Last year, the COVID-19 pandemic and protracted tariffs on China were among the biggest factors that led to a massive decline in United States’ footwear imports. Government-mandated shutdowns and restrictions on production facilities and retail stores, coupled with the impact of the Washington-Beijing trade war under the Trump administration, drove less consumer spending and factory output than recorded in years past.
Now, as the industry heads into 2021, top shoe executives are predicting yet another challenging year — albeit with some silver linings ahead as coronavirus vaccines continue to roll out and a new relief bill is underway. Here, what leaders from the Footwear Distributors and Retailers of America and the American Apparel and Footwear Association are watching over the next several months.
Subdued demand trickles into 2021
According to the Commerce Department’s Office of Textiles & Apparel, footwear imports in the U.S. fell 22.8% to $19.66 billion last year — a staggering drop considering that imported shoes account for roughly 99% of the total U.S. footwear market. Industry executives suggest that, while shipments are expected to rebound this year, it will not be enough to offset the collapse in 2020, let alone get close to the record volumes notched in 2019.
“Unless the economy fully recovers from the pandemic, we think demand will remain down,” AAFA SVP of policy Nate Herman told FN. “I don’t think they’ll fall any further than they were, but they certainly won’t recover to 2019 levels unless we all of a sudden have everything open back up by summer.”
According to the FDRA, U.S. footwear imports extended their downturns both in volume and value terms well through the end of the year: In December, the volume of shoe imports tumbled by 13.4% year over year, while their value slid 10.2% — both figures down for the 16th consecutive month.
“The import numbers are always a great barometer for demand as it relates to the American consumer, so it shouldn’t be a surprise that we saw the declines that we did in 2020,” said FDRA president and CEO Matt Priest. “That being said, anecdotally, I keep hearing optimism for the second half of the year. The other thing we’re seeing is just a glut of inventory. Goods are not moving in as quickly, and the strain on the supply chain is expected to continue to the spring at a minimum. That leads you to believe that more product is coming in to meet demand, so we’re cautiously optimistic.”
Unlike last year, experts are more hopeful as the government works to vaccinate a high percentage of the population against COVID-19. Since distribution began in the U.S. in mid-December, upwards of 64 million doses have been administered, inoculating 13.3% of the total U.S. population, according to data from the Centers for Disease Control and Prevention. What’s more, President Joe Biden’s $1.9 trillion stimulus package is expected to pass in the House of Representatives later this week and subsequently the Senate, pending any objections.
“If we do begin to see widespread distribution and the efficacy of the vaccine; if we see warmer weather, the idea is that COVID tends to ease a bit, much like we saw last summer; and if there’s renewed stimulus from the government,” FDRA chief economist Gary Raines said, “I think those three issues really help to stoke demand across the spectrum and ultimately for footwear demand.”
Getting out of China
Over the past several years, footwear companies have been steadily moving production out of China amid rising labor costs and the escalation of the country’s trade dispute with the U.S. Tariffs had been a significant focus for former President Donald Trump, who made a campaign pledge to resurrect American manufacturing by slapping steep tariffs on foreign competitors, particularly China. Following years of tit-for-tat duties, Trump and Chinese President Xi Jinping struck a truce last January, but the Section 301 tariffs on Chinese goods remain in place.
Per the OTEXA report, imports from China have been dealt the biggest blow, with shipments to the U.S. dropping 37.6% to $7.95 billion. At the end of the year, China’s share of the market for footwear imports to the U.S. amounted to 40.4% — a drop from 48.1% in 2019. While this decline is expected to continue in the years ahead, industry leaders don’t expect notable changes in the first year of the Biden administration, which Priest said could see the Section 301 duties as leverage.
“Because of COVID, I don’t believe President Biden is in a position to want to put down his China trade cards right away, and because of the politics of our relationship with China, he could find it difficult to roll those back unilaterally without some kind of concession,” explained Priest.
Herman noted, “I don’t think the tariffs are going to be removed, so we’re going to still be in the same situation. For better or for worse, it’s a known situation, so at least the uncertainty is removed. It’s not going to get worse, but it’s not going to get better.”
The rise of alternative sourcing hot spots
As they exit China, a number of footwear companies are turning to neighboring countries. Today, Vietnam is considered the second largest supplier of shoes to the U.S. OTEXA showed that imports from the country fell 5.5% in 2020, but its market share continued to expand to 32.6% from the prior year’s 26.6%.
