FINAL PROJECT QUESTIONS
SECOND SET
Q1
.
Name the top 3 major companies in the industry
Regis Corporation with an estimate share of 3.3% in the market
Great clips with an estimated market share of 2.0%
Sports Clips Inc. 1.1% market share
Q2. Name the top 5 key success factors of this industry. Choose 2 and explain each of them.
Customer loyalty
Accessibility to customers
Maintenance of good customer relations
Business expertise of operators
Ability to access niche markets
Customer loyalty refers to the trust that a consumer has in a product produced by the company in relation to satisfying the needs of the individual.
Business expertise of operators refers to the intensity of the company to have the skilled workforce in order to deliver quality services required by the consumers.
Q3. Name 2 key buying industries. Explain one of them.
Information in the US
Consumers in the US
A consumer is the final user of the product and service produced by the company. The consumer enjoys the product to satisfy their needs, making them to be key buyers in this industry.
Q4. Name 2 key selling industries. Explain one of them.
Commercial leasing in the US
Petrochemical manufacturing in the US
The commercial leasing industry provides space to the companies through leasing to carry out their activities efficiently.
Q5. Name 2 products in this industry. Name 2 services in this industry.
Products are: Industrial research reports and iExpert summary reports
Services are: Educational services, and nail care, and hair coloring services.
Q6. If yours is a product-focused industry then describe the top product line associated with this industry. Otherwise indicate
N/A
N/A
Q7. If yours is services focused industry then describe the top service in this industry. Otherwiseindicate N/A
The Hair and Nail salon industry provides haircut and styling services as the top services. This service amounts to the most revenue generated by the industry. Hair coloring services and skincare services are also provided in this industry to consumers as the priority.
Q8. Name the key external drivers for this industry. Explain one of them
Number of households
Consumer expenditures
Per capita disposable income
Business sentiment index
A rise in the number of households indicates a growth in the population that receives the products and services of this industry. An increase in the household population is directly proportional to the
increase in consumption.
Q9. Describe briefly the Industry Outlook.
IBIS World identifies that the revenue in the Hair and Nail salon industry is projected to grow steadily until the year 2022 with an annual increasing rate of 2.1. Revenue in this industry will benefit from the increasing income and decreasing unemployment rates. When income increases, this means that the services provided in this industry such as haircuts and coloring, hair styling, and tinting services are highly utilized and endorsed.
Q10. Name the current life cycle stage the industry is in.
The industry is in its mature phase of the life cycle. The industry has contributed a lot to the overall growth of the economy as it plays a role in forecasting the annual rates by comparing the country’s
GDP to the annual rates industry.
Reference
https://codlrc.org/sites/default/files/IBIS_HairNailSalonsUS_IndustryReport
.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019
1
IBISWorld Industry Report 31621
Shoe & Footwear
Manufacturing in the US
May 2019 Devin Savaskan
Best foot forward: A protective tariff will
alleviate external competitive pressures
2
About this Industry
2
Industry Definition
2
Main Activities
2
Similar Industries
3 Additional Resources
4 Industry at a Glanc
e
5
Industry Performance
5 Executive Summary
5 Key External Drivers
7 Current Performance
10 Industry Outlook
12 Industry Life Cycle
14 Products and Markets
14
Supply Chain
14
Products and Services
15 Demand Determinants
16 Major Markets
18 International Trade
20 Business Locatio
ns
22
Competitive Landscape
22 Market Share Concentration
22 Key Success Factors
22 Cost Structure Benchmarks
24 Basis of Competition
25 Barriers to Entry
26 Industry Globalization
27
Major Companies
27 New Balance Athletics Inc.
28 Red Wing Shoes
29 Allen Edmonds Shoe Corp.
30 Timberland LLC
32
Operating Conditions
32
Capital Intensity
33 Technology and Systems
33 Revenue Volatility
34 Regulation and Policy
35 Industry Assistance
36 Key Statistics
36
Industry Data
36
Annual Change
36
Key Ratios
37
Industry Financial Ratios
38
Jargon & Glossary
www.ibisworld.com | 1-800-330-3772 | info@ibisworld.com
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019
2
This industry manufactures footwear for
men, women and children. They may
manufacture rubber and plastic footwear,
protective footwear, house slippers and
slipper socks. Operators also manufacture
men’s or women’s footwear designed for
casual, formal and work environments.
These products also include men’s or
women’s shoes with rubber or plastic soles
and leather or vinyl uppers.
The primary activities of this industry are
Rubber and plastic footwear manufacturing
House slipper manufacturing
Athletic shoes manufacturing
Ballet slipper manufacturing
Cleated athletic shoes manufacturing
31310 Textile Mills in the US
Industry operators manufacture yarn, thread and hemp yarn for the production of ropes and bags.
31522 Men’s & Boys’ Apparel Manufacturing in the US
Operators in this industry manufacture men’s and boys’ apparel.
31524 Women’s, Girls’ and Infants’ Apparel Manufacturing in the US
Companies in this industry manufacture women’s and girls’ apparel.
31691 Leather Good & Luggage Manufacturing in the US
Industry operators manufacture leather goods including leather bags, suitcases, wallets and belts.
33911a Medical Instrument & Supply Manufacturing in the US
Companies in this industry manufacture orthopedic extension footwear.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Men’s footwear
(except athletic)
Rubber and plastic footwear including athletic
footwear
Women’s footwear (except athletic)
Other footwear
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019
3
About this Industry
IBISWorld writes over 1000 US
industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com
Additional Resources For additional information on this industry
www.wewear.org
American Apparel and Footwear Association
www.mfgnewsweb.com
Manufacturing News
www.textilesocietyofamerica.org
Textile Society of America
www.textileworld.com
Textile World
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019
4
%
32
2
8
2
9
3
0
31
2410 12 14 16 18 20 22Year
Import penetration into the manufacturing
sector
SOURCE: WWW.IBISWORLD.COM
%
c
ha
ng
e
12
-12
–
6
0
6
2511 13 15 17 19 21 23Year
Revenue Employmen
t
Revenue vs. employment growth
Products and services segmentation (2019)
50.0%
Men’s footwear
(except athletic)
26.3%
Rubber and plastic footwear
including athletic footwear
20.5%
Women’s footwear
(except athletic)
3.2%
Other footwear
Key Statistics
Snapshot
Industry at a Glance
Shoe & Footwear Manufacturing in
2019
Industry Structure
Decline
Revenue Volatility Low
Capital Intensity Low
Industry Assistance High
Concentration Level Medium
Regulation Level Medium
Technology Change Low
Barriers to Entry Medium
Industry Globalization High
Competition Level High
Revenue
$2.0bn
Profit
$105.4m
Exports
$632.2m
Businesses
921
Annual Growth 19–24
0.4%
Annual Growth 14–19
0.1%
Key External Drivers
Import penetration into
the manufacturing sector
Trade-weighted index
Per capita disposable
income
Demand from footwear
wholesaling
Market Share
New Balance
Athletics Inc.
24.3%
Red Wing Shoes
11.7%
Allen Edmonds
Shoe Corp.
5.0%
p. 2
7
p.
5
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 36
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 5
Key External Drivers Import penetration into the
manufacturing sector
Imports satisfy a dominant portion of
domestic demand for footwear. Since
manufacturing in this industry is highly
labor intensive, domestic operators
source many of their products from
low-cost suppliers in foreign countries.
Import penetration into the
manufacturing sector is expected to
decrease slightly in 2019.
