These figures largely tie in with estimates from industry analysts. For example, Statista’s Athletic Footwear Report 2020 estimates that revenue was $52bn for the segment in 2019. They expect this to rise to US$70bn by 2025. In its 2018 report on the wider footwear sector, it predicted that the market for all types of footwear will grow from $365bn in 2020 to $530bn in 2027.
The shape of the market has also changed hugely since El Guerrouj broke that mile world record in 1999. Trade is unbalanced, with 15 countries running footwear trade surpluses in these products, according to WITS. Statista suggests that production is heavily concentrated in the Far East with China, India, Vietnam and Indonesia responsible for more than 75% of footwear production in 2019.
According to statistics from the World Bank, six countries accounted for the lion’s share of exports in 2019 in the sports, leisure, and athleisure segments. Vietnam stood head and shoulders above competing nations in 2019, with exports of this type of footwear totalling $6.2bn worldwide. Indonesia’s exports were $2.5bn. China, in third place, exported $1.3bn.
These countries all operate a healthy trade balance in sports, leisure and athleisure. In Vietnam alone, the sale of these overseas generated almost $63 for every man, woman and child in the country in 2019. China’s trade balance was positive to the tune of $12.50/per person, and in India, the figure was $2.76.
The largest importing nations are also some of the most developed. The US leads the way, importing $5.4bn of sports, leisure and athleisure footwear in 2019, representing a trade deficit of $15.62/ head. Germany was the second largest importer; its $2.9bn of imports was at a cost of $3.23/head. Overall, the EU ran a deficit of $29.5bn in 2019, despite the fact that both Italy and Romania are significant producers of footwear. This equates to $8.89/head.
According to Sporting Goods Intelligence (SGI), the global athletic footwear market grew steadily up to 2019 with the top-five brand companies accounting for approximately 76% of the global market. The consultants note that this indicates an ‘exceptionally high level of brand concentration’. Nike, which also owns the Jordan and Converse brands, dominates the market, with sales of $44.5bn in 2020. According to Statista, Nike had 55% of the US sports, leisure and athleisure footwear market in 2017. Adidas, which also includes the Reebok brand, is second with nearly 12%, Skechers has 4.7%, and then New Balance, with 3.5%. Under Armour is next, with 2.5% of the US market.
Span of control
Some footwear brands control everything themselves, notably Ecco of Denmark, which has its own tanneries, produces a lot of its own shoe components, makes the shoes and has its own retail. But that’s unusual. ‘A lot of big brands don’t have their own production but outsource it all to Tier suppliers,’ said Craig Roberts, commercial manager for global brands at Huntsman. ‘Tier 2s make components, which then go to Tier 1s, who turn them into shoes. But the Tier 1s can participate at any point in the design cycle.’
The brand might provide a design or a prototype, and the Tier 1 could convert the prototype into a shoe, or make a prototype from a design. They could even make the designs from a brand’s concept, based on their capabilities such as the production line and the materials they use. ‘Tier 1s are instrumental in getting the footwear into the market, and there are some extremely big companies with a global reach that make a huge percentage of the world’s footwear,’ Roberts said.
‘A lot are headquartered in Taiwan with facilities in the main footwear producing countries. We supply brands and Tier 1 companies, and also the Tier 2s, particularly the moulders. Here there are big companies specialising in products like injection-moulded soccer plates. But some of the Tier 1s have in-house moulding capabilities too. If you look at the whole value chain, from raw material to retail, there are crossovers there. Some even make the TPUs or PU blends, do the moulding, and make the shoes.’ In the athletic footwear market exception, with five factories in the US and one in the UK. The company claims to make more than 4m pairs of athletic footwear/ year in the US. In 2013, the last year in which the company publicly reported, it had $2.7bn in sales.
In its most recent annual report, Adidas said: ‘To keep our production costs competitive, we outsource almost 100% of our production to independent manufacturing partners. We provide them with detailed specifications for production and delivery; they possess excellent expertise in cost-efficient, high-volume production of footwear, apparel, and accessories and gear.’
In 2020, the company worked with 132 independent manufacturing companies, down slightly from the figure of 138 it reported in 2019. Adidas products were made at 277 facilities in 2020, and 68% of these were based in Asia.
If they can stand the pace, these sub-contractors can find themselves in stable, long-term relationships. Adidas said that 61% of its sub-contractors have been partners for at least 10 years, and 30% for more than 20 years. Overall, outsourcing partners made 943m pieces of apparel, footwear and accessories and gear for the German-based company in 2020. This is down on the 1.1bn pieces made in 2019.
This outsourcing is a big business. In 2020, footwear sub-contractors made 379m pairs of shoes, compared with 448m in 2019. For Adidas, Vietnam accounts for 42% of footwear production, Indonesia 29% and China 15% in 2020. The largest plant in Vietnam supplied 8% of Adidas’s total footwear requirements in 2020. Nike has a similar production strategy and partner distribution. ‘We are supplied by 191 footwear factories located in 14 countries,’ the company said in its latest annual report. It added that almost all its footwear is manufactured outside the US by more than 15 independent contract manufacturers. These businesses often operate multiple factories.
Four of these contract manufacturers accounted for about 61% of Nike branded footwear production in the last financial year. And the factories can be sizeable. ‘The largest single footwear factory accounted for approximately 9% of footwear production,’ it said.
