Hungarian footwear and leather goods market 2012

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 Footwear and leather production 151= Tanning and dressing of leather; manufacture of luggage, handbags, saddlery and harness; dressing and dyeing of fur 152= Manufacture of footwear 151= Tanning and dressing of leather; manufacture of luggage, handbags, saddlery and harness; dressing and dyeing of fur 152= Manufacture of footwear 151= Tanning and dressing of leather; manufacture of luggage, handbags, saddlery and harness; dressing and dyeing of fur 152= Manufacture of footwear 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 markets/chinese markets Small, medium sized shoe-shops Department stores Supermarkets, hypermarkets 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 retailtrade companies went bankrupt or changed their business profile. The Hungarian authorities strictly control the Chinese markets and the illegal imports of cheap footwear. Therefore this market segments has lost its very significant role in retail trade. Those products will enjoy the preference of customers, which are able to guaranty the good quality and a competitive price. 4

5 IMPORTS OF FOOTWEAR According to the EuroStat Hungary imported in value of 495.5 million USD more than 28,6 million pairs of shoes from 131 countries in 2011. The top 10 suppliers (mainly EU countries) cover more than. 80 p.c. of the total imports. In 2011 Hungary s footwear imports grew by 25.5 p.c. Hungary s footwear imports from the World, 2011 Rank Country 2009 2010 2011 2009 2010 2011-11/10-0 -- World -- 398.855564 394.901445 495.565534 100 100 100 25.49 1 Germany 77.519309 56.723217 78.213669 19.44 14.36 15.78 37.89 2 Italy 49.554927 49.501712 60.620591 12.42 12.54 12.23 22.46 3 Romania 57.554725 53.433454 58.68347 14.43 13.53 11.84 9.83 4 Slovakia 34.239385 41.748982 54.009715 8.58 10.57 10.9 29.37 5 Austria 31.806045 29.225303 38.464498 7.97 7.4 7.76 31.61 6 Bulgaria 0.11086 19.140156 38.125935 0.03 4.85 7.69 99.19 7 Czech Republic 18.613002 20.108305 25.754679 4.67 5.09 5.2 28.08 8 China 12.540212 11.586314 17.874317 3.14 2.93 3.61 54.27 9 France 7.781443 7.955818 16.386775 1.95 2.02 3.31 105.97 10 Belgium 31.668269 17.894774 15.115552 7.94 4.53 3.05-15.53 Source of data EuroStat In 2011 Hungary imported almost same volume of shoes from Thailand as in the last 2 years did. Imports in value represented USD 1.27 million USD between 2090 and 2110. Groups of products: Hungarian imports of footwear consisted of the following item groups in 2011: 6403 With Leather Uppers 6406 Part;Insole;Gaitor Et 34.01 6402 Other,Rubber/Plastic 27.11 64MM Intra-Comm. Trade Broken 15.67 6404 With Textile Uppers 12.5 6401 Watrproof Rub/Pl Sole 9.43 6405 Other Footwear 0.75 64SS Intra-Comm. Trade Broken Down 0.53 0 5

6 Hungarian Footwear imports from the World (pairs) HS Description 2009 2010 2011 2009 2010 2011-11/10-64 Footwear 398.85556 394.90145 495.56553 100 100 100 25.49 6403 With Leather Uppers 170.67231 148.79098 168.54935 42.79 37.68 34.01 13.28 6406 Part;Insole;Gaitor Et 94.855644 109.46857 134.33533 23.78 27.72 27.11 22.72 6402 Other,Rubber/Plastic 68.707716 69.874413 77.669867 17.23 17.69 15.67 11.16 64MM Intra-Comm. Trade Broken 29.164298 30.715058 61.962507 7.31 7.78 12.5 101.73 6404 With Textile Uppers 27.945375 30.304955 46.73537 7.01 7.67 9.43 54.22 6401 Watrproof Rub/Pl Sole 2.140192 3.351799 3.705414 0.54 0.85 0.75 10.55 6405 Other Footwear 5.274244 2.395675 2.607702 1.32 0.61 0.53 8.85 64SS Intra-Comm. Trade Broken Down 0.095788 0 0 0.02 0 0 0 Source of data EuroStat In 2011 imports from Thailand has slightly decreased by 1.35. Two product groups (HSC 640399; 640419 covered more 97 of the imports. HS Description 2009 2010 2011 2009 2010 2011-11/10 - Thailand 325.039753 422.23755 416.53725 0.42 0.48 0.41-1.35 64 Footwear 0.61464 1.274812 1.267681 0.19 0.3 0.3-0.56 640399 Other 6403 0.39212 0.847813 0.801616 63.8 66.51 63.24-5.45 640419 Ot With Rub,P Upper 0.061212 0.235088 0.431292 9.96 18.44 34.02 83.46 640299 Other 6402 0.04837 0.002631 0.017211 7.87 0.21 1.36 554.16 640391 Other Ank Covered 0.108448 0.144167 0.014912 17.64 11.31 1.18-89.66 640411 Sport Shoes 0 0.003522 0.002376 0 0.28 0.19-32.54 CUSTOMS DUTIES TARIC and description 6401 Waterproof footwear with outer soles and uppers of rubber or of plastics 6402 Other footwear with outer soles and uppers of rubber or plastics GSP () MFN () EU () 11,9 17 0 11,9 17 0 6403 Footwear with outer soles of rubber, 8 4,5 0 plastics, leather or composition leather and uppers of leather 6404 Footwear with outer soles of rubber, 11,9 17 - plastics, leather or composition leather and uppers of textile materials 6405 Other footwear 0 4 0 Taxes: Value Added Tax (ÁFA) 27 per cent MAIN IMPORTERS AND DISTRIBUTORS List enclosed. 6