Trade-weighted index
Movements in exchange rates have a
significant impact on the industry’s
global competitiveness. An appreciation
of the US dollar makes imported
footwear less costly and, thus, more price
Executive Summary The Shoe and Footwear Manufacturing
industry has only experienced marginal
growth over the five years to 2019, with
revenue expected to rise at an annualized
rate of 0.1% to $2.0 billion. Despite
improving downstream demand
conditions, the industry has been limited
due to increasingly high import
penetration and falling exports, both of
which have been influenced by the
appreciation of the US dollar. This is
represented by an increase in the trade-
weighted index (TWI), which is expected
to rise an annualized 2.3% during the
current period. However, a recent
depreciation of the US dollar has led to a
surge in total exports in both 2018 and
2019. This trend, along with increased
consumer spending, has caused revenue
to grow 1.0% in 2019 alone.
Imports have maintained dominance
of domestic demand over the past five
years, comprising 95.4% in 2019. The
majority of imported footwear is
manufactured in developing countries,
where labor costs are significantly lower
compared with the United States. Foreign
operators are able to leverage lower
production costs to price their goods
more competitively. In response,
domestic footwear companies have
continued to offshore production,
effectively decreasing employment.
Meanwhile, fledgling industry operators
have specialized in the production of
premium footwear products, opting to
compete on the basis of quality rather
than price. These wage-shedding
measurements, coupled with a decline in
the input prices, have boosted
profitability during the period.
Over the five years to 2024, two
potential developments could positively
affect industry revenue. The first is a
potential tariff hike on footwear
imported to the United States. By
reducing import penetration into the
domestic market, a protective tariff
would alleviate external competitive
pressures experienced by industry
operators. The second is the potential
effects of the implementation of the
Berry Amendment to include
domestically manufactured footwear,
which would directly expand the
industry’s consumer base, stimulating
revenue growth. Overall, industry
revenue is forecast to rise an annualized
0.4% to $2.1 billion over the five years to
2024. Footwear imports are anticipated
to contract, while industry exports are
projected to increase. The closing of the
trade gap is forecast to be the result of a
declining TWI, which is expected to fall
an annualized 0.2% during the outlook
period. Furthermore, a depreciating US
dollar will likely support revenue growth.
Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage
The majority of imported footwear is
manufactured in developing countries, where
labor costs are significantly lower
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 6
Industry Performance
Key External Drivers
continued
competitive. Conversely, when the dollar
depreciates, domestic products become
more attractive on the international
market. The trade-weighted index is
expected to decrease in 2019; however,
its general volatility presents an ongoing
threat to the industry.
Per capita disposable income
Disposable income plays a major role
in the spending decisions of
individuals and households. If
disposable income is low, consumers
will buy far fewer discretionary items.
A decrease in disposable income also
causes consumers to prefer less-costly
imports to domestically manufactured
footwear, which are usually more
expensive. Per capita disposable
income is expected to increase in 2019,
representing a potential opportunity
for the industry.
Demand from footwear wholesaling
The industry is affected by downstream
demand from footwear wholesalers. In
times of high footwear consumption,
wholesalers demand more shoes from
manufacturers to sell to retailers, driving
industry sales growth. Demand from
footwear wholesaling is expected to rise
in 2019.
In
de
x
95
70
75
80
85
90
2410 12 14 16 18 20 22Year
Trade-weighted index
SOURCE: WWW.IBISWORLD.COM
%
32
28
29
30
31
2410 12 14 16 18 20 22Year
Import penetration into the manufacturing
sector
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 7
Industry Performance
Current
Performance
The Shoe and Footwear Manufacturing
industry designs footwear for men,
women and children. Styles range from
footwear for casual, formal and work
environments, and products are crafted
from various materials such as rubber
and plastic. Over the five years to 2019,
operators have continued the historic
practice of offshoring production activity
to developing countries, such as China,
Vietnam and Indonesia, to reduce labor
costs and offer more competitively priced
footwear. Consequently, imports are
expected to account for an estimated
95.4% of domestic demand in 2019.
This sustained operational restructuring
has proved to be highly determinantal to
the industry.
While improved economic conditions,
such as falling unemployment, rising per
capita disposable income and growing
consumer confidence, have undoubtedly
spurred demand for industry products
over the past five years, both the
sustained dominant import competition
and falling exports have limited revenue
growth. The trade-weighted index (TWI),
which measures the strength of the US
dollar relative to the currencies of its
major trading partners, is expected to
grow at an annualized rate of 2.3% during
the current period. An appreciating US
dollar has boosted import penetration by
making foreign goods more affordable for
domestic consumers, further
strengthening the competitiveness of
footwear manufactured abroad.
Additionally, an appreciating US dollar
has caused industry exports to contract
by making domestically produced
footwear more expensive for foreign
consumers, leading them to turn to
footwear produced elsewhere.
Consequently, industry revenue is
anticipated to increase only marginally,
rising at an annualized rate of 0.1% to
$2.0 billion over the five years to 2019.
This includes an estimated 1.0% increase
in 2019 alone, largely due in part to a
more recent uptick in export values,
which are expected to grow 12.6% over
the same year.
%
c
ha
ng
e
12
-12
-6
0
6
2511 13 15 17 19 21 23Year
Industry revenue
SOURCE: WWW.IBISWORLD.COM
Import penetration The economic advantages of outsourcing
production to developing countries with
low labor costs have been embraced by
the industry for more than a decade. By
2014, foreign-made goods accounted for
over 95.0% of domestic demand. As
aggregate import revenue is expected to
rise at an annualized rate of 0.8% to
$28.7 billion over the five years to 2019,
footwear imports’ share of domestic
demand is anticipated to remain stable at
95.4% in 2019. This trend indicates that
foreign-sourced shoes are relatively less
expensive than domestically produced
industry footwear in the US market,
making them preferable to US
consumers. The relatively inexpensive
price of footwear manufactured abroad
explains the increase in total import
revenue, as domestic consumers have
consistently opted for less expensive,
foreign-produced footwear.
China remains the largest exporter of
footwear to the United States, accounting
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 8
Industry Performance
Import penetration
continued
for an estimated 54.4% of total imports in
2019. In addition, countries in East Asia
have emerged as major hubs for US
footwear manufacturers. For example,
imports from Vietnam are expected to
account for 24.1% of total industry
imports in 2019, up from 13.9% in 2014,
making it the second-largest exporter of
footwear to the United States. Imports
from Indonesia also represent a growing
force, increasing from 4.8% of imports in
2014 to 6.5% in 2019. These Asian
countries are vital import sources due to
their relative comparative advantage in
various manufacturing factors. These
countries can typically source footwear
using relatively less expensive labor and
materials, while also offering inexpensive
suppliers for domestic markets.
Conversely, Italy is known for its
production of high-end formal footwear,
using fine leathers and craftmanship in
its production process. Italy is expected
to account for 4.9% of industry imports
in 2019.
Increased outsourcing has restructured
the industry, leading remaining operators
to focus on high value-added activities,
such as designing, marketing and
distributing shoes. For example, Nike
Inc. (Nike) outsources nearly all of its
production, opting to use its domestic
capacity for design and retail functions.
However, over the past five years,
consumer preference of domestically
manufactured shoes has resurfaced in
line with expanding per capita
disposable income. As a result, certain
industry operators, such as New
Balance Athletics Inc., have
experienced strong sales growth during
the current period. Furthermore,
enterprises such as Red Wing Shoes,
which specializes in work-function
footwear, have experienced rising sales
due to decreasing unemployment. This
phenomenon has encouraged many
nonemployers that produce
handcrafted and other specialized shoes
for niche markets to join the industry.
