Cost increases have been experienced by practically every vendor of footwear products in the market over the past 12 months, and 77.9 percent of them have decided to reflect them in one way or another in the prices that they are charging to retailers for their fall/winter 2011-12 and spring/summer 2012 collections, according to a survey conducted among the subscribers to Shoe Intelligence and its sister publications, Sporting Goods Intelligence Europe and The Outdoor Industry Compass. One-third of the respondents said they were sourcing more than 50 percent of their shoes from China, while only 20 percent said that the majority of their shoes were coming from European sources.
However, only 21.5 percent of the companies that raised their prices for fall/winter products did so for all the items across the board, and 32.9 percent said they tried to avoid breaking psychological price barriers at retail (such as €49.99 or €99.90 per pair). Only 6.8 percent said they had used different materials or components to preserve the same pricing on certain styles.
The responses were quite similar with regard to the pricing of the spring/summer 2012 shoe collections at wholesale: 25.2 percent said they were raising prices across the board, 32.7 percent were raising them only on selected items, 33.6 percent were careful to avoid breaking psychological price barriers, and 8.4 percent said they were modifying materials. Evidently, vendors are generally using the same materials to preserve the quality of their products in order to justify any price increases.
The average price increases passed on to retailers across the product spectrum vary widely from less than 5 percent to 20 percent, but the bulk of the participants in the survey mentioned price increases in the 5-10 percent range. One respondent said it had kept entry price levels unchanged and stretched them in the middle and higher price brackets. Interestingly, another one said it has upgraded its product range to protect margins with higher prices, while creating new products to match older price points.
Significantly, 31.0 percent of the respondents admitted that they had lost some sales because of the higher prices that they had charged for their fall/winter collections, and 21.8 percent said they had gained some turnover on sales of products where they had kept their prices unchanged. Overall, 37.9 percent of the shoe vendors who responded to our survey said they were going to look for new sources of production because of the higher costs that they were facing.
The general trend was confirmed by interviews conducted at the subsequent Expo Riva Schuh, Francal and Bread & Butter shows, with interesting nuances and exceptions. For example, a Spanish brand of medium-priced women's shoes, Unisa, said it had maintained its prices by subcontracting more stitching to Morocco, and this has helped it to improve sales by 26 percent in 2010 and by 16 percent so far this year.
Dealing in the low-margin volume business, Cortina of Belgium raised its prices for fall/winter by 10 percent, but last May it decided to reduce its prices by 5 percent for spring/summer 2012 because higher costs have been offset by a 15 percent drop in the U.S. dollar since one year ago. Another big trader positioned in a higher segment of the market, Sugi International, is keeping its prices unchanged for the spring/summer 2012 season because its higher sourcing costs in China have been offset by the phase-out on April 1 of the European anti-dumping duties on Chinese and Vietnamese leather shoes.
The European Commission has decided to place imports of these products under surveillance, but well-informed sources have told us that it has not witnessed any surge from the comparable levels of 2010 in the months of April and May. In fact, the rising cost of labor in China is leading many vendors and traders to seek out other sources of production. Faced with rising foreign demand and strong domestic inflation, some Indian shoe manufacturers were testing price increases of about 15 percent at Expo Riva Schuh, as they did six months ago, but indicated that they may settle for half of that if they could get a guarantee of higher runs for the same products.
A different strategy is being pursued by a German shoe manufacturer, Kennel & Schmenger, which has decided to position its shoe collections in a higher price segment. K&S, which showed its new collection at Bread & Butter, manufactures its shoes in Pirmasens in Germany, but they are nonetheless effected by the recent cost increases in raw materials.
The recent trade shows indicated new interest for well-made and creative items made in Italy and other parts of Europe, where workers' wages have not risen as much and where orders can be small. The recent export statistics from Italy, Spain and Portugal seem to confirm this trend. A small Italian manufacturer of women's sandals whose uppers are made in Tunisia said it was working very well with a big French retail chain that was placing new orders every month. It is charging more only on novelty items. Ilse Jacobsen, a small designer of rubber boots, said he was pulling out of Chinese manufacturing because the process has become too bothersome, even though he stands to earn a lot less money that way.
In general, suppliers and retailers are still in a phase where they are “testing” new price points for certain products, and these tests are proving often successful with good branded products. At Expo Riva Schuh, a salesman for a major British supplier of branded and unbranded shoes said he was testing a price increase of around 12 percent on most new products for spring/summer 2012, and while he may have to make some concessions in the negotiations, he was surprised by the retailers' general acceptance of the inflationary trends. Another supplier claimed that his retail clients had successfully tested the breakage of the €100 price barrier with a highly publicized style, resulting in higher sales and comfortable margins.
Unfortunately, only a handful of retailers participated in our pricing survey. Seven out of 11 retailers said they were going to raise the prices of some of their products during the coming fall/winter season, ensuring that some psychological barriers would not be infringed, and two said they were raising prices to consumers across the board. One said it was working less with suppliers who are charging higher prices. One said it was planning to change its sourcing methods.
As it turns out, shoe retailers in Germany and some other parts of Europe have some flexibility right now in testing new price points, new products and new sources of production because they made a lot of money in the bumper year of 2010, but they are worried about their business this year, especially in the face of rising competition from price-aggressive online retailers such as Zalando. They are looking for ways to attract more customers with more marketing and to differentiate themselves by providing a nicer shopping experience and by offering new products and new brands.
A German retailer said he was looking for new suppliers in the Naples area, where prices are lower than in the north of Italy, to make his product offer more interesting and profitable in the face of the unbearable sameness and lack of innovation in the offerings from the Far East. He and others said they hoped to see some real novelties at the GDS or Micam shows that would help them to charge higher prices for a good reason.