Unravelling the footwear industry

Imagine being an investor, sitting with your morning cup of coffee, and seeing the shares of your favourite company plummet. Frustrating, isn't it? Especially when the rest of the market is frolicking on cloud nine.

One such industry is footwear. We were looking at the past one-year share performance of the top four footwear companies by market cap. We found that three of them have delivered negative returns. So, we decided to explore the segment deeper.

We delved into their results to find out how these businesses have fared in the last five years. Who has done well, and who hasn't? Let's find out.

New kids on the block

Campus stood out, as is obvious in the table above. It posted a positive growth in all the parameters. Moreover, the growth was mostly driven by an increase in volumes rather than price hikes.

Similarly, Metro Brands , the new darling of the premium niche, posted a strong double-digit volume growth primarily driven by store additions. Their average selling prices remained steady, but the management expects it to grow going forward due to its exit from the under Rs 1,000 segment. Their primary driver, however, is that the number of their stores has grown at 10 per cent per annum since FY19.

Legacies on loose footing

However, it's not all sunny in shoe-land. Relaxo and Bata , the long-standing peers, have both resonated with the overall poor performance of the industry. They have shown stagnant volumes and dismal growth numbers in the last five years.

Relaxo, which has been a big player in the mass market segment, witnessed a drop in volume primarily due to an increase in its average selling price. It went from Rs 123 in FY19 to Rs 161 in FY23, a 31 per cent increase.

On the other hand, Bata did witness strong growth in its premium segment. However, even with Bata, the mass market segment suffered. As a result, overall growth went down. This perhaps explains the recent aggressive marketing of their premium brands like 'Hush Puppies' and 'Floatz', as they show good signs of demand.

Relaxo's redemption

Despite reporting disappointing performance, it seems like Relaxo's recent Q1 FY24 performance hints that the company is trying to make a comeback. While other players have shown almost flat volume growth, Relaxo has increased its volumes by 35 per cent on a YoY basis. And what was the catalyst? A sharp 15 per cent YoY drop in its average selling price!

What lies ahead?

Tightening quality norms

The enforcement of mandatory quality standards for 24 footwear and related products from January 1, 2024, will help prevent cheap quality Chinese and Vietnamese imports and may help organised players gain market share.

Rising marketing expenditure

Moreover, with everyone bumping up their marketing spends by over 25 per cent in FY23, all the players are aggressively trying to boost their volumes. Only time will tell whether this will translate into higher sales growth.

However, there is a clearly visible pattern in the industry - the rise of the premium segment. Although the mass market segment continues to lead in terms of absolute volumes, the growth prospects in the premium segment seem to attract all big players alike.

However, there is no getting around the fact all four companies are highly valued. Each trades at a P/E ratio of more than 70 times! So, investors are advised to remain cautious.

Also read: Swimming against the tide