Additionally, some major global
players, such as Nike and Adidas AG,
have recently opened US-based
manufacturing facilities as a means of
streamlining its supply chains.
Nonetheless, intense price-based
competition stemming from footwear
import penetration has hindered
revenue growth and constrained profit
margins. In line with generally
increasing competition and fluctuating
demand for domestic manufacturers in
recent years, industry establishments
are expected to grow slightly, rising at
an annualized rate of 0.3% to 932
locations over the five years to 2019.
Industry profitability
and structure
Industry profit, measured as earnings
before interest and taxes, has increased
from 4.7% of revenue in 2014 to an
estimated 5.2% in 2019. Strong import
dominance of domestic demand has
limited margin growth as companies that
outsource manufacturing benefit from
lower overall input costs due to
inexpensive foreign labor. Since imports
are generally priced lower than
domestically manufactured goods,
domestic operators have to decide
whether to lower their selling price to
compete with foreign goods or keep
prices higher to salvage profit. During the
current period, strong macroeconomic
conditions, such as increasing levels of
disposable income, have encouraged the
later strategy, since consumers have been
Strong import dominance
of domestic demand has
limited margin growth
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 9
Industry Performance
Bad news for exports Unfortunately for operators, demand
for industry products on the global
market has declined over the past five
years. Although domestically produced
shoes are traditionally held in high
esteem throughout the world, the
appreciation of the US dollar has
caused industry products to become
less affordable abroad, forcing foreign
consumers to look elsewhere for their
footwear needs. The increased relative
cost of US-produced footwear has
exacerbated the struggles of the
industry. Over the five years to 2019,
the total value of exports is expected to
decline at an annualized rate of 0.7% to
reach $632.2 million.
Of the industry’s export destinations,
Canada accounts for the largest portion
of export values, primarily due to the
North America Free Trade Agreement
reducing trade barriers between Canada
and the United States. Consequently,
exports to Canada have increased from
21.4% of total industry exports in 2014
to an estimated 26.0% in 2019. In
addition, China has emerged as a
significant consumer of industry goods,
as expanding per capita disposable
income in China has driven increased
industry exports to the country. Exports
to China are anticipated to grow from
2.4% of total industry exports in 2014
to an estimated 18.5% in 2019.
Industry profitability
and structure
continued
more willing to spend on footwear. This
in part has helped prop up profit
margins, despite inconsistent demand.
Furthermore, strong economic
conditions have encouraged niche
producers to enter the industry, with
these companies generally averaging
higher margins. Additionally, declines in
the prices of major industry inputs
during the period, such as world rubber
and leather prices, have led to further
decreases in purchase costs for industry
operators; this has placed upward
pressure on profit margins.
Such a shift has enabled industry
operators to compete on the basis of
quality rather than price. However, the
shift toward premium footwear
production has not done enough to offset
the negative effects of outsourcing on
industry employment. Industry
employment has contended with intense
pressure from outsourcing, as borderline
stagnant revenue has driven industry
players to continue to transfer
manufacturing operations from the
United States to countries with lower
labor costs. Due to the labor-intensive
nature of shoe manufacturing, labor
remains a significant cost component for
the industry. Overall, IBISWorld
anticipates industry employment to
decrease at an annualized rate of 1.2% to
10,644 workers over the five years to 2019.
The appreciation of the US
dollar has caused industry
products to become less
affordable abroad
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019
10
Industry Performance
Potential effects of
increased
protectionism
In early 2017, the United States formally
withdrew from the Trans-Pacific
Partnership (TPP). If ratified by the United
States, the agreement would have adversely
affected the industry. Relevant to this
industry were the TPP’s proposed tariff
reductions and the elimination of other
trade barriers imposed on goods from
Vietnam. If the agreement had been ratified,
it could have placed domestic manufacturers
under considerable stress and encouraged
significant import penetration.
A potential future import tariff would
benefit the industry by effectively
reducing the price competitiveness of
imported footwear in the domestic
market, ultimately causing a decrease in
imports’ share of domestic demand.
Reduced external competition would
present a significant opportunity for
industry operators to grow their share of
the domestic market, while also boosting
profit margins. However, the Shoe and
Footwear Manufacturing industry is
currently not expected to be affected by
recently announced US tariffs.
Furthermore, IBISWorld expects the
high prevalence of imports within the US
shoe market to persist over next five
years. Domestic producers will likely
struggle to compete against low-cost
imports and are expected to increasingly
offshore production or carve out niche
segments, such as work-specific or
premium high-end footwear. Decreased
downstream demand from wholesalers
and retailers will likely pressure
manufacturers to provide low-cost
footwear, further motivating the move to
less-expensive production locations.
However, IBISWorld forecasts that
imports will decline at an annualized rate
of 0.5% to $28.0 billion during the
outlook period, largely driven by an
anticipated depreciation of the US dollar.
A depreciating dollar makes imported
footwear less affordable and, therefore,
less attractive to domestic consumers. In
addition, the narrowing of the trade gap
is expected to benefit the industry over
the next five years. Despite this forecast
Industry
Outlook
Over the five years to 2024, the Shoe and
Footwear Manufacturing industry is
projected to experience tepid revenue
growth. During the outlook period,
industry revenue is forecast to rise at an
annualized rate of 0.4% to $2.1 billion. This
slight acceleration is primarily attributable
to an anticipated depreciation of the US
dollar; over the next five years, the trade-
weighted index is expected to decrease at
an annualized rate of 0.2%. Consequently,
industry exports are expected to rise at an
annualized rate of 1.2% to $670.3 million
over the five years to 2024. Furthermore,
exports’ share of industry revenue is
projected to increase as well, comprising
32.4% of revenue in 2024.
While favorable trade and economic
conditions may help the industry
stabilize during the outlook period,
outsourcing of production to low-cost
countries is forecast to continue to
adversely affect industry revenue as
domestic manufacturers struggle to
compete with their overseas
counterparts. Producers will likely seek
out new sources of low-cost labor in
untapped overseas locations, such as the
Philippines, Thailand and the
Dominican Republic. Over the next five
years, industry revenue may further
benefit from increased protectionism
and the implementation of the Berry
Amendment to the industry.
Domestic producers will
likely struggle to compete
against low-cost imports
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 11
Industry Performance
Potential effects of
increased
protectionism
continued
contraction, imports are expected to
retain a dominant share of the domestic
demand, satisfying more than 95.0%
in 2024.
Anticipated revenue increases could
bode well for market entrance moving
forward. Meanwhile, companies that
operate in a niche space in the industry,
or those anticipating increased
protectionism, will likely remain
operational. Therefore, IBISWorld
forecasts the number of establishments
to largely remain stable, growing at an
annualized rate of 0.3% to 944 locations
over the five years to 2024. Additionally,
marginal export growth, coupled with
sustained import dominance, will likely
stabilize industry employment. As a
result, industry employment is projected
to stagnate over the next five years, rising
at an annualized rate of less than 0.1% to
10,659 workers.
Potential effects of
the Berry Amendment
Over the past few years, lobbying has
increased pressure on the US government
to implement the Berry Amendment to
the Shoe and Footwear Manufacturing
industry. While the application of the
Berry Amendment was approved in
principle in 2013, full rollout from the
Pentagon is still forthcoming. If this
implementation is successfully carried
out, the Department of Defense will be
mandated to procure 100.0%
domestically manufactured shoes and
footwear, meaning that any current
exceptions by the US military will end.
