As the primary raw materials for sports shoes, rising international crude oil and rubber prices, along with increasing labor costs, are putting growing pressure on shoe manufacturers. Recent financial reports and trade fair data from major brands such as Anta, 361 Degrees, and Peak indicate that many companies are planning to raise their selling prices by approximately 5% to 10% in response to rising production costs.
Petroleum, rubber, and cotton remain the key materials used in the manufacturing of sports shoes. Recently, the prices of these three main components have all increased significantly. According to a deputy director from Sinopec’s Department of Information and Marketing, the era of high oil prices is here to stay. The price of natural rubber has also reached historic levels, with domestic prices rising from 25,000 yuan per ton in 2010 to a record high of 39,800 yuan per ton in November of that year. Analysts at Guolian Securities believe that natural rubber prices will continue to climb in 2011.
This surge in raw material costs has led many shoe companies to feel significant pressure. Anta, 361 Degrees, and other industry players have confirmed in their recent financial reports that raising product prices has become a key strategy. An industry insider from Sichuan's footwear sector told the Chengdu Commercial Daily that the increase in raw material costs has had a major impact on manufacturers, with average cost increases estimated at around 10%.
Branded shoe manufacturers have already begun to implement price hikes. Anta reported on February 21 that the average selling price of its footwear and apparel products rose by 4% and 8.8%, respectively. In its financial report, Anta noted that "production costs will continue to rise, and to cope with inflation, this year’s products will see price increases, with an average margin of about 10%."
Another major brand, 361 Degrees, announced in its February 22 financial report that due to rising staff costs and raw material pressures, the average selling price of its shoes increased by approximately 5.5% in the second half of last year, with further increases expected this year. Similarly, Xtep and Peak both announced that their sneaker prices would rise in 2011, driven by higher raw material and labor costs. Xtep stated that "footwear prices will not increase by more than 10%", while Peak confirmed that its shoe prices would rise by 5% to 10%.
As a supplier to major brands like Anta, Xtep, 361 Degrees, and Hongxing Erke, Taiya Footwear also announced in its 2010 annual performance report that it had raised the sales prices of soles and related products due to rising raw material costs.
With raw material prices continuing to climb in secondary and tertiary markets, competition in first-tier cities remains intense. How will branded sports shoe manufacturers adapt? According to recent financial and trade fair data, expanding into secondary and tertiary markets has become a core strategy for many companies.
Xtep’s third-quarter 2011 trade fair data showed that the company plans to open 800 to 1,000 new stores in the secondary and tertiary markets, mainly in Sichuan, Hunan, Anhui, and Shandong. Anta added 968 new stores last year, primarily in secondary and tertiary cities, and its financial report indicates that it will continue to accelerate expansion in these areas, aiming to reach 10,000 outlets. Even global giants Nike and Adidas have announced plans to increase their presence in second- and third-tier cities over the next five years.
Lai Yijun, an analyst at Guoyuan Securities, said that the challenges faced by sneaker brands have only just begun. Meanwhile, the Chengdu Business News reported that the draft of the “12th Five-Year†Development Plan for Sichuan’s footwear industry will be released soon, aiming to grow the sector’s production value to over 100 billion yuan by 2015 and create 3 to 5 well-known domestic brands.
Peng Jun, chairman of the Western Shoe Capital, mentioned that the development plan for Sichuan’s footwear industry during the “12th Five-Year†period was compiled by the Western Footwear Industry Operations Co., Ltd. and the Sichuan Academy of Social Sciences’ Industrial Economic Research Institute. The plan is currently being refined and will be submitted to the Provincial Economic Commission for review by mid-March.
Shaoxing Harbour Textile&Garments Co., Ltd , https://www.sxharbour.com