IN­COR­PO­RAT­ING GLOBAL TRENDS TO FORE­SIGHT FOOTWEAR MAR­KET

In­cor­po­rat­ing Global Trends to Fore­sight Footwear Mar­ket

Shoes & Accessories - - Contents - World Footwear – by Por­tuguese Shoes

The World Footwear project is an ini­tia­tive of APICCAPS which in­cludes an elec­tronic plat­form with up­dated in­dus­try news (www.world­footwear.com) and an an­nual edi­tion of the World Footwear Year­book.

In a so­ci­ety with an econ­omy char­ac­terised by change and volatil­ity, World Footwear pro­poses a re ec­tion based on the trends that will im­pact on our world over the next few years. As a re­sult of this ex­er­cise we will of­fer some in­sights into eco­nomic, de­mo­graphic, so­cial and cul­tural trends, while we con­sider their im­pli­ca­tions not only from a global point of view, but also fo­cus­ing on the im­pacts in the footwear in­dus­try in par­tic­u­lar.

Tech­nol­ogy is de­vel­op­ing fast, and ac­cess to the In­ter­net and ma­jor me­dia chan­nels re­sults in con­sumer em­pow­er­ment, im­pact­ing on the way buy­ers in­ter­act with the brands they ac­quire the prod­ucts from. This also gives com­pa­nies and brands the op­por­tu­nity to de­velop an emo­tional bound with ex­ist­ing and po­ten­tial clients all over the globe, greatly sup­ported by so­cial net­works and on­line plat­forms.

While eco­nomic growth con­tin­ues, a new mid­dle class is start­ing to ap­pear in emerg­ing economies and this will have sig­nif­i­cant im­pli­ca­tions for de­mand, con­sump­tion and ul­ti­mately in pro­duc­tion. Busi­nesses will have to un­der­stand where the po­ten­tial to grow their ac­tiv­ity is and how and where can they po­ten­tially gain more clients. More than work­ing to keep a share in the lo­cal mar­ket, com­pa­nies will have to think for­ward and un­der­stand where their con­sumers are lo­cated, re­gard­less of the po­lit­i­cal bor­ders that sep­a­rate them. New mar­kets in dis­tant coun­tries might be­come key des­ti­na­tions for brands and com­pa­nies, re­sult­ing in di­verse lo­ca­tions with cus­tomers with dif­fer­ence pref­er­ences and a var­ied de­mand with im­pli­ca­tions in the de­sign of the prod­ucts, which will re­quire a con­stant at­ten­tion de­voted by com­pa­nies to the prod­uct’s re­quire­ments.

An­other el­e­ment to bear in mind in this sce­nario is with­out any doubt the grow­ing age­ing pop­u­la­tion, which is not a re­cent phe­nom­e­non, and will con­tinue to in­ten­sify. Coun­tries from dif­fer­ent con­ti­nents are start­ing to face the con­se­quences of hav­ing an older pop­u­la­tion, and although this is much more as­so­ci­ated to de­vel­oped western coun­tries such as the United States or Europe, emerg­ing and de­vel­op­ing coun­tries won’t be im­mune to the trend. On the con­trary, China, for ex­am­ple, is one of the na­tions that will have to start to act upon this, as it will be hit with the con­se­quences of a rapidly age­ing pop­u­la­tion over the next few years.

The only cer­tainty one might have about the fu­ture is that it will be un­cer­tain. How­ever, de­spite all the un­pre­dictabil­ity that lies in the years to come, one thing can be taken for granted: con­sumer pref­er­ences and be­hav­iors will evolve as a re­sult of changes in de­mog­ra­phy, eco­nomic growth and with the mas­si­fi­ca­tion of in­for­ma­tion and com­mu­ni­ca­tion. Busi­nesses, com­pa­nies and brands can­not ig­nore th­ese facts, and it will be vi­tal for them to act in an­tic­i­pa­tion in­stead of re­act­ing quickly. Is eco­nomic power shift­ing back to Asia?

