Indian footwear industry report - April 2015

Reevolv Advisory Services

Private Limited

Indian Footwear Industry Report

This document has been prepared by Shilpa Bhattar and Kaustubh

Kulkarni. For any queries or detailed information contact us on

+91 22 – 6002 2001 /+91 – 22 – 2436 3161

or email at [email protected]

”A shoe has much more to offer than just to walk”, perfectly

sums up the Indian Footwear story. Last decade or so has

witnessed a sea change in the footwear industry, from a basic

need based industry to a fashion, style, quality and performance

focused industry.

The size of the domestic footwear market in India was around

Rs. XX Bn in 2010, which has grown from Rs. XX billion in 2005

at a CAGR of XX% p.a. The urban market has been growing at

a faster pace of XX% p.a. (2005–2010) compared to the rural

market which has been growing at a CAGR of XX%.

As per our estimates, the industry will grow at a CAGR of XX%

p.a. to reach to Rs. XX billion in 2015.

APRIL 2015


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Table of Contents

Particulars Page Nos.

1. Executive Summary 4

2. Global Footwear Industry Overview 5

3. Indian Footwear Industry Overview

3.1. Market Opportunity 7

3.2. Growth Drivers 10

4. Business Dynamics

4.1. Industry Constituents and Structure 12

4.2. Industry Characteristics 17

4.3. Business Model 18

4.4. Cost Structure 21

4.5. Key Success Factors 22

4.6. Key Challenges 25

4.7. SWOT 27

4.8. Porter’s Five Forces Model 28

5. State-wise Distribution of Exclusive Brand Outlets across Brands 30

6. Player Profiles

6.1. Action 32

6.2. Adidas 42

6.3. Bata 46


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6.4. Catwalk 51

6.5. Crocs India 55

6.6. Khadim’s 59

6.7. Lancer 64

6.8. Liberty 69

6.9. M & B 73

6.10. Metro 77

6.11. Nike 81

6.12. Paragon 85

6.13. Pavers England 93

6.14. Puma 96

6.15. Red Chief 99

6.16. Red Tape 102

6.17. Relaxo 106

6.18. Reliance Footprint 110

6.19. SSIPL Retail Limited 114

6.20. Tresmode 118

6.21. VKC 122

6.22. Woodland 154

7. Select Interviews 157

8. Annexure 160


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1. Executive Summary

”A shoe has much more to offer than just to walk”, perfectly sums up the Indian Footwear story. Last decade

or so has witnessed a sea change in the footwear industry, from a basic need based industry to a fashion,

style, quality and performance focused industry. These changes have been driven by a host changing of

demographics and economic factors like growing young and working population, increasing disposable

incomes, increased discretionary spending, growing fashion consciousness, increased media exposure etc.

Around XX% of India’s population lives in rural areas. Though the number is gradually decreasing with

increasing urbanization, a sizable population still stays in rural India. As per our estimates, an average rural

consumer spends around Rs. XXX per annum on footwear as compared to an urban consumer which spends

around Rs. XXX per annum on footwear.

As per our estimates, the industry will grow at a CAGR of XX% p.a. to reach to Rs. XX billion in 2015. The urban market is estimated to grow at a CAGR of XX% (2010-2015E) to reach Rs. XX billion in 2015 from Rs. XX billion in 2010.

The footwear market in urban cities (tier 1, 2 and 3 cities) is around Rs. XX billion in 2011 with tier 1 cities

constituting more than XX% of the total market in Tier 1, 2 and 3 cities.

Indian footwear retail is mainly an unorganized market with around XX market share. The size of the organised market which was around Rs. XX billion in 2010 increased to ~Rs. XX Bn in 2011, growing at a CAGR of ~XX% every year since 2008. The market is expected to reach Rs. XX billion by 2015

growing at a CAGR of ~XX% p.a.


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2. Global Footwear Industry Overview

The worldwide consumption of footwear is dependent on population and consumer income levels. As a result,

factors such as inflation, recession, changes in consumer preferences and purchasing power affect the

footwear industry. With the growing world population, the consumption of footwear has been increasing

steadily.

As per the XXXXXXXXXXXX, the world footwear production has reached a record XX billion pairs in XXXX.

