INCORPORATING GLOBAL TRENDS TO FORESIGHT FOOTWEAR MARKET
Incorporating Global Trends to Foresight Footwear Market
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?
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
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