RE­BAL­ANC­ING

The re­bal­anc­ing of the econ­omy is a trend fun­da­men­tally linked to eco­nomic growth and to the re­align­ment of pow­ers caused by the dy­nam­ics of de­vel­op­ment. Nowa­days there is a pro­found dis­cus­sion about the ris­ing of the Asian su­per­pow­ers, but what most fail to ac­knowl­edge is that this won’t be the de­but of Asia as a lead­ing re­gion in the eco­nomic stage.

Con­sumer pref­er­ences and be­hav­iors will evolve as a re­sult of changes in de­mog­ra­phy, eco­nomic growth and with the basi­fi­ca­tion of in­for­ma­tion and com­mu­ni­ca­tion.”

If we go back to 1700, In­dia rep­re­sented roughly 25% of the world GDP, China had a lit­tle more than 20%, Ja­pan less than 5%, a set of three Euro­pean coun­tries (UK, Ger­many and France) had a share just slightly above 10%, and the US had a resid­ual share. In 1950 the US peaked with a share of the world GDP slightly above 25%, cor­re­spond­ing to an his­tor­i­cal min­i­mum con­tri­bu­tion by China (just be­low 5%). At that time, In­dia was still reg­is­ter­ing a de­cline in its con­tri­bu­tion to global GDP. In 2000 China and In­dia pre­sented grow­ing trends, while the other three blocs con­tin­ued to de­cline their share of the world GDP, a trend that is ex­pected to con­tinue in the years to come.

Emerg­ing mar­kets and de­vel­op­ing economies have been more dy­namic in the re­cent evo­lu­tion of GDP. The fore­casts for the next few years in­di­cate the main­te­nance of this trend. By 2019 ad­vanced economies will rep­re­sent 40% of the world GDP, i.e., at a level slightly be­low the con­tri­bu­tion of emerg­ing and de­vel­op­ing economies in 1995.

This ob­vi­ously rep­re­sents a change in the com­monly ac­cepted par­a­digm, as through­out the last decades con­sump­tion and pro­duc­tion pre­sented dy­nam­ics of growth that were ge­o­graph­i­cally dis­tinc­tive: con­sumer spend­ing growth was mainly as­so­ci­ated to the US , Ja­pan and Euro­pean coun­tries and man­u­fac­tur­ing ac­tiv­ity was mainly iden­ti­fied with Asian coun­tries. As the US and EU economies were hit with re­ces­sion and now grow at a slower pace, they will tend to im­port less (while fo­cus­ing on in­creas­ing ex­ports), and China and other Asian economies will have to shift away from the cur­rent model of eco­nomic growth based on ex­ports to fo­cus on their do­mes­tic mar­ket. As a re­sult a sig­nif­i­cant share of the global growth of con­sumer spend­ing will take place in emerg­ing mar­kets, and this will have im­pli­ca­tions for com­pa­nies and brands world­wide.

Ferragamo and Prada, fa­mous lux­ury prod­uct’s re­tail­ers are al­ready tak­ing ad­van­tage of this dy­namic, hav­ing in­creased their sales in the Asian re­gion over the last years.

Lux­ury brands shift their at­ten­tion to Asia Ferragamo

Ferragamo: Salvatore Ferragamo S.P.A., founded in 1927, is the par­ent com­pany of the Ferragamo Group, a key player in the lux­ury goods in­dus­try.

The group fo­cuses on the cre­ation, man­u­fac­ture and sale of footwear, leather goods, cloth­ing, silk prod­ucts, other ac­ces­sories and per­fumes, eye­wear and watches. With an ex­ten­sive net­work of more than 600 sin­gle­brand stores by the end of 2012 (338 di­rectly op­er­ated stores and 268 third­party op­er­ated stores or spa­ces, the group com­ple­ments this with a strong pres­ence in high-level multi-brand de­part­ment stores and spe­cialty stores. Ferragamo prod­ucts can be found in Italy and in over 90 coun­tries across the Euro­pean, Amer­i­can and Asian mar­kets.

