The health emergency has had major repercussions on the performance of the footwear sector in the first half of the year, with a fall in national production and company turnover in the region of -35%. In terms of consumption, household spending is down 30%, despite the big increase in online purchases (+42%) resulting from shops closing as part of restrictive measures. The post lockdown restart is proving to be extremely slow: sales in Italy are still down (-29% in quantity in May and -7% in June), whereas exports were down -27% in volume for May and June after the collapse (-50%) in the previous two months. The first six months of the year closed with across-the-board reductions for foreign sales: -22% in quantity for EU markets and -33.4% in non-EU markets, with a sharp reduction in the balance of payments surplus (-34%). The number of companies continues to fall (-77 since the start of the year) along with the workforce (-520), and concern remains high over employment figures in the coming months. Recourse to wages support soared in the leather area: +878% for the period January-June.
As with all other sectors in the Italian Textile Fashion and Accessories Industry, the first half of 2020 came to a close with markedly negative data for all the main economic variables in the footwear sector and with apprehension in terms of performance in the coming months. The spread of the health emergency – which began in China and quickly took hold all over the globe – led to many countries adopting strict restrictive measures, which heavily affected the ordinary course of production activities and trading at both a national and international level. The combined shock on supply and demand, which began in March, also affected the Italian economy, with highly disruptive effects and a great deal of uncertainty surrounding the potential duration of these effects.
The data produced by Confindustria Moda Research Centre for Assocalzaturifici describe the collapse suffered during the lockdown period, which followed hard on the heels of an already lacklustre start to the year. Indeed, while the first two months of 2020 were not particularly brilliant – as exports fell by -4.6% in quantity, despite remaining fairly stable in value at +1.5%, domestic consumption continued the slow process of erosion that has been ongoing for years – the closing of companies and shops in Italy and the major slowdown in foreign demand following the outbreak of the health emergency, has severely tested Italy's productive fabric. The system mainly comprises small and medium/small businesses that have been forced to contend with a lack of liquidity caused by the cancellation of orders, returns and unpaid invoices.
The resumption of business in May did not result in the strong recovery that was hoped for, with trends for orders remaining very sluggish at both a national and international level, and the picture remained much the same during the month of June. Inevitably, therefore, the figures for the final balance in the first half of the year are very negative:
● the results of the survey conducted in July on a sample of members show an average yearon-year decrease in turnover, for the first six months of the year, of -36.3%, with an estimated overall loss for the sector as a whole of 2.6 billion Euro. A sizeable 1/3 of respondents reported reductions in excess of 50% for the second quarter. Even the collection of orders was very negative (-30.2% compared to April-June 2019), thus highlighting the fact that the collapse in demand caused by the pandemic is far from over.
● The figures collected by Confindustria Moda Research Centre are in line with Istat’s monthly data on industrial production performance. For the item "Footwear manufacturing", after the collapse in March (-55.1%) and April (-89.3%), the Istat index continues to hover around profoundly unsatisfactory levels despite the reopening of factories (-38.9% in May and -23.2% in June). The cumulative total for the first six months of 2020 represents a -34.9% year-on-year fall.
● The performance of domestic consumption in the first six months of 2020 was obviously affected by the two-month suspension in physical sales, aside from a lower consumption propensity by households as a result of the difficult economic period and insecurity over employment, not to mention the general climate of mistrust and uncertainty brought about by the pandemic. To top this off, there was also the drastic reduction in tourism. The domestic market has always been crucial: even though 85% of Italian production is exported, Italy remains the third largest destination market for Italian footwear manufacturers in terms of volume.
For the first six months of the year Sita Ricerca’s Fashion consumer panel for Assocalzaturifici shows a reduction in household consumption of -25% in volume and -30% in total expenditure, with average prices down -6.6% on a year-on-year basis (including as a result of a greater prevalence of slippers and lounge footwear during the lockdown period. This particular segment fell by a "less severe" -14 percent in quantity due to the relative increase in the use of this type of footwear when people were at home).
After reductions in the order of -60% in March-April, despite the reopening of stores, May was still significantly below par (-29% in volume and -37% in expenditure), while the reduction in the number of pairs of shoes sold in June was limited to single digits (-7.1%). There were across-the-board reductions for all merceological segments with similar reductions in excess of 30% in volume and value compared to the first six months of 2019 for "classic" shoes for men and women; -23% in quantity for children's footwear and -25.3% for sports shoes and sneakers. As mentioned above, the reduction was less severe – albeit still in double digit territory – for the slippers and lounge footwear segment, which fell by -14% in volume and -12% in value terms.