According to a 2017 study by the The
Wall Street Journal, the military spends
between $65.00 and $70.00 on footwear
per soldier annually. If all military
footwear is sourced from domestic
manufacturers, the study estimates that it
could boost industry revenue by $147.0
million, representing a 7.3% increase
from its current value. In support of this
legislation, industry players such as New
Balance Athletics Inc. (New Balance)
have confirmed that they can produce
footwear for the military in that price
range. In March 2018, New Balance was
awarded the first contract of the Berry
Amendments implementation. The
contract, worth $17.3 million, is for 18
months and will be used to provide
athletic footwear to new military recruits.
Upstream industries, such as those that
produce soles for athletic footwear, are
also gearing up for the implementation of
the Berry Amendment. Furthermore,
industry operators have also started
upgrading their manufacturing
infrastructure in the United States in
anticipation of increased demand from the
military. Some of the challenges that
operators may experience are related to
producing footwear compliant with the
Berry Amendment, all of which need to be
manufactured in the United States with
raw materials procured from US
businesses at a cost the military is willing
to pay. Efforts are already underway in
this regard, and this could benefit the
industry in the years to come.
Operators started upgrading
their manufacturing
infrastructure
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 12
Industry Performance
The industry’s contribution to US GDP is
projected to shrink over the 10 years to 2024
The number of domestic footwear
manufacturers is anticipated to rise
marginally over the 10 years to 2024
The industry experiences a high level of
internal and external competition
Life Cycle Stage
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 13
Industry Performance
Industry Life Cycle The Shoe and Footwear Manufacturing
industry is in decline, most notably
defined by its diminishing contribution to
the domestic economy (measured
through industry value added). Over the
10 years to 2024, IBISWorld forecasts
that industry value added (IVA) will
contract at an annualized rate of 0.1%.
Meanwhile, US gross domestic product
(GDP) is anticipated to grow at an
annualized rate of 2.2%. Declining IVA,
indicative of a declining industry, is the
result of strong price competition from
low-cost importers. Many companies,
unable to sustain profit margins have
opted to offshore manufacturing
operations to low-wage countries,
perpetuating the industry’s decline.
Additionally, the domestic market for
“Made in America” shoes is saturated.
Downstream shoe wholesalers and
retailers choose to source their inputs
from importers rather than local
companies to cut costs. On the
international front, the industry
outlook is also bleak. Over the 10 years
to 2024, industry exports are
anticipated to increase at an annualized
rate of 0.2%, as an overall strong dollar
has reduced export competitiveness
during the period.
While product innovation in shoes
comes about each season, domestic
manufacturers do not always reap the
benefits. Offshore factories can make the
same styles at much lower costs, making
the foreign product much more attractive
to US retailers. Although imports are
anticipated to only increase at annualized
rate of 0.8% over the 10 years to 2024,
they are still expected to satisfy the clear
majority of domestic demand for
footwear, maintaining substantial
limitations on industry growth. Imports
are expected to satisfy 95.2% of domestic
demand in 2024.
However, the number of footwear
manufacturing establishments is
expected to rise during the 10-year period
from 919 establishments in 2014 to 944
establishments by 2024, representing an
annualized increase of 0.3%. Leading
global footwear manufacturing
companies, such as Nike Inc. and Adidas
AG, have recently transferred some of
their manufacturing operations from
low-wage countries, the majority of
which are in Asia, to the United States, to
achieve streamlined supply chains.
Furthermore, the success of specialized
domestic manufacturers, that satisfy a
niche market consumer base, has also
spurred this marginal growth.
Nevertheless, this development is not
anticipated to be enough to generate
growth within the industry.
This industry is
in Decline
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 14
Products and Services
Men’s shoes
Men’s footwear (excluding athletic shoes)
makes up the largest segment, with an
estimated 50.0% of revenue for the Shoe
and Footwear Manufacturing industry in
2019. This segment’s decline over the period
has been slow, relative to other product
segments. Slower changes in the style of
Products & Markets
Supply Chain | Products and Services | Demand Determinants
Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
42434 Footwear Wholesaling in the US
Manufacturers provide wholesalers with various footwear items that are sold on to retailers.
44821 Shoe Stores in the US
Manufacturers sell footwear directly to retailers.
45111 Sporting Goods Stores in the US
Athletic footwear items are sold to sporting goods stores.
45211 Department Stores in the US
Footwear manufacturers often directly supply footwear to department stores.
45291 Warehouse Clubs & Supercenters in the US
Warehouse clubs generally sell shoes to small businesses and consumers. However, usually an
annual membership fee is charged and products are generally sold in bulk.
KEY SELLING INDUSTRIES
31611 Leather Tanning & Finishing in the US
Leather and finished leather can be key inputs for shoe manufacturing.
32221 Cardboard Box & Container Manufacturing in the US
Industry operators use cardboard boxes and other containers for packaging products.
32522 Synthetic Fiber Manufacturing in the US
Synthetic fibers such as nylon are used for manufacturing shoelaces.
32619 Plastic Products Miscellaneous Manufacturing in the US
Plastic can be a key material input for shoe manufacturing.
32629 Rubber Product Manufacturing in the US
Rubber can be a key input in shoe manufacturing.
Supply Chain
Products and services segmentation (2019)
Total $2.0bn
50.0%
Men’s footwear
(except athletic)
26.3%
Rubber and plastic footwear
including athletic footwear
20.5%
Women’s footwear
(except athletic)
3.2%
Other
footwear
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 15
Products & Markets
Demand
Determinants
The premium paid for US-made footwear
relative to imported footwear largely
determines demand for industry
products. As low-cost imports
increasingly penetrate the US market,
downstream buyers are more likely to
purchase imported shoes over
domestically made shoes. Likewise, as
the value of the US dollar increases,
wholesalers and retailers can more easily
stock imports due to its relative low price
compared with their domestically made
counterparts. The dollar has appreciated
over the past five years, making imported
shoes less expensive relative to
domestically made footwear. This trend
Products and Services
continued
men’s shoes enable existing machinery,
equipment and inputs to be used each year.
Such a characteristic distinguishes this
product segment from others, such as
women’s shoes, which regularly change in
style, potentially opening new doors for
foreign footwear manufacturers to start
expanding operations.
Rubber and plastic shoes
including athletic footwear
Rubber and plastic footwear, the
industry’s second-largest product
segment, is anticipated to account for
26.3% of industry revenue in 2019. These
products have vulcanized, molded or
cemented soles and fabric uppers. The
category includes children’s, women’s and
men’s shoes, and typically includes rubber
boots, canvas shoes, rubber sandals and
galoshes. This segment’s growth over the
five years to 2019 has been aided by a
decrease in the world price of rubber
between 2014 and 2016, which enabled
manufacturers of these products to lower
selling prices. However, IBISWorld
expects rising import competition and
rebounding rubber prices to limit this
products segment growth during much of
the five-year period to 2024.
Women’s shoes
Women’s shoes (excluding athletic shoes)
are anticipated to account for 20.5% of
industry revenue in 2019, making it the
third-largest product segment. Its share
of revenue has increased over the five-
year period, as domestic manufacturers
of women’s footwear have increasingly
specialized its product offerings to serve
high-quality niche consumer markets.
