The long trek back to “normal”

Since the pandemic, the footwear supply chain has struggled to return to “normal”, perhaps more than many other retail sectors. For the leather and hide industry, this has meant poor demand from footwear customers, declining hide prices and lots of uncertainty.

“Footwear is a very resilient industry and is often recession-proof, but it still has its soft spots,” says Matt Priest, president & CEO of the Footwear Distributors and Retailers of America (FDRA), the largest footwear association in the US. And, despite all the plastic, textiles and other materials used in footwear manufacturing, “leather is critically important for the footwear industry”, Priest says. The two have been synonymous since the beginning of time, he points out.

These disruptions to the footwear chain have reverberated through the hide and leather industry. Demand for hides that are typically used for shoes – in the US that’s side-branded material like branded steers and heavy Texas steers – has been diminished since the end of 2021. More importantly, it has yet to recover.

The lack of demand for these hides stretches back to the pandemic when huge swings in consumer preferences and supply chain difficulties created overwhelming inventories for brands and stores across the globe. Since then, some footwear brands have done well in clearing their backlogs of inventory while some others are still chipping away at stock in warehouses.

In the first months of 2024 as the footwear earnings reports came out, none of the brands were painting a very positive outlook for the year. Sources say that’s not necessarily because of bad business, but because of the many global uncertainties. Inflation, the Red Sea conflict disrupting shipping, elections in many countries, and whatever else may crop up during the year could easily derail the footwear market’s improvement.

On the tannery side, footwear sources say that December and January saw a nice pick-up in business. In fact, footwear manufacturer Yue Yuen reported 12.5% growth in manufacturing revenue for January 2024 – the company’s best month in more than a year. Its China retail business was quite another story, however: revenues were down by 25.8% in RMB terms. The decline is linked to the country’s domestic economic problems and the lack of consumer spending.

The dearth of domestic Chinese footwear sales is a significant problem for the hide industry because it heavily depends on business from large Chinese tanners. While China has been consistently purchasing plenty of hides, the tanners all have sizeable inventories. That means that even when orders pick up, it will take them some time to work through the stocks. Consequently, they won’t be pressed to purchase if prices are higher than they were before the Lunar New Year.

Declining exports everywhere

US hide sellers and footwear companies are not the only ones contending with poor demand and low exports. In 2023, Brazilian footwear exports were down significantly – by 16.6% in volume and 10.8% in revenue compared with 2022. Much of the drop was attributed to global economic difficulties. Even in January 2024, Brazil exported 10.3 million pairs of shoes, for $90.75m. It was a decline in volume of 29.7% and in revenue of 23% compared with the same month in 2022.

European leather hubs like Italy are in much the same situation for not only the footwear sector but also leather goods, says Andrea Guolo, Hidenet’s European reporter. In Florence, 2024 started with 4,000 people on the redundancy fund in the luxury leather goods sector alone. The forecasts were also negative, triggering a crisis plan to support the restart.

In the footwear industry, things are not going well at all. In some Italian districts, particularly in the Naples area, companies are at a standstill with critical issues looming that could lead to possible company closures. This is a complete turnaround from the previous two years, which were positive for the partners of the top brands. In January-September 2023, Italian footwear exports to EU countries were down by 6.1% in volume while non-EU destinations saw an even bigger drop of 13.4%.

In general, all regions saw footwear exports plummet: Bangladesh’s footwear exports fell by 45% in the first nine months of 2023. India’s footwear exports to the US alone in January- September 2023 fell by 39.24%. Countries such as Portugal also saw volumes decline, even though value increased, driven entirely by inflation.

“European leather hubs like Italy are in much the same situation for not only the footwear sector but also leather goods.”
Andrea Guolo, Hidenet

US imports

Issues with excess inventory stem from import numbers, which have plummeted, creating a challenge for brands. The footwear industry is making progress with inventory backlogs and the trend is in the right direction, but levels are still at historic highs, Priest explains. The real challenge comes when consumers are looking for freshness and are weary of seeing the same old “legacy” styles for sale. At the recent New York Shoe Show FFANY, the crowd was bullish on the need for novelties but was buying at just 70% of the usual level. Activity for autumn was better, however, perhaps signalling improvement.

US footwear imports hit a 19-year low in 2020 at around 1.9 billion pairs, rebounding to almost 2.75 billion pairs in 2022. Full-year data for 2023, just released, indicates that the value of US footwear imports dropped by about 27%. Even though imports are down again in 2023, China still plays an outsized role, accounting for 60% of the footwear coming into the US. And, despite the bulk of the imports being made from cheaper materials, leather shoes are still present.

While the decrease in imports accounts for some of the decline in leather demand, Priest says there has been a movement away from leather. “We’re much more casual as a society,” hence fewer leather dress shoes, Priest explains. Nonetheless, the tide may be shifting back toward shoes that traditionally use more leather.

Athletic and outdoor styles dominated the pandemic and post-pandemic market but now those segments are struggling. For some brands, dress shoes are doing better than athletic styles, he says.

Part of the issue is also consumer spending. In China, it’s the poor domestic economy, while in Europe, inflation is making shoppers think twice before making a purchase. In the US, “people’s closets are full”, Priest notes. At its height, US footwear consumption hit 8.3 pairs per person – that’s a lot of shoes, he adds. The more typical number is 7.3 to 7.5 per person.

The second half of 2024 is expected to usher in an improvement when it comes to demand for footwear leather. Hide prices have been stuck at low levels for months with no upside on the horizon. Recently, an uptick in purchasing by major international brands has been noted as possible indicating that the tide will soon turn and hide prices will rise from their very low levels.