Although China is resisting the pandemic much better than other markets, Yue Yen Industrial Holdings ended 2020 in the red, hampered by the global decline in the demand for shoes, especially in the casual segment. The company was strongly impacted by government measures to contain the spread of the disease at the start of the year, and although the Pou Sheng Chinese retail business bounced back in the second half, the footwear manufacturing segment continued to struggle.

The world’s largest shoe manufacturer posted a net loss of $90.8 million for the year, against net income of $300.5 million in 2019. Total revenues shrank by 16.4 percent to $8,444.9 million, hit by lower Chinese retail sales and sluggish footwear demand due to restrictions.

During the year, the group temporarily shut down and adjusted capacity in some of its factories to comply with local restrictions, which disrupted its supply chain. It faced lower shipment levels, with customers delaying accepting shipments and then adjusting and canceling their order books in the context of the pandemic. This caused the group to incur significant one-off charges of approximately $107 million arising from capacity optimization, including the strategic closure of its Chinese manufacturing facilities in Hubei, as well as from adjustments made to its manufacturing capacity in Southeast Asia.

The manufacturing segment saw revenues fall by 21.1 percent to $4,735.7 million, with the number of pairs shipped decreasing even more by 24.2 percent to 244.4 million. This was mostly due to delayed shipments and reduced or cancelled orders. A shift to higher prices helped to boost the average selling price by 3.8 percent to $17.89 per pair. The segment’s gross margin contracted by 3.8 percentage points to 14.7 percent, hampered by operating deleverage on the lower sales volumes.

Sales of athletic footwear dropped by 17 percent to $3,752.3 million, casual/outdoor shoes & sports sandals tumbled by 39 percent to $620.6 million, and sales of soles, components and other categories dipped by 18 percent to $362.8 million. The company also brought in $171.8 million from the divestiture of Texas Clothing Holding Corp. in 2019.

Yue Yuen continued to shift production to other parts of Asia, with Vietnam and Indonesia now representing 46 and 39 percent of the total output, respectively, while China continued to decline to 11 percent, compared with 13 percent in 2019.

Retail sales in China by the company’s Pou Sheng subsidiary declined by 5.7 percent to $3,709.2 million, due to the government’s lockdown measures and store closures in February and March. However, Pou Sheng returned to growth in the second half, supported by a steady recovery in offline sales and growth from omni-channel, as retail activity in China progressively returned to normal. Pou Sheng’s gross margin for the year fell by 3.5 percentage points to 30.6 percent because of higher levels of promotional activity. At the end of December 2020, Pou Sheng had 5,240 directly operated retail outlets and 3,835 stores operated by sub-distributors across the Greater China region, 758 united less than one year earlier.

Looking at the rest of the year, Yue Yuen forecasts a rebound as global demand recovers, although uncertainty remains around the Covid-19 situation in North America and Europe. It is more confident in the growth prospects for Pou Sheng, led by the growing athleisure trend in China and strong government support for sports. The group will continue to expand its omnichannel capacities, adding more online content to engage consumers, including sports events and workouts.