India’s footwear exports face headwinds because of heavy dependence on European markets, where weakening consumer demand has hurt export orders and industry profitability, according to an ICRA Research report.
The report highlights that Indian footwear exports recorded a compound annual growth rate (CAGR) of 14% in US dollar terms during the five years ending March 2015. This growth was driven primarily by higher average selling prices (ASP), along with moderate growth in export volumes.
India’s footwear exports command an average selling price of around $13 per pair, significantly higher than China’s $4.50 per pair and the global average of $8.35 per pair. ICRA attributed this difference largely to variations in product profiles and market positioning.
However, the sector faces considerable geographical concentration risks, with nearly 75% of its export revenues coming from Europe. Indian footwear exports predominantly cater to lower- and middle-income consumers in the region, for whom footwear is largely a necessity rather than a luxury purchase.
During FY2014 and the first half of FY2015, Indian footwear exporters experienced healthy volume growth, supported by stronger European orders and increased outsourcing by developed economies, particularly the United States, to countries other than China.
ICRA noted that leading footwear exporters had also reported an increase in shipments to the US market. However, weakening footwear demand in Europe during the subsequent quarters emerged as a major concern.
The impact was reflected in a contraction of nearly 25% in the order books of leading footwear export companies over the preceding year.
Profitability also came under pressure during FY2015 due to adverse foreign exchange movements, under-absorption of fixed costs and rising raw material prices. Exporters were unable to fully pass on the increased input costs to their customers, further affecting margins.
The report underscores the vulnerability of India’s footwear export industry to demand fluctuations in its key European markets and highlights the importance of diversifying export destinations to reduce geographical concentration risks.