Production of footwear is heavily concentrated in Asia with XX% of world’s production of XX billion pairs

coming from this continent in XXXX. This is mainly because of availability of raw material and cheap and

skilled labour.

The consumption of footwear however is more evenly distributed compared to production as it follows

population and disposable income. Asia has the highest consumption of footwear with XX% due to large

population base followed by Europe (XX%) and North America (XX%) having higher disposable income.

Distribution of Footwear Production by Continent (quantity) XXXX

Distribution of Footwear Consumption by Continent (quantity) XXXX

Source: XXXX Source: XXXX


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Rank Country Pairs Millions

World share

1 2 3 4 5

6 7 8 9

10

Rank Country Pairs (millions) World share Per capita (pairs) 1

2 3 4 5 6 7 8 9 10

China is the world’s largest footwear market with XXX billion pairs consumed in XXXX. XXX which traditionally

was the largest market has been relegated to second place by XXX. XXX is the leader in footwear imports,

with more than XX billion pairs imported in XXX. India with XX billion pairs consumed is the world third largest

market.

The average per capita world consumption of footwear has been steadily increasing with around XX pairs per

year in XXXX. Though XXX is the world’s third largest market, the per capita consumption of footwear is below

the world average at XXX pairs per year in XXXX.

XXX produces more than XX% of the world’s footwear

by volume. XXX dominates the industry, especially the

cheaper end of the market. Though XXX is the largest

exporter, its share is much smaller, in terms of value

(XX%) vs. , volume (XX%) as a result of the low

average price of XX.

XXX on the other hand is the second largest exporter

in the world. By value, it has a share of XX%, even if it

represents only XX% of the volume exported with an

average price of almost XX. It leads the market in

production of high-end designer shoes. XXX with USD

XX Bn represents XX% of the total global exports by

value and an average price of USD XX.

Top 10 Footwear production countries (quantity) XXXX

Top 10 Footwear consuming countries (quantity) XXXX

Source: XXXXX

Source: XXXX


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3. Footwear Industry Overview

3.1. Market Opportunity

Total Market

The size of the domestic footwear market in India wasaround Rs. XXX Bn in 2010, which has grown from Rs.

XX billion in XXXX at a CAGR of XX%p.a. The urban market has been growing at a faster pace of XX% p.a.

(XXXX–XXXX) compared to the rural market which has been growing at a CAGR of XX%.

As per our estimates, the industry will grow at a CAGR of XX% p.a. to reach to Rs. XX billion. The urban market is estimated to grow at a CAGR of XX% (XXXX-XXXXE) to reach Rs. XX billion in XXXX from Rs. XX billion in XXXX.

Fig 2: Footwear Industry Size (XXXX–XXXXE)

Rs. In billion 2005 2010 2015E CAGR% (2005–10)

CAGR% (2010–15E)

CAGR% (2005–15E)

Total

Urban

Rural

Urban Market %

Rural Market %

Organised vs. Unorganized

Indian footwear retail is mainly an unorganized market with around ~XX% market share. The size of the organised market which was around Rs. XX billion in XXXX increased to ~Rs. XX Bn in XXXX, growing at a CAGR of ~XX% every year since XXXX. The market is expected to reach Rs. XX billion by XXXX growing at a CAGR of ~XX% p.a.

0%

20%

40%

60%

80%

100%

2005 2010 2015ERural Urban

Out of the total market in XXXX, the urban

market constitutes XX% of the total market size

compared to XX% in XXXX. The share of the

urban market is expected to increase slightly to

XX% in XXXX. The rural market is expected to

grow at a CAGR of XX% to reach Rs. XX billion

in XXXX from Rs. XX billion in XXXX.

Source — Reevolv estimates; based on NSS reports on Household Consumption Expenditure and United Nations estimates — World Urbanization Prospects: The 2011 Revision Note: The totals may not match due to rounding errors Fig 3: Share of Urban and Rural Market (XXXX–XXXXE)

Source — Reevolv Estimates


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Urban Market— Tier 1, 2 and 3 cities

The footwear market in urban cities (tier 1, 2 and 3 cities) is around Rs. XX billion in XXXX with tier 1 cities constituting more than XX% of the total market in Tier 1, 2 and 3 cities.