In its most recent fiscal year, contract factories in Vietnam made 51% of its Nike branded footwear. Facilities in Indonesia produced 24%, and those in China manufactured 21% of the total. Where countries protect their markets from products made in large factories with economies of scale, Nike sets up agreements with producers within the tariff walls. For example, the company has agreements with independent contract footwear manufacturers in Argentina and India.
Taiwan-based Pou Chen is a hybrid company that operates footwear manufacturing sites in Asia and sells athletic footwear on its own account through 5000-plus directly operated stores, plus nearly 4000 sub-distributors in Greater China. In 2020, it produced and shipped a total of 244.4m pairs of shoes.
The company employed 191,000 people as direct labour in 2020, down from 221,000 in 2019. When marketing and back-room staff are included, it had 302,000 employees in 2020. Of the shopfloor staff , fewer than half have graduated from high school, the company said.
The workers produced 1280 shoes each, on average, in 2020. This is a lot of athletic shoes, casual shoes and sports sandals, but the world is now changing for Pou Chen and for the brands that drive the business.
Go direct and save
Historically, footwear has largely been made by hand because it was difficult to standardise and automate working procedures. But labour costs are on the rise, and technology is maturing. Pou Chen wants to use simpler manufacturing systems, and is examining ways in which it can build modularised equipment and standardised interfaces that will enable automated equipment and processes to be developed. It also opened a technical centre for its major customers to help with prototyping and product development. There are also plans to cooperate with universities to develop 3D printers and simulation systems to more closely meet customers’ demands for customisation, according to its annual report. The company is using factory data to move towards industry 4.0.
Whether this business model will be as dominant in the future is becoming moot as coronavirus changes the way that business is done around the world. Nike, in particular, is building its direct-to-consumer business model. This means that every customer can order exactly what they want, such as soles optimised for running or weightlifting, laces to match their workout gear, vegan materials or any other option. And this, Prof Richard Wilding of Cranfield University explained to Supply Manager magazine in May 2021, is likely to be a major factor in real-world supply chain automation. It’s something we’ve already started to see in the changes brought about by the coronavirus pandemic, he argued.
To make its shift to direct sales, Nike had to develop and deploy 1200 additive manufacturing machines. ‘They realised you could have a small footprint, highly automated manufacturing facility located close to your customers in the market,’ Wilding said. ‘What was really interesting as well is it would reduce number of steps in the manufacturing process by about 30%. And that meant you could get away with 50% less labour.’ This, he said, was highly significant, because prior to this shift, Nike had about 1m workers directly or indirectly employed.
These figures were quoted as part of the 1997 plan, but when the company implemented the strategy, building a highly automated manufacturing facility in Oregon in 2017, it found it could reduce staffing even further.
‘The original supply chain handling the supply for that market had 120,000 people,’ Wilding said. This new facility, which did everything the old supply chain did, only needed 1000 people.
‘We are already starting to see that if we think about supply chain 4.0, and this capability now to do small footprint manufacturing close to where the customer is, rather than doing all your manufacturing in a low labour cost nation, the labour costs associated are now becoming such a small part of the total cost of the products that you’re making, you can basically build these facilities wherever you want to,’ Wilding said.
‘This is important, because if you think about what’s happened in the past 12 months, if I want to make my supply chains more resilient, I’m going to be looking at on-shoring or near-shoring or multi-shoring as well. Companies which thought they were resilient because they had three suppliers found that if those suppliers were all in the same region of the world, when lockdown came they weren’t resilient at all.’ Introducing geographical diversity into the supply chain will be important if similar problems are to be avoided in the face of a global emergency in the future.
A change that Wilding sees coming is that global trade, which currently tends to be in finished products, will be in more ‘vanilla’ raw materials or components that will need to be configured at the last minute to local requirements in a near-shored or on-shored facility. This will also have knock-on advantages for the environment, especially if the current trend towards consumers ordering online rather than shopping in person continues. Rather than many people making many trips to shopping centres, a single delivery vehicle would make multiple stops, saving in CO2 emissions.
Frequent design changes pile pressure on the manufacturing companies, but are vital as the large marketing companies fight to retain share among consumers. Adidas said that for its Adidas-branded products, 68% of sales in 2020 were from products launched that same year, while products that were three years old or older accounted for 2% of sales.
Products in its Reebok range have a longer shelf life; in 2020, 11% of its sales came from designs that were three years old or older.
As well as aesthetic changes, technical innovation sells sports, leisure and athleisure footwear. Adidas is keen to promote its 4D concept, which features midsoles 3d printed by Carbon (see box on p17 for more details) to select consumers. This is used in a running shoe available in large quantities, and multiple versions will be scaled further, the company promises.
Lose less energy
There are also developments around materials that lose less energy in use. Adidas has developed technology that allows each thread of the upper to be placed precisely for each athlete. This will start off for the elite market, but may become more widely available in future.
Adidas is also embracing circularity with its made-to-be-remade programme. This includes its Futurecraft.Loop recyclable shoes, which were made available to 1500 of the company’s Creator’s Club members, who beta-tested them.
As the world has been inspired by the fall of world records and Olympic, sports footwear has morphed into desirable, cool street clothing. If people cannot run as fast as Bannister, El Guerrouj or Kipchoge, they can at least buy something to put on their feet that speaks of cool, comfort, potential fittness and broken records.