Sita Ricerca’s analysis on sales channels shows a predictable boom in online purchases, with increases of +60% in volume and +42.2% in value for the first half of 2020. Online shopping's share of the total market (following the trend for recent years) went from 14.1% of the final balance in 2019 to the current level of 26.5%. Just seven years ago, in 2013, online purchases accounted for a mere 3.6% of Italian families' purchases of footwear. On the other hand, all other sales channels closed the first half of 2020 with major losses: -40% in volume for the traditional retail sector; -51% for itinerant traders and around -37% for retail chains, department stores and large specialised stores.
● In terms of exports, in the first six months of the year the Istat data show a reduction in quantity of -26.4% and a -25.4% reduction in value terms (with average prices up slightly, +1.3%).
After outgoing flows halved in the period March- April (with a record fall in excess of -70% in both volume and value in April), the trend for May was still very negative (with reductions in the order of -40%), while the reduction in June was more limited (around -15%).
A total of 78.7 million were exported for a value of 3.8 billion – including pure commercialisation transactions – which represented a drop of more than 28 million pairs compared to the first six months of 2019.
To understand how exceptional the current situation is, it is sufficient to state that these volumes are 24% lower than for the same period in 2009, in the full throes of the global economic crisis (when footwear exports amounted to 104 million pairs).
The assessment by merceological type highlights reductions of more than 20% in volume for all segments, except for the residual segment of footwear with rubber uppers (-1%): there were reductions of just over -30% for leather shoes (with similar falls, i.e. -34%, for the men and women segments and -30% for children's shoes); -23% in quantity for shoes made in fabric; -21% for synthetic shoes and -38% for slippers.
Breakdown by geographic area reveals a significant drop both within the EU (considering 27 countries this year, following Brexit) and outside the EU. Flows to EU markets (which account for 2 pairs out of every 3 sold abroad) were down -22% in terms of volume and -21% in terms of value, while exports outside the EU shrank even further (-33.4% in terms of quantity and -28.8% in value).
There were across-the-board reductions across global markets, with very few exceptions: among the main destination markets there were increases only for Poland and Portugal (which lost 11.4% in value terms); South Korea had a +0.6% in value, with -4.6% in quantity.
There is a prevalence of negative figures everywhere. Germany, the number one market in volume terms, that had already shown a negative trend in 2019, fell by 17%, for both volume and value. There were strong falls in flows towards China and Hong Kong (-31.4% and -44.1% in value respectively) with the Far East losing about 30% on the whole, in both quantity and value. There was a significant slip in the CIS markets (-37% in volume and -30% in value); performance was bad in the US (almost -40%) and the Middle East (-26% in quantity). Volume towards Switzerland (the traditional logistics and distribution hub for the major international luxury brands) fell by about a quarter and there was a fall of about a third towards France (another main destination for contract manufacturing), the countries occupying the first two spots in the value league table.
Breaking the figures (for footwear + parts, in value terms only) down on a geographical level, there were significant falls during the first half of the year for all the main exporting regions, with the sole exception of Emilia Romagna (+20%) which was driven by Piacenza, a logistics and distribution hub that has been growing constantly in recent years given its fundamental importance in the delivery of goods purchased online. The biggest reductions concerned Tuscany (-44%), the Marche (that fell by -32.5% on the whole, with Fermo and Macerata falling by -31% and Ascoli Piceno falling -39%) and Campania (-34%). There were reductions in line with the national average for Lombardy (-25.1%), that fared slightly worse than Veneto (-20.2%, this is Italy’s biggest exporting region with a share of 27.4% on the total value of Italian exports), Puglia (-22.2%) and Piedmont (-20.9%).
Florence remains the leading province for exports despite losing -43.7% on a year-on-year basis during the first six months of 2020.
● In terms of imports, Istat data show a reduction in the order of -18%, in both quantity and value: between January and June, 148.1 million pairs of shoes were brought into Italy, i.e. 34 million less than for the same period in 2019. The marked fall in domestic consumption and the operational difficulties experienced by importers during the lockdown also significantly reduced volumes of incoming footwear (for March and April the reduction exceeded -40%).