Fig 4: Footwear Industry Size — Tier 1, 2 and 3 cities

Tier 1 —Delhi-NCR, Mumbai, Kolkata, Bangalore, Chennai, Hyderabad, Pune, Ahmadabad (cities with population of more than 5 million).

Tier 2 —Agra, Allahabad, Amritsar, Asansol, Aurangabad, Bhopal, Coimbatore,Chandigarh, Dhanbad, Durg-Bhilainagar,

Vishakhapatnam, Gwalior, Indore, Jabalpur, Jaipur, Jamshedpur, Jodhpur, Kannur, Kochi, Kanpur, Kollam, Kota, Kozhikode, Ludhiana,

Madurai, Malappuram, Lucknow, Meerut, Nashik, Patna, Nagpur, Raipur,Rajkot, Ranchi, Srinagar, Surat, Thiruvananthapuram, Thrissur,

Tiruchirappali, Vadodara, Varanasi and Vijayawada.(Cities with population of 1 to 5 million).

Tier 3—Ajmer, Aligarh, Amravati, Bareilly, Belgaum, Bhavnagar, Bhiwandi, Bhubaneswar, Bikaner, Bokaro, Cuttack, Dehradun, Durgapur,

Erode, Firozabad, Gorakhpur, Gulbarga, Guntur, Guwahati, Hubli-Dharwad, Jalandhar, Jammu, Jamnagar, Jhansi, Kolhapur, Malegaon,

Mangalore, Moradabad, Mysore, Nanded, Waghala, Nellore, Puducherry, Rourkela, Saharanpur, Salem, Sangli, Siliguri, Solapur,

Tiruppur, Ujjain, Warangal (cities with population of 0.5 to 1 million).

Fig 5: Tier 1 Footwear Industry Size (XXXX) - XXXX Rs. million

Cities No. of Cities Rs. million Tier 1 cities Tier 2 cities Tier 3 cities Total

Source — Reevolv estimates, XXXX and XXXX Reports.

The total tier 1 market that constitutes metros

and other cities is around Rs.XX billion. Of all

the cities in India, XXX is the largest footwear

market with Rs. XX billion followed by XXX with

Rs XX billion. Among the tier 2 cities, XXX (~Rs.

XX million) is the largest market, followed by

XXX (~Rs. XX million), XXX (~Rs. XX million)

and XXX (~Rs. XX million).

Source — Reevolv Estimates.


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Urban Market — State wise

Fig 7: Footwear Urban Market — Key states and per capita expenditure (XXXX)

Key States Urban Population (XXXX) [in millions]

Urban Market Size (XXXX) [Rs.billion]

Per Capita Expenditure on

FootwearServices (Rs.)

Fig 6: State-wise Footwear (Urban) Market (XXXX) — Market Size Rs. XX Billion

Source — Reevolv Estimates; XXX Reports

Among the states, XXXX with ~Rs. XX Billion (XXXX) has the largest market share of urban footwear market followed by XXX and XXX.

Among the major states (with urban

population more than XX million), XXX has

the highest urban per capita expenditure

followed by XXX and XXX. XXX, XXX and

XXX have the lowest urban per capita

expenditure on footwear.


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3.2. Growth Drivers

2006E 2011E 2016E 2021E

Fig 9: Break-up of India’s Consumer Expenditure (XXXX and XXXX)

Fig 8: India’s Working Population Break-Up (XXXX–XXXXE)

Source – XXXXX

Source —XXXXXX

0% 20% 40% 60% 80% 100%


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4. Business Dynamics

4.1. Industry Constituents and Structure The domestic footwear industry is estimated to be around Rs XX Bn. The unorganized nature of the industry,

especially on the upstream of the value chain offers a host of opportunities. The unorganized players have a

market share of around XX% of the total production in footwear industry. The footwear industry is classified in

two types namely leather footwear and non-leather footwear.

