1 Hungarian footwear and leather goods market 2012 PRODUCTION OF FOOTWEAR AND LEATHER PRODUCTS Historical background to the sector Economic transformations such as the loss of the markets of the socialist countries and the collapse of the domestic market starting in the 1990s had an extremely negative impact on the leather and shoe industry. As a consequence, production fell by about a half in value terms. Those enterprises which were able to utilize their surplus capacity through hourly wage labour activities were those which managed to survive the changes. Dynamic growth both in production and in exports was registered between 1993 and 1998. This period witnessed significant privatization, the influx of high volume foreign capital investments and the formation of new markets resulting in significant restructuring of the sector. The structure of production was also transformed: production of bags and women’s footwear was reduced, while the manufacturing volume of automotive industry upholstery and men’s footwear increased. Products made from low value artificial leather were virtually excluded from the production process in Hungary. Between 1999 and 2001, the industry stabilized, and there was modest growth in the areas of production and employment. During this period, a negative trend arose: Hungarian shoe manufacturers gradually began to be excluded from the domestic market, and this trend is continuing today. Situation of the sector in 2010/2011 Globalization has not left this sector of industry unaffected either. It has been increasingly difficult for players on the domestic market to survive in the midst of increasing competition. The countries of the Far East enhanced their market dominance significantly as a consequence of the ever increasing degree of liberalization in international trade. This contributed to the declining role of the sector on the domestic market. At present approximately 85% of domestic production is sold on foreign markets. Aside from global difficulties, enterprises active in this sector must also struggle with such difficulties as the poor situation of professional training and new skilled labour. The sector is characterized by a lack of labour in many areas. The extremely low wage levels represent a bar to new professional recruits joining this sector. Many Hungarian manufacturers suffered from the Asian competition. Experts doubt if the sector will survive in the long term, and ask whether the only solution may be some form of protectionism. The industry has continued to contract and in 2010, there were 129 small to medium-sized companies, employing nearly 3,000 people. Production volume was 6.5 million pairs of shoes in 2010. Sub-sectors/technologies/products with potential from an export aspect healthcare footwear, work safety boots, one-off and luxury fashion items (fashion gloves), fancy leatherwork products, car and vehicle industry upholstery (textile leather) 1 2 Development of Hungarian footwear and leather goods production, exports and domestic sales 2010 2009 2008 151= Tanning 151= Tanning and dressing of and dressing 151= Tanning and leather; of leather; dressing of leather; Footwear manufacture of manufacture manufacture of 152= 152= 152= and luggage, of luggage, luggage, handbags, Manufacture Manufacture Manufacture leather handbags, handbags, saddlery and of footwear of footwear of footwear production saddlery and saddlery and harness; dressing harness; harness; and dyeing of fur dressing and dressing and dyeing of fur dyeing of fur Total sales value (thousand HUF) 60 830 574 44 446 293 35 290 473 42 336 755 71 332 663 39 194 762 Export sales value of products and services (thousand HUF) 59 897 474 39 035 882 34 554 179 36 298 814 69 190 093 33 068 030 Domestic sales value of products and services (thousand HUF) 933 100 5 410 411 736 294 6 037 941 2 142 570 6 126 732 Key target markets The most important target market of the leather and shoe industry, as well as the fur industry, is the European Union, and within this Germany, Italy, the Czech Republic, Austria and Romania. 95% of all Hungarian exports of these products go to these markets. In addition to the European Union, Russia is also an important non-EU target market for the leather and shoe industry, as well as the fur industry. Hong Kong remains extremely important as regards the fur industry. Due to the recession trends in Europe the Hungarian exports decreased by 9.4 p.c. (USD 106,7 million) compared to 2010. More than 90 per cent of the Hungarian shoe and leather production consist of wage-work. 1. FOOTWEAR MARKET DOMESTIC CONSUMPTION, TENDENCIES ON THE SHOE MARKET In 2011 footwear current value sales declined by 1% to reach HUF 106 billion. In terms of volume, there were 21, 9 million pairs of shoes sold in 2011, an 8% drop from 2010. Women’s and men’s non-sport footwear are the largest segments holding 41% and 25% volume share, respectively. 