There were across-the-board decreases for all segments: reductions for leather shoes (-18% in volume and -19.6% in value) were in line with the overall average across all segments. The reduction in goods from China (-15.4% in volume and -8.2% in value) was nevertheless more limited than reductions experienced by other non-Chinese suppliers (these were in the region of -20% in both volume and value terms). Despite an increase of 8.5%, the average price of Chinese products (6.23 Euro/pair) is almost three and a half times lower than products from other countries.
● The trade balance for the sector for the first six months of the year remained positive by 1.6 billion Euro, despite shrinking by -33.8%.
● Data relating to company demographics and employment continued the negative trends that have been ongoing for some while. These figures obviously do not yet show – due to registration time lags and because of the measures taken by the government ('Cure Italy' and 'Relaunch' decrees) that blocked sackings – the effects a crisis of this magnitude will certainly have on the country's manufacturing and productive fabric. A survey by Confindustria Moda revealed that in July 10% of companies still had their staff working remotely.
For footwear manufacturers, at the end of June 2020, there were 4,249 companies and a workforce of 74,370 in Italy across industrial and craftsmanship sectors (with a decrease of -77 companies and -520 workers compared to December 2019).
Considering also components, the reduction from the start of the year increases to -161 companies and -1,295 workers according to Infocamere-Movimprese. A geographical breakdown is available for these chamber of commerce figures, which shows – in terms of the number of companies trading – a reduction in all seven of the main footwear manufacturing regions, with the sole exception of Campania (where there are 3 more companies compared to the final figures for 2019). In the Marche, that has been heavily affected in recent years by the crisis of the Russian market, we see the biggest reductions in absolute terms (-63 units); followed by Tuscany (-43) and Lombardy (-21).
With regard to workforces – where all the main districts, with no exceptions, experienced reductions – once again it is the Marche that experienced the biggest fall (-445 workers, -2% down on December 2019), followed by Veneto (-284 workers) and Tuscany (-267). This negative trend is unfortunately bound to worsen in the following months, when official data becomes available on the number of companies that have not been able to get through this extremely delicate economic situation.
● Figures published by INPS relating to authorised CIG wage support in the Leather Supply Chain fully capture the severity of the current situation.
As revealed by the surveys by Confindutria Moda – during the survey conducted in July more than 97% of companies in the sample stated they had made use of social security schemes since the start of the health emergency, with 77% of the total workforce having tapped into these – authorised CIG hours saw extraordinary increases starting from the month of April. After the reduction during the first quarter (-10.5% down on the same period in 2019), in April 2020, 23.9 million hours were authorised for the leather supply chain (a +2871% yearon-year increase), while the figures for May and June were 7.5 million hours (+1633%) and 5.7 million hours (+651%) respectively.
On the whole, for the first six months of 2020, a total of just under 39 million hours were authorised, a jump of +878% compared to the number of authorised hours during the first half of 2019 (4 million). This was almost 5 times the number of hours authorised during 2019 as a whole (8.3 million hours).
Never in the past has the number of authorised hours been so high, not even during the global economic crisis that began at the end of 2008. Between January and June 2020, more hours were authorised than during all of 2009 (23.1 million) and all of 2010 (29.7 million). Tuscany (with about 10 million hours authorised) saw the biggest increase, in both absolute and percentage terms (+3080% compared to the first half of 2019), but there were large increases for all the main districts in the leather supply chain.
The expectations for the second half of the year – considering also the rise in the number of cases in many countries, including Italy, where it had appeared the virus was progressively waning – must necessarily recognise the uncertainty and the need for caution, especially when considering the time required to return to “normal” levels of business.
Almost 3/4 of companies (73.5%) have had to revise their scheduled investment plans because of the pandemic.
In response to the question about forecasts for turnover for 2020 as a whole compared to 2019 – assuming the health situation does not worsen in autumn – half of the footwear manufacturers involved in the survey by Confindustria Moda thought the drop would be in the range of 20-50%. Only 5% of the sample believed they would reach 2019 levels and an even smaller share of respondents (1%), believed they would end the year up on 2019. When the responses are weighted based on company size, the forecast for turnover in the sector points to a reduction of around -24% (which would represent a loss of 3.4 billion Euro). This is clearly a preliminary assessment based on a sample which was conducted with more than five months left to run in the year. It is subject to the uncertain development of the healthcare emergency around the world in the coming months but, nevertheless, it does give an indication of the severity of the impact Covid-19 will have on the performance of the sector.
Milan, 16 September 2020