Fig 1: Footwear industry structure


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Manufacturing Process:

1. Leather Footwear: 2. Non Leather Footwear Manufacturing


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4.2. Industry Characteristics


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4.3. Business Model

Fig 6: Business Model:


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4.4. Cost Structure

Tanneries (Producing Finished Leather)

Description As a % of Sales

Operating Profit / EBIDTA

Footwear Manufacturing

Description As a % of Sales

Operating Profit / EBIDTA

Source – Reevolv Research

Source – Reevolv Research


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4.5. Key Success Factors


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4.6. Key Challenges


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4.7. SWOT of the Indian footwear market

Strengths Weakness

Opportunities Threat


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4.8. Porter’s five forces model

No Five Forces Remarks Current Trends

1. Power of Supplier (Low) a.

• Raw material

• Unorganized

• Imports from China,

Taiwan, Singapore

• Availability of

suppliers of

footwear

components

2. Availability of Substitutes (High)

• Nature of substitutes

• Supply of

substitutes

• Price differential

• Brand erosion


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3. Entry Barrier (Low)

• Time and cost of

entry

• Designs

• Brand play

• Market access

4. Power of Customers (High)

• Changing customer

trends

• Availability of

multiple options

• Discretionary

purchases

5. Competitive Rivalry (High)

• Type of competition

• Unorganized players

• Influx of foreign

brands


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5. State-wise Distribution of Exclusive Brand Outlets across Brands States Players

Andhra Pradesh Bihar Chandigarh Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra NCR Odisha Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttarakhand West Bengal Assam Other States Grand Total


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States Players

And hra Pradesh

Bihar

Chandigarh

Chhattisgarh

Goa

Gujarat

Haryana

Himachal Pradesh

Jammu & Kashmir

Jharkhand

Karnataka

Kerala

Madhya Pradesh

Maharashtra

NCR

Odisha

Punjab

Rajasthan

Tamil Nadu

Uttar Pradesh

Uttarakhand

West Bengal

Assam

Other States

Grand Total

Note - XXXXXXXX


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6. Player Profiles (for 21 players)

6.1.

6.1.1. Overview

Description

Company Name

Company Profile •

Promoter

Brands

Year of Incorporation

Production Facilities (Capacity and Sales)

•

Distribution •

Raw Material

Institutional Footwear •

Other Key Businesses •

Online Sales •

Future Plans •

Location

Source : Company Website and Reevolv Research


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6.1.2. Locations

Tier I Cities Tier II Cities

State Wise Region Wise

Others include : XXXXXX

Source: Company Website and Reevolv Research

1

2

3

44

3

2

1

0

1

2

3

4

5

Tier 1 City Tier 1 City Tier 1 City Tier 1 City

EBO MBO

1

2

3

44

3

2

1

0

1

2

3

4

5

Tier 2 City Tier 2 City Tier 2 City Tier 2 City

EBO MBO

10

20

30

4040

30

20

10

05

1015202530354045

Maharashtra Punjab Karnataka West Bengal

EBO MBO

North, 40

East, 20

South, 30

West, 10

North East South West


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6.1.3. Target Customer Segment

Men Women Kids

Formal •

Casual/ Semi Formal •

Sports • •

6.1.4. Pricing

Brands Rs. Per pair

Source — Company Website and Reevolv Research

Source —Company Website and Reevolv Research


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6.1.5. Financials

Profit & Loss Account for the year ended 31st March (Rs. Mn) FY2012 FY2013 FY2014

Balance Sheet as at 31st March (Rs. Mn)

FY2012 FY2013 FY2014

Source: Company Filings, Totals may not tally due to rounding off errors


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Key Ratios FY2012 FY2013 FY2014

Source: Company Filings and Reevolv Research


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7. Select Interviews Interviewer 1: Retailer

Questions Answers

What are the margins for a distributor in footwear Industry?

What are the general margins for a retailer in footwear industry?

What are the inventory levels maintained by a retailer?

How do the companies ensure that the distributor doesn’t charge higher margins than stipulated?

How many days it takes for the distributor to deliver goods once the order is placed?

What are the brands you sell?

Do you have any fixed customer base?

What are the margins offered to retailer by established brands?

What type of footwear is fast moving and why?

Do footwear companies take feedback from retailer?

What is the price differential between organized and local players?

What are the seasonal products?

How is the buying pattern of a typical female customer?

How is the buying pattern of a typical male customer?


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Interviewer 2: Manufacturer

Questions Answers

What is the type of footwear you manufacture?