As of 31st De­cem­ber 2007, the Asia Pa­cific re­gion (ex­clud­ing Ja­pan) rep­re­sented 26.1% in to­tal rev­enue from the core busi­ness of the Ferragamo. Re­cent num­bers pre­sented by the group con­firm a share of 37.8% for the Asia Pa­cific mar­ket in to­tal rev­enue as of 30th June of the cur­rent year. Grow­ing by 6% in the first half of the cur­rent fis­cal year, rev­enue in Asia Pa­cific in­creased from 165.9 mil­lion eu­ros in fis­cal 2006 to 466.5 mil­lion eu­ros in the fi­nan­cial year end­ing at the 31st Jan­uary 2014, a growth rate of over 180%.

Prada: Prada S.P.A. and its sub­sidiaries are known as Prada Group, and is a global player in the de­sign, pro­duc­tion and dis­tri­bu­tion of lux­ury items, in­clud­ing leather goods, hand­bags, footwear, ap­parel, ac­ces­sories, eye­wear and fra­grances. Its prod­ucts are sold in 70 coun­tries world­wide through a net­work of di­rectly op­er­ated stores and a se­lected net­work of lux­ury de­part­ment stores, in­de­pen­dent re­tail­ers and fran­chise stores.

The Asia Pa­cific re­gion rep­re­sented 36.4% of the rev­enue gen­er­ated by the Prada Group as of the end of Jan­uary 2014, con­firm­ing it as the group’s top mar­ket in terms of rev­enue. To the ex­cel­lent sales per­for­mance in Asia, with an 11.4% growth dur­ing fis­cal 2013, much contributed the 27 net new open­ings in the re­gion. Out of a to­tal of 79 new stores world­wide, Asia Pa­cific at­tracted roughly 35% of the new open­ings. If we go fur­ther back to the be­gin­ning of 2009 (31st Jan­uary) rev­enue gen­er­ated in the Asia Pa­cific re­gion reached 282.7 mil­lion eu­ros, grow­ing more than 350% in just 5 years to reach 1 292.8 mil­lion eu­ros by the end of Jan­uary 2014.

Com­bined de­mo­graphic and eco­nomic growth

Although po­ten­tial to eco­nomic growth is im­por­tant it can­not be an­a­lyzed in iso­la­tion. If we take into con­sid­er­a­tion the eight ma­jor emerg­ing coun­tries (Brazil, Rus­sia, In­dia, China, In­done­sia, Mex­ico, Turkey and Vietnam) we see that they rep­re­sent roughly 49.4% of the world’s pop­u­la­tion. This set of eight coun­tries to­gether gen­er­ates a GDP that is twice the US GDP, but they have a pop­u­la­tion ten times greater than that of the US. This means that cur­rently al­most half of the world pop­u­la­tion is earn­ing a very low per capita GDP. Also, th­ese coun­tries are the ones pre­sent­ing the most dy­namic de­mo­graphic and eco­nomic growth, and the com­bi­na­tion of both dy­nam­ics of­fers a huge po­ten­tial for fu­ture growth of per capita GDP. Poverty re­duc­tion is on the way

As in­come rises and as eco­nomic growth con­sol­i­dates, those liv­ing in ex­treme poverty start to have ac­cess to new op­por­tu­ni­ties that al­low them to es­cape that sta­tus and push down poverty lev­els. Re­duce poverty, its causes and man­i­fes­ta­tions, has been on the po­lit­i­cal agen­das over re­cent years and in Septem­ber 2000 at the UN Mil­len­nium Sum­mit, the world’s lead­ers set it as a goal for the Mil­len­nium de­vel­op­ment agenda. Ac­cord­ing to UNESCO’S def­i­ni­tion, the in­ter­na­tional stan­dard of ex­treme poverty is set at an in­come of less than 1.25 US dol­lars a day.

With this in mind, some stud­ies point to a re­duc­tion by 50% be­tween 2010 and 2030. The drop in the num­ber of those liv­ing in ex­treme poverty has been quite sub­stan­tial in East Asia al­ready, es­pe­cially in China, where more than half its pop­u­la­tion was liv­ing be­low the poverty line (60.2%) in 1990.