2 3 Consumption of footwear in Hungary, 2008 -2011 2006 2008 2010 2011 HUF Mill. Pairs Mill. HUF Mill. Pairs Mill. HUF Mill. Pairs Mill. HUF Mill. Pairs Mill. 81380 25 81120 25 10706 24 106000 22 Source: Euromonitor Annual expenditure per capita for footwear in Hungary 2008 2009 2010 2010 % Men’s footwear 3373 3477 3586 38.9 Ladies footwear 4000 3854 4049 43.9 Children 1358 1452 1519 16.5 Repairing 90 52 61 0.7 Expenditure for footwear per capita 8821 8835 9215 100.0 Total expenditure per capita 750309 747827 759608 Source: Central Statistic Office Market segments Working women are the most important segment for footwear in Hungary They buy for themselves, as well as for the children. In 2010, around 44 % of footwear expenditure was on women’s shoes, 39% on men’s shoes and 16, 5 % on children’s shoes. The Hungarian footwear market is broadly divided into high quality shoes, sold at high prices, which mostly come from Italy, Germany, Austria and Romania, and low priced shoes. Most of the lower priced footwear comes from Vietnam, Hong Kong and China. Market outlook The Hungarian economy has been affected badly by the global economic downturn and despite the decreases in price, footwear sales for 2012 are not encouraging. The market for footwear is unlikely to recover before 2014, as Hungarians focus their expenditure on essential items. The main Hungarian factories – Sabaria, Tisza, Duna – have needed the cooperation of western investors to survive. No wonder as the living standard is decreasing in Hungary, most of the local customers are still price-conscious. Hungarian households spend only 1.2 p.c. of their total expenditure for footwear. The prices reflect the West – European level, the average income of the local people is only one sixth of the West-European ones. Retail prices in 2012 HSC 6401 Waterproof footwear HUF/pair Products Open Small, medium sized Department stores Supermarkets, markets/Chinese shoe-shops hypermarkets markets Men’s footwear 2500 – 4000 9000 – 15000 130000 – 22000 14000 – 18000 Ladies footwear 2500 – 4100 12000 – 20000 17000 – 26000 15000 – 21000 Children footwear 2500 – 3600 4900 – 8000 4600 – 7500 4200 – 5000 Thai footwear is less known in Hungary, because the importers of South Asian products frequently change their sources. Every year approximately 10 000 Hungarian tourists visit Thailand. Many of them used to buy crocodile and snake leather shoes and leather products which 3 4 are curiosity in Europe. For the time being Thai shoe exporters have failed to explore this market segment yet. Crocodile and snake leather shoes and leather products can be considered as promising niche products for Thai shoe exporters. Trade channels for market entry Footwear distribution is still highly fragmented with most footwear sold through specialist independent retailers taking up 86% of the market in 2010. There is a large number of small regional chains and street markets, selling much of the counterfeit footwear. Ultimately, the small, independent outlets will lose out in this modernising process as there are now many new shopping centres with foreign retail chains. On the other hand, the fragmented trade structure is still most apparent outside of the major cities. The role of importers and wholesalers is gaining importance as the traditionally strong Hungarian footwear industry is losing ground to imports and to foreign chains stores operators. Exporters from developing countries should use wholesalers and agents in order to access the footwear trade. Many wholesalers also supply some non-specialist channels such as department stores. Manufacturing companies play an important role in the distribution system. Most wholesalers deliver their own goods to retailers and some even function as a retailer. Buying groups are also important on the Hungarian footwear market. Retail trade Retailing in Hungary has undergone significant changes in the last few years. There are 28 shopping centers with 1.000.000 m2 retail area offering also high-quality fashion goods around the country. Shopping habits are also changing, with weekend shopping at a single destination becoming popular. These changes are not only evident in Budapest, but have also extended to the rest of the country. The leading footwear retailers are the German-owned Deichmann with 56 outlets; Salamander with 16 outlets (http://www.salamander.hu); Reno, again German-owned (http://www.reno.hu) with 17 outlets; Humanic, part of the Austrian Leder & Schuh Group (http://www.leder-schuh-ag.com) with 27 outlets; Vögele (Austria) and the local retailer Horvath Cipo with 11 outlets (http://www.horvathcipo.hu). Not all specialist chains are locally-owned. In some cases purchasing decisions may be taken elsewhere. However, in the first instance it is advised to approach the local point of contact. There is a sharpening competition in retail trade. Recently many small and medium-size retail- trade companies went bankrupt or changed their business profile.