Nonetheless, the penetration of imported
women’s footwear into the domestic
market poses a significant competitive
threat to the performance of this product
segment. Shoe manufacturers in Italy
provide a significant share of premium
import substitutes, while most
competitively priced women’s footwear
imports come from developing countries,
such as China and Vietnam. Over the five
years to 2024, IBISWorld expects this
segment to remain relatively constant.
Other footwear
The remaining segment is expected to
account for 3.2% of industry revenue
in 2019. Footwear included in this
segment includes specialized athletic
shoes, protective coverings, work
boots, water shoes and house slippers.
This segment has declined over the
past five years as major operators have
moved their manufacturing facilities to
low-cost producing countries. Industry
operator Nike, for example, states in
its latest annual report that 97.0% of
its footwear is produced in offshore
third-party factories. However, this
segment may grow considerably as a
share of industry revenue. The
application of the Berry Amendment
to the industry sometime over the
five years to 2024, this segment may
grow considerably as a share of
industry revenue.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 16
Products & Markets
Major Markets Footwear retailers
Footwear retailers have increasingly
begun operating their own distribution
facilities. These manufacturers supply
footwear directly to stores to avoid
unnecessary costs incurred through
wholesaling. Vertically integrated
companies, such as major industry player
New Balance Athletics Inc., take
advantage of their supply chain power.
The largest market segment is also an
increasing one and is expected to account
for an estimated 43.5% of revenue for the
Shoe and Footwear Manufacturing
industry in 2019.
Footwear wholesalers
The second-largest market segment for
footwear manufacturers is still the
wholesaler market, which is estimated to
account for 21.2% of industry revenue in
2019. Manufacturers distribute footwear
items directly to wholesalers that market
the goods to specialty retailers, mass
merchandisers and department stores.
Wholesalers’ share of revenue is
anticipated to remain relatively stable
over the next five years.
Exports
Exports are anticipated to account for
31.2% of industry revenue in 2019.
Industry exports are anticipated to
contract at an annualized rate of 0.7%
over the five years to 2019. Falling
exports have been strongly influenced by
the appreciation of the US dollar over the
past five years, which has made industry
Demand
Determinants
continued
has decreased demand for lower-margin
industry products. Conversely, price also
plays a less measurable role in quality
perception. Several product lines benefit
from the high price premium paid for
domestically produced footwear, as it is
believed to signal a difference in quality.
Another major factor affecting demand
for products from the Shoe and Footwear
Manufacturing industry is the level of
real household disposable income. This
determines the quantity, quality and
frequency of footwear purchases. As the
level of real household disposable income
increases, it can potentially prompt
greater demand for industry products.
Concurrently, as real household
disposable income declines, so does the
frequency at which consumers purchase
discretionary items such as footwear.
Furthermore, higher discretionary
income influences consumers to purchase
more domestically made products sold at
premium prices.
Brand recognition also plays an
important role. Established products
such as Nike and Adidas can limit the
effect of new footwear styles on the
market as they hold such a large portion
of the market. As a means of maintaining
market concentration large companies
have increased their spending on
advertising. This is attributed to the
rising importance of branding. Generally,
the larger the manufacturer, the greater
the ability to create a strong and popular
brand. Brand recognition and popularity
can change along with fashion trends.
Fashion trends affect design trends and
ultimately lead to demand sensitivities
for certain footwear styles. For example,
the popularity of sporting activities
affects sales in athletic footwear.
Seasonal factors like weather conditions
affect sales. For example, during the cold
winter months, sales of sandals will
decrease and sales of boots will increase. A
change in population demographics is also
a demand factor. For example, changes in
birth rates affect sales of juvenile footwear.
A rise in couples with high disposable
incomes has caused increased spending
on luxury children’s footwear over the past
five years.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 17
Products & Markets
Major Markets
continued
goods less affordable to foreign
consumers. Over the next five years,
industry exports are anticipated to
increase at an annualized rate of 1.2%, as
the US dollar is projected to depreciate.
Major export destinations include
Canada, Hong Kong, China and Japan.
For more information of international
trade, please refer to the International
Trade section of this report.
Manufacturers’
sales outlets
Some footwear manufacturers also have
their own sales outlets and sell directly to
consumers, businesses and government
agencies. Companies, such as major
player Allen Edmond, while using
department stores such as Macys and
Nordstrom, also have their own retail
locations to sell directly to consumers.
Industry nonemployers are also
engaged in selling their products
directly to consumers and businesses to
cut out middlemen, reduce transactions
costs and improve margins. Such sales
are expected to generate 4.1% of
industry revenue in 2019.
Manufacturers’ sales outlets’ share of
revenue has remained relatively stable
over the past five years but has declined
considerably from prior years due to
contracting industry participation and
the inability of domestic manufacturers
to compete with retailers that import
low-cost shoes from Asia and higher
priced shoes from Europe.
Major market segmentation (2019)
Total $2.0bn
43.5%
Footwear retailers
31.2%
Exports
21.2%
Footwear wholesalers
4.1%
Manufacturers’
sales outlets
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 18
Products & Markets
Imports From …
Total $28.7bn
4.9%
Italy
6.5%
Indonesia
10.1%
Other
24.1%
Vietnam
54.4%
China
Exports To …
Total $632.2m
43.1%
Other
26.0%
Canada
18.5%
China
7.7%
Japan
4.7%
Hong Kong
Year: 2019
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: USITC
International Trade Imports
While total import revenue has fluctuated
throughout the period, strong import
competition has been a constant factor
influencing this industry’s decline for
over a decade. Due to the labor-intensive
nature of industry operations, footwear
manufacturers have increasingly sought
to minimize production costs by either
moving manufacturing facilities abroad
or establishing contracts with foreign
manufacturers using inexpensive labor.
Operators that implement these
outsourcing practices benefit from a
considerable advantage in cost
structuring. These companies pass on
this cost saving to consumers in the form
of lower prices, further hurting domestic
operators, who charge premiums to
remain profitable. The tax incentives,
along with lax health and safety
regulations, and workers’ compensation
regulations, also reduces manufacturers’
overhead costs in export-oriented
countries. With reduction in trade
barriers post 2005, the domestic industry
also lost most of its protection against
foreign competition. These factors have
put domestic manufacturers at a
considerable disadvantage.
IBISWorld estimates import revenue
to increase at an annualized rate of 0.8%
to $28.7 billion over the five years to
2019. Imports have been limited by a
Level & Trend
Exports in the
industry are High
and Steady
Imports in the
industry are High
and Steady
$
bi
lli
on
10
-30
–
20
-10
0
2511 13 15 17 19 21 23Year
Exports Imports Balance
Industry trade balance
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 19
Products & Markets
International Trade
continued
marginal decrease of the trade-weighted
index, which measures the strength of the
US dollar relative to the currencies of its
trading partners, starting in 2017. The
decline may also be attributable to the
generally lower price of imported
footwear during the period. Furthermore,
while declining in aggregate, imports
share of domestic demand is anticipated
to be a dominate 95.4% in 2019. Over the
five years to 2024, continued declines in
the trade-weighted index are anticipated
to lead to falls in import revenue.
Main sources of footwear imports are
China (54.4%), Vietnam (24.1%),
Indonesia (6.5%) and Italy (4.9%).