7 2. THE LUGGAGE AND LEATHER GOODS MARKET DOMESTIC CONSUMPTION, TENDENCIES The Hungarian market for luggage and leather goods was valued at USD 123 million in 2010 in terms of retail sales. Consumption of luggage and leather goods in Hungary, 2007-2011, (USD million) 2007 2008 2009 2010 2011 119 121 123 124 125 Source: Hungarian Leather Manufacturing Association Per capita consumption of USD 12 was one of the lowest in the EU and well below the EU average of USD 26. Many Hungarian consumers have low disposable incomes hence they prefer lower quality items. There is also a high market penetration of low cost imports. Hungarians frequently make such purchases, which are based on traditional values or out of prestige or comfort, or if it is fashionable. Trends in luggage Thanks to the growing tourism sales of luggage were not seriously affected by the economic recession. Domestic tourism continued to perform well in 2010 and 2011 despite the economic downturn, sustaining sales of some luggage items such as backpacks and daypacks. Sales of low priced luggage, particularly small travel bags have been maintained. However, there has been a negative impact on more expensive items of luggage as international travel by Hungarians has fallen. This poor performance continued into 2011. Trends in leather goods Fashion is not considered very important in Hungary and more casual styles are popular. Although there has been increasing exposure to international fashion trends, Hungarians are quite price conscious. A luxury segment does exist for high-fashion handbags and other leather goods, but it is a relatively small segment. Most consumers purchase these products from market stalls and local shops at low prices. Consumption by product group In 2011 the Hungarian consumption was divided accordingly: handbags (35); small leather goods (18), backpacks (16), luggage (13), business cases (8) and travel/sports bags (10). Consumer prices Prices of luggage and leather goods are below the EU average. The market has polarised between low-priced products sold through markets and small retailers, and more expensive products now being sold in shopping centres. However, an emerging middle-market now exists. They prefer competitively priced bags, which are well-designed and of good quality. Market outlook Hungary suffers from recession, economy has been affected badly by the global economic downturn. Although the market showed a small increase in value in 2010, the consumption still 7

8 remains very low. After the economic downturn ends, consumption levels of luggage and leather goods will rise in the longer term as prices and disposable incomes draw closer to other EU Member States. The market for luggage and leather goods is unlikely to recover before 2014, as Hungarians focus their expenditure on essential items. The Hungarian domestic industry is struggling to maintain its international competitiveness. Many local suppliers will be looking for partnerships with other suppliers who are able to help with new designs and modern equipment. Trade channels for market entry Most luggage and leather goods are sold through the independent specialist trade, via small shops and market stalls. However, retailing in Hungary has undergone significant changes in the last few years. In 2011 there were about 2800 outlets selling footwear and leather goods. There were nearly 20 shopping centers with retail shops offering high-quality fashion goods around the country. Shopping habits are also changing, with weekend shopping at a single destination becoming popular. Small independent retailers will lose out in this modernising process. The fragmented trade structure is still most apparent outside of the major cities. Exporters from developing countries should use wholesalers and agents in order to access this specialist trade. Many wholesalers also supply some non-specialist channels such as department stores. IMPORTS In 2011, Hungarian imports of luggage and leather goods were valued at USD 224 million, or 9 thousand tons. Hungarian leather goods import from the World (10 top items) HS Description 2009 2010 2011 2009 2010 2011-11/10 - -- World -- 77901.58 88224.74 102611 100 100 100 16.31 42 Leathr Art;Saddlry;Bags 146.0788 155.7339 224.244 0.19 0.18 0.22 43.99 420500 O Articl Of Leather 39.59686 55.72868 63.7245 27.11 35.79 28.42 14.35 420292 Ot Plastc/Text Bags 23.7577 22.4998 54.1018 16.26 14.45 24.13 140.45 Intra-Comm. Trade 42MMM0 Broken 9.639296 10.3896 29.4412 6.6 6.67 13.13 183.37 420232 Pockt Artcl,Plas/Tx 5.288322 9.286293 15.5652 3.62 5.96 6.94 67.62 420212 Text Trunk,Suitcase 12.7418 12.46418 13.3743 8.72 8 5.96 7.3 420222 Plastic/Tex Handbag 9.883164 11.08205 12.7067 6.77 7.12 5.67 14.66 420329 Glve,Mittn,N-Sp Mit 6.477173 6.834875 10.2657 4.43 4.39 4.58 50.2 420310 Articles Of Apparel 6.272708 4.784933 5.61804 4.29 3.07 2.51 17.41 420231 Pocket Artcl,Patent 2.367044 2.453095 3.83587 1.62 1.58 1.71 56.37 420330 Belts,Bandoliers 4.187234 4.135728 3.45687 2.87 2.66 1.54-16.41 Between 2010 and 2011, Hungarian imports grew by 44 per annum in value from USD 68 million. Imports increased from other EU countries such as the Netherlands (+489), Czech Republic (+270 ), Austria (+94) and Germany (+72 ), but also from China (+19). Supplies from developing countries like Turkey, Malaysia, Pakistan and India decreased. 8