And it’s not just Vietnam that’s gaining ground. According to the FDRA, Cambodia, Myanmar and Bangladesh are rising as exporters to the U.S. and each country has seen “pretty robust increases,” said Raines. “Despite the pandemic, those three managed to expand shipments to record volumes this past year, and I think it’s an awfully intriguing story. They’re coming from fairly low volumes to begin with, but these record volumes are something we’re watching as we get deeper into 2021 and we see this presumed rebound in demand.”
Still, many experts insist there remains a dearth in sourcing options for apparel and footwear outside of Vietnam and China, which have developed the infrastructure, factories and workforce necessary to manufacture shoes and clothing on a scale demanded by American consumers — that is, according to the FDRA, 2.4 billion pairs of shoes a year or 7.4 pairs for each person.
“There’s no way any single country — or even three or four countries — can make up what’s currently being done in China,” Herman said.
What’s more, Priest said companies need to consider the pros and cons of each country before extracting their facilities from China and setting up in new territory. “Some of them are more politically stable than others. Some of them have lower wage rates than other. Some of them have a younger working population than others. Some of them have more difficult challenges and some of them have military conflict,” he said. “There are all these variables that go into the decision-making process for these companies that want to go into these countries.”
Zeroing in on human rights
On the minds of footwear industry executives, as well, is the issue of human rights as Biden moves to rejoin the Geneva-based United Nations Human Rights Council. (The Trump administration quit the UN Human Rights Council in 2018.) Most recently, the spotlight has been on the coup in Myanmar, where the democratically elected members of Myanmar’s ruling party were deposed at the start of the month by the country’s military force. In response, Biden announced sanctions against Myanmar generals responsible for directing the coup, as well as froze “U.S. assets that benefit the Burmese government.”
This could have ramifications for the shoe industry, which sees Myanmar as a “very small” but “fast-growing” supplier of footwear to the U.S., said Herman. The country represents 0.4% of total shoe imports to America but had a “significant” double-digit increase in 2020. “If those sanctions start expanding, could that affect the footwear industry?” he asked. “Could President Biden’s focus turn to Cambodia, which certainly also has human rights issues?”
Herman added, “If he decides to do something, it could take a while, but our new president and new Congress have a much bigger focus on human rights, so we should be looking at where we’re sourcing from through that lens.”
According to experts, the coup could also end up depressing U.S. companies’ investments in Myanmar and prompt others to retreat entirely from the country. In the first 11 months of 2020, the U.S. Census Bureau reported that total trade in goods between Myanmar and the U.S. amounted to nearly $1.3 billion — up from $1.2 billion in all of 2019 — despite the pandemic. Myanmar, however, still ranks as 84th on the list of U.S. goods suppliers.
“It’s not as huge as other countries as far as numbers,” explained Priest, “but it will impact some of our companies that have started small runs there just to test the waters and see what kind of production we can get out of the country.”
A resurgence for Made in America?
Upon taking office last month, Biden signed an executive order meant to boost federal purchases of American-made products. While a lot still remains up in the air, industry leaders say there’s no doubt that domestic manufacturing is back in the limelight.
According to the FDRA, U.S. shoe production is estimated at just roughly 25 million pairs every year. It represents about 2.5% of the total market today, but Priest predicts that could grow to between 3% and 5% over the next couple of years — and Herman agreed.
“The trend line has been growing over the last 10 years or so, and I see that trend line growing,” Herman said. “COVID has made that even more important because we can see what happens to global supply chains with shutdowns, but the U.S. will still have a relatively small percentage of the total market.”
Although labor in countries like China, Vietnam and Mexico generally remain less expensive than in the U.S., some experts have pointed out that the gap between the cost of manufacturing in such countries and America has been narrowing over the past several years. According to management consultancy Boston Consulting Group, Chinese manufacturing labor costs have been rising by 15.6% per year on average, while manufacturing labor costs in the U.S. have increased just 2.7% per year.
At the same time, Priest said that the U.S. has matured away from the “simple” production of apparel and footwear, leaving the country to produce niche or more innovative products with higher price points and higher labor costs. Because of such, he said, “We are not going to turn into a powerhouse of footwear production. It’s not because we don’t like to buy American-made shoes; consumers, when you poll them, do like to do that. Now, when the shoe is more expensive or doesn’t have the functionality that they need, they’ll quickly ditch the ‘Made in America’ label to buy what they do need.”