China’s share of imports has decreased
over the past five years. Chinese imports
accounted for 68.8% of total imports in
2014. Constant wage increases, increases
in freight costs and rising competition in
China have resulted in manufacturers
looking for other major sources of
low-price labor and lax regulations. This
has caused China’s share of imports to
fall. The main beneficiary of this has been
Vietnam. The Vietnamese dong is not
only significantly weaker than the US
dollar, but it has consistently depreciated
over the past five years, making imports
from Vietnam less expensive for US
consumers. This factor coupled with
rising costs in China has resulted in
Vietnam increasing its share of footwear
imports from 13.9% to 24.1% over the five
years to 2019. Imports from Indonesia
and high-end footwear from Italy have
remained relatively stable during the
current period.
Exports
Exports represent a major market
segment, with sales abroad expected to
collectively account for 31.2% of total
industry revenue in 2019. Domestically
manufactured shoes have a good
reputation in the global market, both for
their high quality and their durability.
However, industry exports are expected
to contract at an annualized rate of 0.7%
to $632.2 million over the five years to
2019. This export decline has been driven
by a rising trade-weighted index, which
measures the strength of the US dollar
relative to the currencies of its trading
partners. The dollar’s strong appreciation
over the period has adversely impacted
exports, as industry products have
become increasingly more expensive for
foreign consumers, causing them to
purchase more affordable footwear
produced elsewhere. Major export
destinations for US manufacturers are
Canada, China, Japan and Hong Kong.
Given Canada’s membership in the
North American Free Trade Agreement,
industry operators have been able to
freely export to Canada. Therefore, the
share of total exports to Canada has
increased from 21.4% in 2014 to an
estimated 26.0% in 2019. Additionally,
Hong Kong and Japan benefit from
short freight times and costs because of
easily navigable trade routes through the
Pacific. However, industry exports to
Japan are expected to decline over the
period. In 2019, Japan is expected to
account for 7.7% of total exports. Over
the five years to 2019, China has
emerged as a major destination of
industry exports, experiencing
tremendous growth during the current
period. This trend has mainly been the
result of rising income throughout
China, enabling Chinese consumers to
purchase luxury brands made by
operators in Europe and the United
States. Rising from 2.4% in 2014, the
share of total exports to China is
anticipated to reach 18.5% in 2019.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 20
Products & Markets
Business Locations 2019
MO
3.0
West
West
West
Rocky
Mountains Plains
Southwest
Southeast
New
England
VT
0.9
MA
3.9
RI
0.0
NJ
0.9
DE
0.0
NH
2.6
CT
0.0
MD
1.3
DC
0.0
1
5
3
7
2
6
4
8 9
Additional States (as marked on map)
AZ
2.2
CA
19.1
NV
0.0
OR
4.3
WA
4.8
MT
1.3
NE
0.4
MN
0.9
IA
0.4
OH
0.9
VA
1.3
FL
2.2
KS
0.0
CO
2.6
UT
0.4
ID
0.0
TX
14.7
OK
0.0
NC
0.9
AK
0.0
WY
0.0
TN
1.7
KY
0.4
GA
2.2
IL
2.2
ME
6.9
ND
0.0
WI
3.9 MI
0.4
PA
2.6
WV
0.0
SD
0.0
NM
0.4
AR
1.7
MS
0.0
AL
0.0
SC
0.4
LA
0.0
HI
0.4
IN
0.4
NY
7.4 5
6
7
8
3
21
4
9
SOURCE: WWW.IBISWORLD.COM
Mid-
Atlantic
Establishments
(%)
Less than 3%
3% to less than 10%
10% to less than 20%
20% or more
Great
Lakes
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 21
Products & Markets
Business Locations The West accounts for the largest
portion of industry establishments at
28.6%. The region’s dominance is
largely due to California, which is home
to more industry facilities than any
other state in the nation, with 19.0% of
all US footwear manufacturing
establishments. Despite high rent and
labor costs, the establishments
operating in the region are capable of
effectively servicing the industry’s
major markets. Given the West region’s
large population and relative proximity
to Asia, industry players operating
in the region are positioned to
satisfy both domestic and foreign
consumer demand while minimizing
shipping costs.
Footwear manufacturers in the New
England region benefit from the
region’s proximity to international
trade ports and access to low-cost
inputs. While only 14.3% of industry
establishments are located within the
region, New Balance, the industry’s
largest company in terms of market
share, maintains its headquarters in
Boston and the majority of its
production facilities in Massachusetts.
The Southwest, Mid-Atlantic,
Southeast and Great Lakes regions
account for 17.3%, 12.1%, 10.8% and 7.8%
of industry establishments, respectively.
Given their low population density, the
Rocky Mountains and the Plains regions
include the fewest number of industry
establishments, accounting for 4.3% and
4.8%, respectively.
%
30
0
10
20
So
ut
hw
es
t
W
es
t
G
re
at
L
ak
es
M
id
-A
tl
an
ti
c
N
ew
E
ng
la
nd
Pl
ai
ns
R
oc
ky
M
ou
nt
ai
ns
So
ut
he
as
t
Establishments
Population
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 22
Cost Structure
Benchmarks
Cost structures vary for operators
in the Shoe and Footwear
Manufacturing industry, depending
on product mix, supply contracts
and geographical location.
Wages
Accounting for an estimated 20.4% of
revenue in 2019, wages and salaries are
the second-highest cost incurred by the
industry. This high figure is indicative of
Key Success Factors Establishment of brand names
Brand strength can create consumer
demand for a specific company’s
footwear products.
Economies of scope
Footwear manufacturing companies that
produce a wide range of footwear
products can satisfy various segments of
consumer demand.
Ability to alter goods and
services produced in favor
of market conditions
The quality of footwear manufactured
and the ability to adapt to changing
fashion trends provide major
competitive advantages.
Understanding government
policies and their implications
Understanding the implications of
changing tariff rates and import duties is
required to formulate a competitive
strategy in this industry.
Economies of scale
Producing footwear items at the
lowest marginal cost is an important
competitive factor.
Willingness to outsource when appropriate
To keep input costs down, manufacturers
must be willing to source their products from
low-priced foreign providers, either by
establishing supply contracts with third parties
or moving their own facilities overseas.
Market Share
Concentration
The Shoe and Footwear Manufacturing
industry in the United States has a
moderate level of concentration. The
three largest players, New Balance, Red
Wing Shoes and Allen Edmonds, are
anticipated to account for an estimated
40.9% of industry revenue, while the top
4 account for just under 45.0% of
industry revenue. This moderate
concentration reflects a fragmented
market that has a mix of a few large
companies and many small industry
operators specializing in higher valued-
added footwear. In fact, an estimated
74.7% of all industry establishments
employ four workers or fewer.
Conversely, a mere 0.2% of industry
establishments employ 500 workers or
more. The largest global footwear
companies, such as Nike and Adidas,
manufacture nearly all their products
outside of the country. This practice has
continued over the past few years as large
companies have primarily focused
domestic activities on the design and
wholesale of footwear. However, some
traditionally global companies have
recently opened manufacturing factories
in the US in recent years as a means to
streamline its supply chain.
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalization
Establishment by employment size (2015)*
No. of employees (People) Share (%)
1 to 4 86.2
5 to 99 1
0.5
100 to 499 3.0
500+
0.2
*Latest data available
SOURCE: US CENSUS BUREAU
Level
Concentration in this
industry is Medium
IBISWorld identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 23
Competitive Landscape
Cost Structure
Benchmarks
continued
the labor-intensive nature of industry
operations. This relatively high cost of
labor is the primary reason many
footwear companies have chosen to
offshore manufacturing operations to
inexpensive workers in foreign countries.
Wages as a share of revenue has declined
over the past five years, down from 21.3%
in 2014. This is in part attributable to
industry employment declining an
annualized 1.2% during the current
period, as operators have let go workers
with higher salaried positions.