9 The main import growth opportunities for developing country suppliers are bags, particularly travel bags. Developing country supplies of small accessories and cases are also increasing, notably belts and suitcases. The share of imports from developing countries has fallen over the review period, due to Hungary s EU membership and more re-exports from other countries. 90 of luggage and leather goods imports came from following 10 top supplier countries: Rank Country 2009 2010 2011 2009 2010 2011 11/10 0 -- World -- 146.078779 155.73389 224.24422 100 100 100 43.99 1 Germany 28.586145 31.222322 53.777544 19.57 20.05 23.98 72.24 2 Poland 25.066276 35.664553 36.638368 17.16 22.9 16.34 2.73 3 China 27.051827 22.817412 27.316954 18.52 14.65 12.18 19.72 4 Austria 12.340409 11.903575 23.044747 8.45 7.64 10.28 93.6 5 Netherlands 3.296061 3.473265 20.463626 2.26 2.23 9.13 489.18 6 Italy 8.372549 11.025634 10.822852 5.73 7.08 4.83-1.84 7 Slovakia 6.50299 6.428974 8.879524 4.45 4.13 3.96 38.12 8 Czech Republic 2.907873 2.303547 8.53761 1.99 1.48 3.81 270.63 9 France 5.028488 3.374262 6.615164 3.44 2.17 2.95 96.05 10 Belgium 5.113142 4.91721 4.950841 3.5 3.16 2.21 0.68 Most imports were used to satisfy the growing consumer market, although there may be some reexports to neighbouring countries such as the Serb Republic, Croatia Slovakia and Slovenia. In 2011 Thailand exported leather goods to Hungary in value of USD 94 003, which means by 28.4 more compared to 2010. Especially exports of wallets and purses other pocket articles increased nearly by 600 to Hungary. Top 5 leather items imported from Thailand HS Description 2009 2010 2011 2009 2010 2011-11/10-42 Leathr Art;Saddlry;Bags 0.1062 0.073211 0.094003 0.03 0.02 0.02 28.4 Top 5 leather items from Thailand 420292 Ot Plastc/Text Bags 0.028845 0.031675 0.037495 27.16 43.26 39.9 18.37 420222 Plastic/Tex Handbag 0.030836 0.020621 0.02785 29.04 28.17 29.6 35.06 420232 Pockt Artcl,Plas/Tx 0.014289 0.002849 0.019347 13.46 3.89 20.6 579.08 420321 Glve,Mittn,Sprt Mit 0.001918 0.001434 0.003901 1.81 1.96 4.15 172.04 420239 Pocket Artcl,Ot Mat 0.001877 0.000858 0.0025 1.77 1.17 2.66 191.38 IMPORT REGULATIONS TARIC and description GSP () MFN () 42.01 Saddlery and harness for any animal 0 2,7 0 42.02 Trunks, suit-cases, satchels etc. 0 3,3 3 9,7 0 42.03 Articles of apparel and clothing 4-9 0 5,5 42.04 Leather articles for machineries - - - 42.05 Other leather articles 0 2-3 0 Taxes: Value Added Tax (ÁFA) 27 per cent EU () 9

10 ASSOCIATION Leather and Footwear Industry Association 1194 Budapest, Hofherr Albert u. 95., Hungary Tel/Fax: +36 (1) 221-9326 E-mail: bce@bcehungary.org http://www.bcehungary.org/index_eng.htm FAIR IN HUNGARY International Leather, Footwear and Leather Products Shoe Trade Fair 9-10 September 2012 Budapest, SYMA Event Centre Dr. Gábor Tóth managing director E-mail: toth.gabor@syma.hu Phone: 1-460-1113 Syma+SD Ltd. H-1146 Budapest, Dózsa György str. 1. E-mail: syma@syma.hu Phone: +36 (1) 460-1100 Event organisation Zsuzsa Antal-Jakab project director antal-jakab.zsuzsa@syma.hu Phone: 1-460-1163 http://www.syma.hu/rendezveny_belso.php?lang=en&p=5 MAIN IMPORTERS AND DISTRIBUTORS List enclosed, Sources: VG (Daily Economy), HVG( Weekly Economy), Central Statistics Office, Hungarian Association of Footwear and Leather Manufacturers and Traders, Exporthelp.Europa, HITA, HCCI, Nextmagazin, WTA, Eurostat, PMR Publications, Euromonitor, Association of Hungarian Shopping Centres Thai Trade Center Budapest Harangvirag u.5. 1025 Budapest, Hungary Tel: (361)212 2738 e-mail: thaicommbp@mail.datanet.hu 10