The Russian government has decided to halt purchases of footwear and clothing by public authorities in retaliation for the trade sanctions imposed by Western governments because of its dispute with Ukraine. Some shoe industry executives fear that this measure may be extended to purchases by private interests at a later stage.
Cleto Sagripanti, president of the Italian shoe industry association, Assocalzaturifici, said he hoped to see more orders taken at the Obuv Mir Kozi fair due to be held in Moscow from Sept. 30 to Oct. 3, where 190 Italian shoe companies will exhibit their collections.
Sagripanti has called on the Italian government to avoid more serious sanctions against the Italian shoe industry, which relies on the Russian market for 8 percent of its exports. He warned that such measures would put at risk more than 400 shoe companies and the jobs of some 10,000 employees in the shoe industry. Across all sectors, Italy has become the second-largest European exporter to Russia.
On the other hand, it seems that the Russian government will go ahead with a planned embargo on imports of finished leather and wetblue from all over the European Union and Turkey.
Meanwhile, several shoe companies are reporting major declines in their sales to distributors and retailers in Russia, Ukraine and the former members of the Soviet Union since the end of last year due to a combination of lower consumption trends since last year, the devaluation of the ruble and the recent political and military issues. The trend seems to be affecting mainly the small and medium-sized companies in the sector.
The latest official trade figures show a drop in the volume of footwear imported into Russia to about 111 million pairs in the first half of 2014 from 154 million pairs in the comparable period a year ago. All the categories were affected, including children's and sports shoes. The figures don't include imports of shoes from China through Kazakhstan, which is used by several Chinese market operators as a transit point.
According to a well-informed source, three major Russian shoe retail chains operating in the lower segment of the market reduced their orders for spring/summer 2015 sharply, because of a huge inventory overhang. Centro and Kari cut them back by almost 30 and 40 percent, respectively. Payless reduced them by 77 percent to only 56,000 pairs due to the liquidation or closure of half of its stores in Russia.
On the other hand, large supermarket operators increased their orders of cheap footwear considerably and most of the apparel chains operating in Russia, including H&M and Zara, kept them more or less the same as before. Two of them, Ostin and Yours, ordered much more.
The difficult market situation has led about 30 wholesale distribution companies to close their doors recently, accelerating a pattern that has cut their total number to about 300 from 600 two years ago. Many have had to shut down because of their inability to pay for the shoes upfront. Most Western suppliers continue to request payment of an advance when their Russian customers place an order and the balance upon delivery, but the devaluation of the ruble and lower support from the banking system have proved fatal.
The remaining import distributors took generally lower orders at the recent trade shows in Russia. The biggest one of them, Euroshoes, had to cut its exhibition surface by 14 percent, after a 12 percent cut last February, but big players like Analpa, Rieker or Wortmann apparently worked well at the fair and collateral road shows. Five medium-sized distributors were absent for the first time at the more recent Mosshoes fair in Moscow, ended on Sept. 12.
The Russian market continues to be very important for Italian producers, but Italy's exports to that country fell by 15.5 percent in volume and by 17.8 percent in value in the first four months of this year, down to level of 2,970,000 pairs and €203.1 million. The average price declined by 2.7 percent to €68.37.
Many exhibitors at theMicam complained about a decline in the number of Russian visitors at the fair or a drop in their orders at the show. Hoping to make up for it at the imminent Obuv show in Moscow, some of the exhibitors thought that the decline in attendance was due a slight overlap in the schedule with the Collection Première Moscow (CPM) fashion fair organized by Igedo Company, which took place from Sept. 3 to 6. As a sign that the situation is not that bad in Russia after all, it reported a total of 18,500 trade visitors, only 4 percent fewer than a year ago.
Probably, the Russian market is concentrating around fewer stronger and safer brands. Baldinini, which gets about 70 percent of its annual revenues of around €120 million from the former Soviet Union, said it was satisfied with the turnout at theMicam. Its stand was busy through the last day of the Milan fair.
The company's owner and president, Gimmi Baldinini, told us that its sales in Ukraine have gone down, but its sales in Russia have stabilized instead of growing by more than 15 percent a year as they did before. Baldinini continues to open stores all over Russia and neighboring countries, but it has also started to look more seriously at alternative markets in the Middle East and Asia.
It recently opened a store in Abu Dhabi and is gearing up for the opening next January of its first store in Hong Kong as a stepping stone into the bigger market in Mainland China. The Hong Kong store will be located on the central Queen's Road and will measure 200 square meters.
Other Italian shoemakers that were relying strongly on the Russian market have started diversifying their export efforts earlier. For Fabi, another company in the Marche region, the Russian market has declined from 38 percent to 30 percent of sales so far this year, thanks to a strong development in China and other countries including Iran and Kuwait.
Partly hit by an increase in the luxury tax from 15 to 17 percent, Fabi's 40 stores in Russia suffered sales drops of 25 percent in the past winter and spring seasons, due in part to wrong choices in the product assortment. As a result, Fabi's Russian franchisees have been definitely ordering less for the next seasons.
A French producer who is also making big strides into the Chinese market, J.B. Martin, indicated that its sales in Russia have fallen a similar rates, with no expectations for a turnaround in the near term. J.B. Martin, Fabi and Baldinini will all have stands at theMicam Shanghai fair later this month.