Purchases
As with other manufacturing industries,
purchases account for the largest expense
item, anticipated to take up 51.5% of
industry revenue in 2019. This figure
represents a negligible increase from
2014 levels. Raw input materials for
production typically include natural and
synthetic rubber, plastic compounds,
foam cushioning materials, nylon,
leather, canvas, polyurethane films and
packaging items. This category is
anticipated to grow as a share of revenue
during the period as industry operators,
increasingly opting to compete on the
basis of product quality, have purchased
larger quantities of high-quality raw
materials. The growth in purchases share
of revenue can also be attributed to the
recent increases in the prices of overall
industry inputs.
Profit
On average, industry profit, measured as
earnings before interest and taxes, is
expected to account for 5.2% of industry
revenue in 2019. This figure represents
an increase in the industry margin, from
4.7% of revenue in 2014. Margins have
been particularly helped by declines in
input prices. Over the five years to 2019
the price of leather is expected to
Sector vs. Industry Costs
n Profi t
n Wages
n Purchases
n Depreciation
n Marketing
n Rent & Utilities
n Other
Average Costs of
all Industries in
sector (2019)
Industry Costs
(2019)
0
20
40
60
Pe
rc
en
ta
ge
o
f
re
ve
nu
e
80
100
SOURCE: WWW.IBISWORLD.COM
6.8 5.2
19.0
1.6 1.3
1.0
51.5
20.4
21.6
2.3 0.5
2.1
55.1
11.6
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 24
Competitive Landscape
Basis of Competition The price, quality and style of produced
footwear are major factors affecting the
basis of competition between industry
operators. Concurrently, the bulk of
competition for industry produced
footwear in the United States stems from
imported shoes from the rest of the globe.
Generally, imported footwear comes from
low labor-cost countries, such as China
and Vietnam, giving companies that
outsource their manufacturing processes
a strong competitive position. Purchasing
these imported shoes lets US consumers
take advantage of operators’ cost saving
through decreased prices. Alternatively,
prices may at times be construed to
signify the quality of the product. Certain
companies are able to charge higher
Cost Structure
Benchmarks
continued
decrease at an annualized rate of 5.2%.
Furthermore, declines in the world price
of rubber, another key industry input,
was also significant, decreasing at an
annualized rate of 2.2% over the past
five years. Input price declines have
enabled many operators to price their
products more competitively, boosting
profit margins.
However, high levels of competition
from domestic and foreign companies
has limited potential profit gains for the
average industry operator. Domestic
manufacturers have experienced stagnant
or declining demand and on average have
higher wage costs than foreign
competitors, hurting profitability. Over
the five years to 2024, IBISWorld
anticipates input costs to reverse course,
ticking upward and thus placing
downward pressure on industry margins.
Depreciation
Depreciation is expected to account for
an estimated 1.0% of industry revenue
in 2019. The level of depreciation
reflects the capital tied up in
manufacturing equipment.
Depreciation costs tend to be lower
among industry operators due to the
relatively high labor intensity
characteristic of footwear
manufacturing. Capital for the industry
is usually in the form of office
equipment, computer technology and
low-level manufacturing equipment
such as sewing machines. However,
depreciation costs are expected to
remain stable during the period, as
domestic operators seek to minimize
the use of labor for mass produced
items to make their operations more
streamlined and affordable.
Marketing
Marketing and advertising expenditure,
as well as costs associated with related
promotion activities, is expected to
account for 1.3% of industry revenue in
2019. Marketing costs have stabilized
during the current period, as this
segment comprised 1.3% of industry
revenue in 2014.
Rent
Rental expenses are anticipated to
comprise 1.0% of revenue for the Shoe
and Footwear Manufacturing industry in
2019. Rental costs have remained stable
over the five years to 2019, accounting for
1.0% of industry revenue in 2014 as well.
Utilities
Similar to marketing and rental expenses,
utility costs have also remained stable
over the past five years. In 2019, utilities
are anticipated to account for 0.6% of
industry revenue in 2019.
Other
Other expenses for operators in the Shoe
and Footwear Manufacturing industry
include administrative expenses and
transportation costs. In 2019, these costs
are anticipated to comprise a combined
19.0% of industry revenue.
Level & Trend
Competition in
this industry is
High and the trend
is Increasing
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 25
Competitive Landscape
Barriers to Entry The Shoe and Footwear Manufacturing
industry is characterized by moderate
barriers to entry. Starting up a basic,
small-scale footwear manufacturing
operation does not require excessive
capital investment, which keeps barriers
relatively low. However, there are high
costs associated with establishing brand
names and the inevitable competition
from existing large brands such as Nike
and Adidas. Many of these costs are in
the form of advertising implemented as
means of building and maintaining
brand awareness. It can also be costly to
acquire capital equipment and
machinery to manufacture footwear on a
large scale.
One way that companies entering the
market of footwear manufacturing can
generate strong brand approval is by
producing goods domestically,
capitalizing on the potential patriotic
values of consumers. However, given
the general availability of offshore
contract manufacturing and
inexpensive foreign labor, industry
operators will be forced to incur higher
costs for being “American made”.
Over the past decade, footwear
manufacturers in the United States
have increasingly shifted their
operations offshore to take advantage
of low production and wage costs. This
has in turn increased the level of
import competition in the industry,
which has made it extremely difficult
for domestic manufacturers to
compete with low-priced imports from
developing countries, such as China
and Vietnam. While imports have
Basis of Competition
continued
prices to consumers without a
corresponding decrease in demand
because consumers perceive these brands
or products to be high-end.
Unfortunately for domestic
manufacturers, these high-quality
footwear products are usually sourced
from European countries renowned for
their high quality of inputs such as
leather and fabrics.
Product branding is a crucial
determinant of industry competition.
For example, globally established
enterprises such as Nike and Adidas
have developed strong brand image and
recognition through varying marketing
activities and successful advertising
campaigns. This has in turn created a
loyal consumer base, who at times
purchase products due to the built brand
identity. While Nike and Adidas barely
produce in the United States, they are
examples of external competitive forces,
with strong branding, placing pressure
on local industry operators.
Additionally, product innovation is
increasingly becoming a large
competitive consideration for
manufacturers. Design teams are
constantly creating various ranges of new
styles of footwear, which include added
features such as air pocket soles, mesh
netting and gel-arch support.
Furthermore, operators compete both
internally and externally to keep brand
products in line with fashionable trends.
This product differentiation is perceived
as one of the prominent factors
consumers use at the point of purchase,
aside from price.
Barriers to Entry checklist
Competition High
Concentration Medium
Life Cycle Stage Decline
Capital Intensity Low
Technology Change Low
Regulation and Policy Medium
Industry Assistance High
SOURCE: WWW.IBISWORLD.COM
Level & Trend
Barriers to Entry
in this industry
are Medium and
Increasing
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 26
Competitive Landscape
Industry
Globalization
The high level of globalization can be
attributed to the high level of
international trade and outsourcing that
takes place within the Shoe and Footwear
Manufacturing industry. Footwear
manufacturing is difficult to automate
fully and as a result is highly labor-
intensive. Consequently, manufacturers
seek out countries that have low wage
costs to either contract manufacturing
work or to establish production facilities
offshore. This trend has had downward
pressure on total industry wages as
operators attempt to mitigate the costs of
producing on US soil.
