The Footwear Market In U.A.E.
Market Size
The footwear market in UAE is worth more than 1 billion Dirham (approximately US $ 250 millions) a year. Annual turnover including re-exports is more than 1.5 billion Dirhams. A sizeable half of the imports are re-exported and is one of the major reasons for increase in demand for footwear in UAE. Leather footwear accounts for about 48 per cent of the market share, with the rest belonging to textile, plastic and rubber footwear. Increase in demand is also due to increased consumer spending, increased shopping tourism and considerable changes in the retail footwear market with the opening of exclusive large stores for footwear and dedicated sections within the new department stores malls which have emerged all over UAE.
Major Footwear Import Sources, 2007
Country / Imports (million Dirhams) / Share
1. China / 578 / 50%
2. Italy / 252 / 22%
3. Thailand / 136 / 12%
4. Spain / 40 / 4%
5. Korea / 35 / 3%
6. Others / 106 / 9%
Source : UAE Trade Statistics
Recent Trends
After growing exponentially in the eighties and nineties, largely on the strength of a growing population, footwear demand stabilized in the early 2000s. In the last couple of years, however, demand seems to have tapered off. In 2007, import level failed to keep up with the levels established in the last year and there was a decline of 18% compared to 2006. Demand too seems to have declined in the recent years with an average 8% decrease in net imports. Demand may have marginally picked up in 2008, but it is unlikely to have reached the all time peak achieved in 2005 (figures for the full year 2008 are not available yet). However, the re-export trade in footwear is booming.
Supply Sources
China is currently the dominant supplier of footwear in the entire global market. For example, 65% of the entire demand for footwear in USA is met by footwear made in China, even if the products are sold under US brand names (the parent companies shifting production to China and Far East to increase their cost competitiveness). China is also the key source of imports in the UAE market. However, there are niches in which other suppliers dominate.
The lower segment: The lower end of the market, constituting of casual footwear made of plastic or rubber, is predominantly catered by Chinese manufacturers who enjoy an almost 60% share of the market. China is followed, albeit by a long distance, by Thailand (12%), Taiwan (5%) and South Korea (13%).
The upper segment: The upper end of the market, constituting of footwear of at least some leather component (usually the “uppers”), has a considerably different structure. European manufacturers have almost half of the market share. Italy is the leading supplier (30%), followed by Spain (7%), UK (5%), France (2.5%) and Germany (1%). China, though not as dominant as in the lower segment, nevertheless has a significant market share of 18%, and is ranked second after Italy.
“Sports” and trendy footwear: A major component of the footwear market is for sports/leisure shoes which have textile uppers. However, sports shoes frequently overlap with casual/leisure shoes and the “sports” shoes are not necessarily worn exclusively for sports participation.
Distribution Structure
Whereas the classic leather footwear market is characterized by a number of brands and companies, trendy “sports” footwear is dominated by the respective distributors of the three leading US brands. Consequently, there are no major distributors for leather footwear. Instead domestic footwear traders rely on sourcing their products from a number of different manufacturers.
Re-export
The re-export market in footwear is a strong one and has shown signs of high growth in recent years. The re-export destinations are confined to the region around the Gulf, namely Iran and the other AGCC countries. Iran tops the buyer’s list, accounting for more than one quarter of all the footwear re-exports. The other five AGCC countries account roughly another quarter. The only other notable market for footwear re-exports is Uzbekistan.
Manufacturing
After an aborted attempt in the eighties to manufacture branded footwear in UAE, when a plant for this purpose was set up in Abu Dhabi, there have been no attempts for the manufacture of leather shoes in the country. However, as in the case of garments, export based footwear manufacturing is a real possibility.
Since there is a large demand for footwear products unique to the region, namely Gulf Arab sandals for gents and ladies, such products are being manufactured and sourced locally within the GCC region. Though the GCC region is not a natural habitat for the footwear industry because of the unavailability of its raw material and labour, nevertheless a significant footwear manufacturing industry has developed in the region based on a local niche demand for styles and makes specific to the region.
Saudi Arabia is the leading producer, followed by the UAE. Saudi Arabia, because of its large population, is the leading producer of Gulf Arab footwear. It has 8 factories with a huge capacity of 2.9 million pairs per annum. The UAE has only 7 factories with an estimated capacity of 250,000 pairs per annum. Other GCC countries have relatively small capacities. Shoes and boots are manufactured as well, but the dominant product line relates to Gulf Arab style ladies/gents sandals. These sandals are usually high quality, high priced products, and domestic manufacturers cannot compete with at the lower end cheaper sandals supplied by China and Thailand. Competition is mainly from sandals manufactured in Italy.
