There are no ready answers to this question. The general economic slowdown has already started to affect major retailers, particularly in the USA (see the American retail stories in this issue), but we continue to believe that consumers will continue to buy shoes and that the weather will continue to play an important role in the trading patterns.
If anything, consumers will tend to shop more selectively and put more money on branded products or bargain items. In fact, while cutting back on other types of expenses and investments, many companies that we know have no intention of reducing their expenditures on marketing. It can still be very effective in these uncertain times, as shown in the article on Heelys’ initiatives on the French market.
Consumers will also continue to be attracted by anything ecological and by captivating product stories and retail environments. As a result, more and more of them will discover the convenience of buying footwear online (see article on The Art Company further down), saving money and time spent to go to the store. More and more brands and retailers may thus be tempted to offer their products on the internet, partly also to reach customers in markets and areas where they don’t have a presence.
Coupled with a generational change, now that baby boomers have reached retirement age, the economic crisis will probably hasten the concentration of the sector at the level of the vendors and the retailers. A new wave of mergers and acquisitions may shake up the industry even in countries such as Italy, which have been traditionally attached to the one-family/one-company principle.
However, the shortage of financing will benefit companies with strong balance sheets that can provide operating leverage, management expertise and economies of scale, while opening up opportunities in new markets. We shall certainly see more takeovers of European brands by Chinese and Indian producers and traders, like that of Acupuncture further down in this issue.
While some individual national markets may shrink, allowing only the fittest to survive and gain market share, emerging markets in Eastern Europe, Africa, South America and Asia will continue to expand. There is strong hope that the next round of multi-lateral trade negotiations will lead to a 50 percent reduction in existing tariffs on footwear, which currently average 20 percent around the world, but this will not happen overnight.
The biggest question mark for the immediate future revolves around the value of the U.S. dollar and of the Chinese yuan and its effect on sourcing patterns and final pricing. Reports from China in the last few days have indicated that China’s central bank may allow the yuan to depreciate a little after a fall of 0.7 percent against the dollar on Dec. 1. Such a move could lead some traders to consider stipulating new contracts in euros or renminbi instead of dollars. The yuan has already appreciated against the dollar by 6.4 percent so far this year, after increases of 3.3 percent in 2006 and 7 percent in 2007.
Chinese leaders have been indicating that they want the yuan to remain “overall stable at a reasonable equilibrium level.” Speculating that the Chinese government wants above all to avoid setting out a wave of capital outflows and false expectations, currency analysts are speculating that the yuan may fall by up to 6 percent against the dollar in coming months to make up for the greenback’s appreciation and to stimulate exports.
China’s total exports declined by 2.2 percent in November, marking the first major monthly drop since February 2002, and more and more shoe companies are reported to be going out of business in the country because of rising costs. On the other hand, retail sales have remained strong, showing a 20.8 percent increase in November.
We shall keep an eye on these developments, and we plan to monitor its effects on the trade at the next Expo Riva Schuh shoe fair. This important fair will host more than 1,100 exhibitors at its next session in Riva del Garda from Jan. 17 to Jan. 20, spread out through the various exhibition centers and the city’s hotels. More than 60 percent of them will be from outside Italy and they will be expecting around 11,000 trade visitors. One of the novelties will be a new self-service restaurant in Hall B5.