The deflationary spiral in footwear pricing seems to be over now, at least at the wholesale stage of the supply chain. Rising production costs have led Chinese and Vietnamese suppliers to raise their f.o.b. prices in dollars by about 2-3 percent on average since one year ago, according to a major North American buyer questioned at the Expo Riva Schuh show a few days ago. While the increased oil prices are affecting everybody, labor costs are growing most strongly in Vietnam, reducing the cost gap with China.

For European buyers, these problems are compounded by two other important inflationary factors - the increased value of the U.S. dollar against the euro and the threatened anti-dumping duties against leather shoes from China and Vietnam. While some of them have been hedging on dollar futures, most European importers and retailers seem to be prepared to take a certain cut on their future margins because of all these factors, compensating for the profits they have made in the past few years of dollar weakness.

Many European footwear importers in fact said they could not raise their prices in euros by more than 5 percent, if at all, because of firmy established psychological barriers in certain product segments, yet others felt that it should be possible now to raise them by about 10 percent, in line with the new dollar/euro parity, because retailers have a lot of money after a good selling season (see next article). Most retailers at the fair said this would be impossible. As Hermann Fuchslocher, the German consultant, remarked in general terms at a round table organized by the GDS, the relations between supplies and retailers have never been as tense as they are now - on this and on other issues such as the timing of the trade fairs..

Anyhow, the lack of a decision and of a reasonable guess about the EU’s future trade policy against China and Vietnam is leading some major European footwear importers to charge prices for the Fall/Winter 2006/07 collections based on a temporary assumption that there will be no anti-dumping duties. Should they be imposed, they will raise their prices in consultation with the buyers, considering the measures as a case of “force majeure,” but they feel that the suppliers and the retailers should share in the sacrifice and reduce their margins, too.

Several vendors are changing slightly the material and product mix in order to keep price points down, and this policy probably contributed to a relative lack of decoration and fantasy in the collections offered for pre-sampling at Expo Riva Schuh. Several Chinese companies at the show said they would consider changing materials if anti-dumping duties are enforced. A British trader said he had agreed with its Chinese factory and with its retail clients to switch from leather to polyurethane for interior linings and some other components of certain shoes at the last minute if the duties were imposed, in order to keep prices stable for the consumer. The consumer would not notice, they implied.

An official of Kidderminster said that footwear prices have been so low for 23 years that a change is due anyway for products sourced from China. Footwear prices have been cushioned by the weak dollar, he said, but as the dollar strengthens so will prices.