Do you manufacture for other big brands?

What is the arrangement with international brands which you retail in India?

What is the domestic and export share?

What factors determine the pricing of raw material in case of footwear?

Has the domestic share changed over the years?

How many distributors you have per state?

Where is your manufacturing plant located?

Do you outsource the manufacturing job to smaller vendors?

Is the labour easily available?

Do you pay the labour on a per piece basis or on a salary basis?

What are the main buying criteria for footwear?

How is the children’s footwear market outlook?

What is the trend you are observing for last 5 years in footwear industry?

How do you see China as a threat to leather footwear manufacturing?

What are the key challenges for footwear companies? -

What is the basis of forecasting?

What is the SKU per male and female to be carried?

What is the margin offered to the retailer?

What is the average sales price for your product?

Is there any shortage of capacity?

What are the generic geographic variations which are observed?

Is the distributor critical?

What is the credit period offered to distributors?

What is the difference between apparel retail compared to footwear retail?

What is the strategy to build customer retention and loyalty?


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Questions Answers

What is your main product?

In how many MBOs / LFRs do you have presence?

What are the other states?

Do you have your own manufacturing unit?

When was the company incorporated?

What are the other types of products manufactured by your company?

From where do you procure leather?

Why have you chosen Chennai as your manufacturing base?

What is the margin you offer to retailers?

What is the margin you offer to distributors?

Is there any return goods policy?

What is the credit period you offer to the distributors?

What is your price point?

How many exclusive outlets do you have?


Questions Answers

What is the main season for sports shoes?

In which states your product is available?

Do you sell to retailers?

How many distributors do you have in every state?

What is the credit period offered to distributors?

Is there any minimum quantity the distributor has to order?

Who bears the logistics cost?

Does the MRP vary from state to state?

So how do you manage same price when the state taxes are different?

What is your daily production?

Do you pay labourers on per piece basis or on salary basis?

Why do you not package your products in a box?

From where do you procure the Raw Material?


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8. Annexure

8.1. Annexure 1

Manufacturing Process: 1. Leather Footwear:

Fig 2: Manufacturing process of leather footwear


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2. Non Leather Footwear manufacturing:

Fig 3: Manufacturing process of EVA footwear:

Fig 4: Manufacturing process of PU footwear:


33

8.2. Annexure 2:


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8.3. Annexure 3: Ratios

Key Ratios

Direct Cost % Material + Other Direct Expenses –

increase / decrease in Stock Total income

X 100

Personnel Expenses % Personnel Expenses

Total income X 100

Selling & Distribution Expenses %

Selling & Distribution Expenses Total income

X 100

Rent, Rates & taxes % Rent, Rates & taxes

Total income X 100

EBITDA % EBITDA

Total income X 100

PBT % PBT

Total income X 100

PAT % PAT

Total income X 100

ROCE % EBIT

Capital Employed X 100

ROE % PAT

Net Worth X 100

Capital Employed Total of Asset / Liabilities (Liabilities = Shareholders funds + Loan Funds + Deferred Tax + Minority Interest)

Working Capital Turnover Ratio

Total Income Net Working Capitalexcl. Cash Bank

Net Fixed Assets turnover ratio

Total Income (Net Fixed Assets excl Capital Work in

Progress)

Inventory Days Inventory

Direct Cost X 365

Debtors Days Debtors

Total Income X 365


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8.4. Annexure 4: Abbreviations

Abbreviations used

Rs Rupees

Mn Million

Bn Billion

NCR National Capital Region

NSS National Sample Survey

NA Not Available

NM Not Meaningful

EBITDA Earnings before interest, tax, depreciation and amortisation

EBIT Earnings before interest and tax

PBT Profit before tax

EVA Ethyl Vinyl Acetate

PAT Profit after tax

PVC Polyvinyl Chloride

PU Polyurethane

TPR Thermoplastic Rubber

DOP Di-Octyl-Phthalate

DOA Dioctyl adipate

DIDP Bis(n-butyl)phthalate

MBO Multi Brand Outlet

LFR Large Format Retail

ERP Enterprise Resource Planning


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Data & Analytics

Indian footwear industry report - April 2015