That per­cent­age de­clined dra­mat­i­cally in nine years reach­ing 35.6% in 1999, ac­cord­ing to sta­tis­tics made avail­able by the United Na­tions. In a sim­i­lar way, other de­vel­op­ing coun­tries are ex­pected to fol­low the same route de­creas­ing poverty lev­els, as their in­come rises.

Mid­dle class growth will in­ten­sify

Eco­nomic growth and in­creas­ing in­come will be an op­por­tu­nity not only for those liv­ing un­der the poverty line, but will also re­sult in a grow­ing mid­dle class. Ac­cord­ing to a study pre­sented by Ernst & Young, in 2009 there were 1.8 bil­lion peo­ple con­sid­ered mid­dle class. By 2030 that num­ber is ex­pected to al­most triple and reach 4.8 bil­lion peo­ple, rep­re­sent­ing roughly 3 bil­lion new con­sumers join­ing the mid­dle class. As this num­ber grows, pur­chas­ing power will tend to in­crease re­sult­ing in ad­di­tional con­sump­tion, and even in­cre­ment of sav­ings.

The mid­dle class growth will be made at the ex­penses of the re­duc­tion of the num­ber of poor peo­ple liv­ing in the planet, and pro­jec­tions seem to in­di­cate that by 2030 most of the world’s pop­u­la­tion will be part of the mid­dle class, im­prov­ing their sta­tus from a cur­rent sit­u­a­tion in which the ma­jor­ity of the world’s pop­u­la­tion is poor.

The con­junc­tion of the dif­fer­ent el­e­ments of this sce­nario in de­vel­op­ing and emerg­ing coun­tries, with the mid­dle class grow­ing while the num­ber of peo­ple shift­ing poverty in­creases and the econ­omy as a whole de­vel­ops, re­sult in huge ad­di­tional con­sump­tion within the next few years, which makes th­ese very im­por­tant and at­trac­tive mar­kets for com­pa­nies and brands.

Is the world get­ting older? AGE­ING

Ac­cord­ing to re­cent sta­tis­tics by The World Bank, the av­er­age world fer­til­ity rate is 2.47 births per woman. This is the reflection of a mas­sive drop in the av­er­age fer­til­ity rate from the 4.98 births in 1960 to 2.49 in 2010. Although this is a ten­dency across the globe, im­pact­ing low-in­come coun­tries as well as mid­dle and high in­come ones, the re­duc­tion rate was dif­fer­ent. If we take China as an ex­am­ple, in 1960 the fer­til­ity rate was 5.76, a num­ber that started to drop sig­nif­i­cantly in the eight­ies fol­low­ing the im­ple­men­ta­tion of the one child pol­icy, and which re­sulted in a 1.66 births per woman in re­cent years.

Global fer­til­ity rate is con­verg­ing

While fer­til­ity rate de­creases across the globe, pro­gresses in the field of health such as new di­ag­no­sis and treat­ment meth­ods, new medicines, tech­niques and the basi­fi­ca­tion of health treat­ments have en­abled peo­ple to live longer lives. If we look at the av­er­age global life ex­pectancy age at birth, cur­rently stand­ing at 70.8 years, this has im­proved mas­sively since 1960 (im­prove­ment of 20.3 years). The evo­lu­tion of this in­di­ca­tor is even more im­pres­sive if, again, we look at the num­bers in China. In 1960 their life ex­pectancy rate at birth was only 43.5 years, and in just over 50 years the coun­try man­aged to im­prove this by 31.7 years, now reach­ing 75.2 years, 4.4 years above the world av­er­age.

