The future of China's women's shoe industry | Expert perspective

Author: Chen Ke Editor: Le Yan

The traditional industry giants that once enjoyed great promise are facing the rapid decline in store performance, the tide of store closures and other blows. Behind the decline of the traditional women's shoe industry giants, the lack of in-depth understanding and rapid response to consumer experience and user needs is the root cause of today's predicament.

In China’s women’s shoe industry, in recent years, due to the rapid development of online e-commerce, the invading of the domestic market by emerging brands, and changes in consumer trends, etc., the traditional industry giants that were once brilliant are facing a rapid decline in store performance and a wave of store closures. Wait a minute. Behind the decline of the traditional women's shoe industry giants, the lack of in-depth understanding and rapid response to consumer experience and user needs is the root cause of today's predicament.

Looking to the future, the women's shoe market will enter a relatively low growth stage, which means that the industry dividend has disappeared, and the internal market for the industry will be more intense. In the constantly updated and iterative consumer market environment, grasping and conforming to the development trend of the times, paying attention to consumer demand, and continuously improving product power are necessary conditions for maintaining rapid growth and becoming an industry leader.

Belle and Daphne are representative companies in the rapid development of China's women's footwear industry. The success of the two companies in the past ten years also represents the development of China's women's footwear industry. Belle focuses on mid-to-high-end leather shoes, and rapidly expands brands and channels to occupy half of the domestic women's footwear market. The rapid development of multiple brands has greatly enhanced the bargaining power of sales channels. From 2007 to 2015, Belle's revenue rose from 11.7 billion yuan to 40 billion yuan, becoming the "shoe king" all the time. Daphne seizes the mass market through low-cost leather shoes, and expands new ideas through differentiated brand positioning and street-side specialty stores, helping companies reach their peak in the past ten years.

However, judging from the financial reports of various listed footwear companies in 2016 and the first half of 2017, Belle International announced in the 2016/17 financial annual report that the group’s first consecutive profit decline in 10 years of listing, and in the first half of 2017, it cost 5.7 billion US dollars. Price selling, the market value has shrunk 2/3 from its peak. Daphne's 2016 annual report showed that the group suffered a huge loss of 819.1 million Hong Kong dollars for the year, which was 2.16 times the net loss in the same period of the previous year. The situation of other listed footwear companies is also not optimistic. Is this an overall problem of the industry or the inevitable result of the lack of breakthrough capacity building and barrier construction in the development process of the company?

The consumption upgrade trend is obvious

In recent years, consumers have steadily increased their purchase frequency and purchase unit price. Among mass consumers, low-income and young consumers will not buy less footwear because of their limited spending power, and the proportion of footwear consumption is much higher than that of middle- and high-income groups. The purchase of women's shoes is more like a rigid demand, which is not closely related to income, age, and level of the market.

Consumer buying behavior has changed:

With the upgrading of consumption, the process of urbanization and the full popularity of the Internet, consumers have transformed from the original multi-purpose pair of shoes to choosing suitable shoes to match clothing according to the event scene. At the same time, information on women’s shoes trends and optimal buying channels will be obtained through e-commerce websites, social media, and fashion forums. The abundance and diversity of information and the abundance of materials will increase the chances of consumers' random purchase behaviors. Therefore, a wide range of comprehensive information is required. Channel coverage, good page content display/store display, and high-quality product quality can attract more consumers.

The main players' lack of determination to make strategic changes:

In the face of the decline of traditional department store channels, brand homogeneity, insufficient product innovation iteration, etc., as a company that fights at the forefront every day, we can deeply feel the long-term hidden dangers that these problems inevitably bring, but face the long-term hidden dangers and short-term benefits. When there is a balance between the problems, the lack of determination of the enterprise to change has led to the quagmire of the enterprise's operating conditions step by step.

The overall market continues to grow

Although the growth rate of the women's footwear industry has slowed slightly due to the impact of the macro economy, the overall women's footwear market is expected to continue to grow. In 2015, the overall market size reached 179 billion yuan, and the growth rate is expected to be ~5.7% from 2015 to 2020. In 2020, the women's shoe market will exceed 230 billion yuan. With the improvement of people's living standards and the increase in health awareness, the demand for sports products has increased. Consumers' sports professionalization has brought about the upgrade of sports equipment, which will drive the accelerated growth of sports women's shoes. The combined effect of consumption upgrades and low-priced fashion wear products will slow down the growth of non-sports women's shoes, and sales will become the main growth driver.

Highlighted market segments

Classified by material: Leather shoes have the most promising prospects. In the non-sports women's shoe market, the growth prospects of leather shoes are the most promising due to their diverse shapes and cost advantages. The growth rate from 2010 to 2014 is 12.3%, and the growth rate is expected to be 6.4% from 2015 to 2020. The leather shoes market is expected to exceed 60 billion in 2020. The future growth of the leather shoe market will be significantly lower than the leather shoe market due to the impact of raw materials and costs, and the overall market share will further decline.

Classified by market level: second- and third-tier cities focus on growth. From the perspective of the tiered market, driven by consumption upgrades and the sinking of emerging channels such as shopping centers, the second and third-tier markets are the largest and fastest-growing markets for women’s shoes. Downward, fourth-tier cities will also enter a period of rapid growth of branded women's shoes.

Classified by channel structure: Street shops and department stores are still the main channel, and e-commerce has the fastest growth. (1) E-commerce continues to grow rapidly and will account for more than 20% of the total in the future. Due to the developed economy, the southeast coast has become the main force of online sales under the Internet trend. In the future, the central and western regions will have the opportunity to usher in rapid development under the promotion of mobile Internet. (2) In the next 5 years, the consumption of women's shoes in the first-tier market will show a three-pronged trend of e-commerce, shopping malls and department stores. (3) At the same time, in general, street shops will still be an extremely important offline channel, accounting for about 30%. The lower the market, the larger the proportion of commercial streets. The department store business has been sluggish in recent years. , But in the short term, the second and third-tier markets will still be the main channel, and the thematic and discount transformation of department stores will also slow down the decline of the department store format.

The polarization trend of brand development highlights

Changes in consumer demand will lead to a dumbbell-shaped growth in the market. The consumption polarization trend is obvious. High-end brands and mid-to-low-end brands are growing fast, while a large number of intermediate brands are showing a significant decline. In the past few years, driven by the luxury market as a whole, light luxury and foreign-brand women’s shoes with a strong sense of design have grown at a higher rate. As consumers’ purchasing power increases and their purchase appeals become richer and more rational, luxury goods will gradually give way to reasonable prices. High-end design brand. At the same time, due to consumers' increased awareness of fashion collocation, cheap women's shoes brands that emphasize styles have developed rapidly in recent years. Many local brands compete fiercely in the low-end and mid-range, focusing on product fashion and cost-effectiveness.

Establishing refined commodity management and supply differentiation capabilities is the key to becoming an industry leader:

When the market becomes a mature market, rapid market response, precise planning capabilities, and differentiated supply capabilities based on regional market needs are the core capabilities that industry leaders must possess. In recent years, the merchandise planning function has been successfully introduced into women’s shoe companies, and some successful companies have realized the successful docking between commercial enterprises, R&D, and merchandise operations. The merchandise planning function has increasingly become the central function of brand operations, and it is also a long-term solution to problems. The root of the inventory problem of footwear companies. The future competition is no longer the competition between brands. The store level competition will become the focus of optimization. Excellent women's shoe companies are trying to optimize their own store classification and product classification system. In the future, the product matching strategy based on regional market demand will be Become the key to the success of the store.

(Author: Chen Ke, Roland Berger Management Consulting Global Partner and Vice President of Greater China)