen on nearshoring might expect.
“It’s not exploding to the extent it should have on paper,” Jeppesen said. “It crosses all the boxes that I mentioned before but it’s been really tough to get any mass production of any size going on in Mexico.”
In Brazil, the footwear industry seems to have drawn little in the way of increasing appeal in recent years.
Last year saw the South American nation ship 13 million pairs of shoes to the U.S., a number relatively unchanged over the last eight years, according to FDRA.
Much of the shoes Brazil produces are for local and regional distribution, and exports to the U.S. and Europe have been slim. Wolverine does some production there, but also mostly for local distribution.
“Prices in Brazil are still too high, the expectations from the factories from a profit perspective is still too high compared to Asia, so there’s really not good commercial opportunities that exist out there,” Jeppesen said. “They do have some constructions that they are known for doing, like cowboy boots and hiking boots and working boots and stuff like that, but it hasn’t been a sourcing scene that we’ve been jumping over for the last many years.
Last year, the Dominican Republic shipped 10 million pairs of shoes to the U.S.
Though the ninth supplier on the top 10 list, the Caribbean nation hasn’t commanded much of the conversation when it comes to alternatives for footwear sourcing.
However, with a specialty in high-end leather shoes and a free trade agreement with the United States under the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR), there may be more to explore in the region.
“While duty-free treatment of imports is a clear advantage for the country, the average landed cost of footwear entering the U.S. from the DR ($21.61/pair) is almost twice as expensive as from the world ($10.87/pair). Part of this difference is because of the dominance of leather footwear from the DR,” FDRA said. “Even so, the average landed cost of leather footwear from the DR ($34.89/pair) is still well above the world average cost ($22.25/pair), suggesting other issues are at play.”
Among those other issues, FDRA said, are a minimum wage that’s higher than in other key footwear sourcing countries. The government-mandated minimum wage in the Dominican Republic is 8,310 Dominican pesos ($142) per month.
Rounding out the top 10 suppliers of footwear to the U.S., Thailand exported 8 million pairs to the country in 2019.
The country’s prospects may have dimmed as its average landed cost rebounded to a three-year high last year as the Thai baht hit a six-year high versus the dollar, FDRA said.