This path char­ac­ter­ized by the de­crease of the fer­til­ity rate and the in­crease of the life ex­pectancy at birth is com­mon to all coun­tries, but its rhythm and its tim­ings dif­fer. De­spite sim­i­lar start­ing points across the globe, the group of high-in­come coun­tries man­aged to re­duce the fer­til­ity rate at a faster pace than low and mid­dle-in­come na­tions, while in­creas­ing life ex­pectancy at birth. Although im­prove­ments in th­ese ar­eas are ex­pected to con­tinue, es­pe­cially in low and mid­dle-in­come coun­tries, the fu­ture evo­lu­tion is not ex­pected to have the same breadth and pace.

An­other demon­stra­tion of the age­ing pop­u­la­tion is the shift in the me­dian age, with this be­ing the age that di­vides the younger from the older half of the pop­u­la­tion. At a global level, the me­dian age, changed

from 24 year in 1950 to 29 years in 2010, and The United Na­tions pre­dict that this will de­velop to 36 years in 2050.

An anal­y­sis based on in­come ar­eas, shows that less de­vel­oped re­gions will have a big shift in the me­dian age over the next decades, mov­ing from 26 years in 2010 to 35 years in 2050. As for the de­vel­oped re­gions, the pace is ex­pected to slow down, and the move­ment should to­tal only four years in­cre­ment from 2010 to 2050, af­ter a rapid in­crease from 28 years to 40 in the pe­riod 1950- 2010. In the least de­vel­oped coun­tries the mean age in 2010 was 19 years old, ex­actly the same as 16 decades ear­lier, with the in­di­ca­tor record­ing no progress at all dur­ing that Me­dian age is grow­ing very fast

CHANGE Older pop­u­la­tion

On av­er­age the world pop­u­la­tion will be older and older, as a re­sult of life ex­pectancy im­prove­ment and lower fer­til­ity rate, which char­ac­ter­ize the de­vel­oped world and which started to im­pact the de­vel­op­ing economies

Global prob­lem

The age­ing prob­lem will im­pact al­most all the coun­tries in the world and will have to be on the agenda for de­vel­op­ing and emerg­ing coun­tries

China’s 1-2-4 prob­lems

China in par­tic­u­lar, will be un­der spe­cific pres­sure as a re­sult of more than three decades of the one child pol­icy, which cre­ated the 1-2-4 prob­lems. Con­se­quences of this will start to be press­ing within the coming decades as many of the par­ents (the 2) re­tire from the la­bor mar­ket

IM­PACT Com­bine com­fort and life­style

As con­sumers get ma­ture their de­mand for footwear will fo­cus on com­fort shoes with­out com­pro­mis­ing life­style

Dif­fer­ent char­ac­ter­is­tics will be val­ued

Us­abil­ity, re­li­a­bil­ity and a long life cy­cle are char­ac­ter­is­tics of the prod­uct val­ued by ma­ture con­sumers and will rule con­sump­tion of footwear

Higher price sen­si­tiv­ity de­mand

While look­ing for the above listed char­ac­ter­is­tics, ma­ture con­sumers will be more sen­si­tive to price vari­a­tions

Footwear adapted to health prob­lems

New types of footwear and new mod­els of shoes de­sign to suit cus­tomers with dif­fer­ent health prob­lems (shoes for di­a­bet­ics, shoes for peo­ple suffering from de­men­tia, shoes for peo­ple with spe­cific al­ler­gies)

Evo­lu­tion of the foot shape

The size and shape of peo­ple’s feet might al­ter as a re­sult of trans­for­ma­tions oc­cur­ring in the body’s lig­a­ments and ten­dons through the age­ing process. As so­ci­eties age there will be higher de­mand for shoes adapted to the al­tered foot

Footwear for the health sec­tor pro­fes­sion­als

A new im­por­tant seg­ment will emerge, with the in­creas­ing im­por­tance of the health sec­tor. Pro­fes­sion­als from this sec­tor re­quire footwear with spe­cific char­ac­ter­is­tics and as this sec­tor de­vel­ops and gains more im­por­tance, de­mand for this type of footwear will grow

(Grav­ity De­fyer' s ex­clu­sive sole is de­signed to ab­sorb harm­ful shock that may cause pain in your feet, knees, back or joints)

Salvatore Ferragamo

Prada

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