Among the 7 leather footwear manufacturing factories in the UAE, two are located in Dubai, three in Ajman and one in Sharjah and Al Ain each. All of them have been set up relatively recently in the nineties except one which dates back to 1988. The firms are semi-mechanized and somewhat labour intensive in the same manner as the garment industry where the cutting is carried out by machinery, but the assembly line involving stitching etc. requires a substantial labour input. Not the entire capacity is being utilised. Though there are exports, these are largely within the region, except some manufacturers have been able to export to the CIS countries.
Outlook
"Globalisation” in the footwear industry has seen the exodus of a large part of the footwear industry from the West to the Far East, particularly China. Besides cheap labour, the leather footwear industry (namely tanneries) also has some environmental concerns, which has been pushing the industry out of the West. China has become the leading footwear manufacturer in the entire world, and is also the biggest source of footwear to the UAE. It dominates the non-leather footwear, but less so in upmarket leather footwear (e.g. Arab sandals), where European manufacturers have a bigger share, though this is being eroded by Far East suppliers. Italy still remains the leading supplier of leather footwear to the UAE, and still occupies a pre-eminent position in the supply of local Arab leather sandals for both gents and ladies.
Italy is followed by Thailand and China in leather footwear and then by Spain and Germany. Because of the increasing concentration of the footwear industry in the Far East, international trade in footwear products has been strongly increasing. Consequently, the sector lends itself very well to the re-exports trade in the UAE, which has shown signs of high growth in recent years.
Half of the re-exports are within the region, namely the five GCC countries and Iran. Iran occupies a central position with almost a quarter of the entire re-exports out of the UAE. Southern CIS countries which are emerging markets for UAE, re-exports have a strong representation by Uzbekistan which accounts for 8 per cent of the footwear re-exports from the UAE.
Further, there are substantial retail re-exports purchased by tourists which could be anywhere between 30 to 40 per cent of total retail sales. Because of the warm climate, a sizeable portion of demand is for sandals, particularly among the UAE nationals and Arabs. There is a large lower end of the market, constituting of casual footwear made of plastic or rubber, which are almost entirely imported from the Far East. Whereas the classic leather footwear market is characterized by a number of brands and companies, trendy "sports" footwear is dominated by the respective distributors of the three leading US brands.
Trendiness is a very major purchase factor, and consequently the market is dominated by branded products and strong advertising/promotion. These are usually Western brands but manufactured in the Far East, mainly China. Dedicated sports footwear forms a rather small proportion of the footwear market. Among all the ethnic segments, the domestic Arab national population has the highest propensity to consume footwear. Local Arab nationals are estimated to purchase almost 6 pairs per year, with a higher demand for females rather than male footwear. Westerners are estimated to purchase about 3 pairs per year, but their presence in the market is small.
Meanwhile, Asians have the lowest propensity to consume footwear - about 2 pairs per annum, but two factors make them the most significant segment in the market. Firstly, it is their sheer numbers and secondly their "carry" demand, purchases which are taken to home countries during home leave. The latter demand is particularly high for international brands. Market sources also report high purchases by shopper tourists, and they estimate that together with the former, up to 40 per cent of their retail sales are taken out of the country by their customers, where casual "sports” footwear, particularly of leading brands enjoy a high market share.
The footwear trade in UAE caters not only to domestic demand but also to the requirements in the region (AGCC countries, Iran and Central Asian States). With improved standards of living, footwear is becoming more trendy and an important part of lifestyle. This has particularly been happening in the casual/sports footwear market. Further growth will depend considerably on the marketing and promotion activities of suppliers. This has been successfully demonstrated by the larger companies which are found in the sports/casual footwear market. The distributors of the classic leather footwear have been too fragmented to achieve the same results. However, it is only a matter of time when there will be a spurt in promoting regular leather shoe brands, which with proper marketing strategies and promotion have enormous growth potential.
It is more difficult to compete against the Far East suppliers, who will continue to dominate the lower and middle segment of the footwear market, and are likely to reduce the share of European products, as they improve their quality. However, nearness to the market will remain an advantage for domestic manufacturers, not easily countered by imports. It is more likely that exporting firms may establish more manufacturing facilities in the Gulf for local products. Leather footwear manufacturing in the region is thus likely to grow. Environment concerns are not an issue as finished leather is always going to be imported and it is unlikely that any domestic tanneries are going to emerge.
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