Major global footwear companies, such
as Nike Inc., outsource manufacturing
operations mostly to Chinese contractors
due to the less expensive labor and
overall production costs available in the
country. Footwear is then imported to the
United States and distributed to
wholesale or retail outlets for resale to
the final consumer. As a means of
remaining competitive, major industry
operators are producing a larger share of
output overseas.
The globalized nature of the industry
can also be attributed to the significance
of imports. Import penetration into the
manufacturing sector has been steadily
growing for decades and the Shoe and
Footwear Manufacturing industry has
been no exception. While total import
revenue has declined over the five years
to 2019, imports share of domestic
demand is anticipated to remain high at
95.4% in 2019. This external competition
only further encourages industry
producers to outsource operations to
inexpensive labor countries. As demand
from footwear wholesaling and retailers
increases, industry operators will
need to use inexpensive input costs to
remain competitive. The Shoe and
Footwear manufacturing industry is not
anticipated to be affected by the recently
announced US tariffs.
Barriers to Entry
continued
declined in recent years, they still
accounts for more than 90% of
domestic demand. Competition from
foreign manufacturing limits potential
profit and presenting an increasing
barrier to industry entry.
SOURCE: WWW.IBISWORLD.COM
Trade Globalization Going Global: Shoe & Footwear Manufacturing
2003–2019
Ex
po
rt
s/
Re
ve
nu
e
Ex
po
rt
s/
Re
ve
nu
e
200
1
50
100
50
0
200
150
100
50
0
Imports/Domestic Demand Imports/Domestic Demand
0 040 4080 80120 120160 160
International trade is a
major determinant of
an industry’s level of
globalization.
Exports offer growth
opportunities for fi rms.
However there are legal,
economic and political risks
associated with dealing in
foreign countries.
Import competition can
bring a greater risk for
companies as foreign
producers satisfy domestic
demand that local fi rms
would otherwise supply.
Export ExportGlobal Global
ImportLocal ImportLocal
Shoe & Footwear
Manufacturing
2003
2019
Level & Trend
Globalization in
this industry is
High and the trend
is Increasing
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 27
Player Performance New Balance Athletics Inc. (New
Balance) is a Boston-based footwear
company. The company was founded in
1906 and is the only remaining major
athletic shoe company with a significant
manufacturing presence in the United
States. New Balance owns six production
facilities in the United States, which are
located in Massachusetts, Maine and
California. New Balance’s domestic
manufacturing operations account for an
estimated 17.5% of its global sales, with
the company’s footwear manufacturing
segment accounting for an estimated
57.2%. Much like the rest of the Shoe and
Footwear Manufacturing industry, the
majority of the company’s shoes are
manufactured in China and Vietnam.
New Balance also has manufacturing
facilities in the United Kingdom.
New Balance shoes carry a price point
that is slightly above that of its
competitors’ in footwear, given the
premium carried by domestically
manufactured products. The company
uses value-added features, such as gel
arch support, to differentiate its products.
Over the five years to 2019, the company
has invested in an ongoing advertising
campaign that highlights its dedication to
domestic manufacturing and value-added
craftsmanship. In addition to athletic
shoes, New Balance also offers athletic
apparel and accessories such as socks,
insoles, sunglasses and clothing. Over the
past decade, these industry-irrelevant
segments have accounted for a growing
share of total company revenue.
Financial performance
New Balance is a privately-owned
company; therefore, it does not disclose
financial information. However, in 2019,
IBISWorld estimates that the company
Major Companies
New Balance Athletics Inc. | Red Wing Shoes
Allen Edmonds Shoe Corp. | Other Companies
59.0%
Other
New Balance Athletics Inc. 24.3%
Red Wing Shoes 11.7%
Allen Edmonds Shoe Corp. 5.0%
SOURCE: WWW.IBISWORLD.COM
Major Players
(Market Share)
New Balance
Athletics Inc.
Market Share: 24.3%
New Balance Athletics Inc. (US industry-specifi c segment) – fi nancial
performance*
Year
Revenue
($ million) (% change)
Employees
(People) (% change)
2014 374.7 N/C 1,252 N/C
2015 411.0 9.7 1,350 7.8
2016 412.3 0.3 1,397 3.5
2017 449.8 9.1 1,506 0.6
2018 4,732 5.2 1,623 4.1
2019 492.8 4.1 1,749 2.3
*Estimates
SOURCE: IBISWORLD
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 28
Major Companies
Player Performance Red Wing Shoes is a footwear retailer and
manufacturer founded in 1905 in Red
Wing, MN. The company was the primary
manufacturer of footwear products for
US soldiers during World War I and has
continued to maintain a strong domestic
presence. Red Wing Shoes is one of the
few remaining major footwear
manufacturers in the United States. The
company specializes in leather boots for
heavy work and footwear for a variety of
work purposes, including slip-resistant
footwear for the service industry and
boots equipped with metatarsal guards,
ideal for workers in the mining industry.
To keep up with recent fashion trends,
Red Wing Shoes has recently begun to
offer a variety of comfort styles to its
customers, such as oxfords and chukkas.
Leather hunting boots are also a revenue
generating product segment for Red
Wing Shoes.
Red Wing Shoes owns two US-based
production facilities in Potosi, MO, and
Red Wing, MN. Overall, domestic
manufacturing accounts for roughly
40.0% of the company’s overall footwear
output. The remaining manufacturing
Player Performance
continued
will generate $492.8 million in industry-
relevant revenue. Over the five years to
2019, the company’s industry-specific
revenue is expected to grow at an
annualized rate of 5.6%. Athletic shoes
are less discretionary than their casual
or formal counterparts, making them
less sensitive to shifts in consumer
spending power, which has risen during
the period. Moreover, increasing
consumer demand for US-made shoes
and apparel has bode well for the
company. Consequently, New Balance
has increased its presence in the United
States, growing its market share to an
estimated 24.3% in 2019.
In an attempt to further increase
its market share following the
implementation of the Berry
Amendment, the company invested in a
new molding facility in Boston in 2014.
The company has also submitted three
pair of shoes for testing by the US
Department of Defense. In March 2018,
New Balance received a $17.3 million
contract from the US Department of
Defense to provide shoes for military
personnel entering basic training. New
Balance is hopeful to gain future
contracts to supply footwear to the
military, which would significantly boost
its industry-specific revenue.
Red Wing Shoes (US industry-specifi c segment) – fi nancial performance*
Year
Revenue
($ million) (% change)
Employees
(People) (% change)
2014 193.2 N/C 577 N/C
2015 201.0 4.0 571 -1.0
2016 210.1 4.5 564 -1.2
2017 218.9 4.2 558 -1.1
2018 227.8 4.1 552 -1.1
2019 236.7 3.9 555 0.5
*Estimates
SOURCE: IBISWORLD
Red Wing Shoes
Market Share: 11.7%
Industry Brand Names
Irish Setter
Vasque
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 29
Major Companies
Player Performance Founded in 1922, Allen Edmonds Shoe
Corp. (Allen Edmonds) is one of the few
remaining dress shoe manufacturers in
the United States. The company operates
more than 75 retail locations across the
United States and generates most of its
revenue by selling its products to
department stores such as Macy’s Inc.
and Nordstrom Inc. In 2013, Brentwood
Associates bought Allen Edmonds in a
deal estimated to be worth $180.0
million. In 2016, Allen Edmonds was
acquired again, this time by Caleres Inc.
(Caleres), a global footwear retailer and
wholesaler, for $255.0 million. Allen
Edmonds is headquartered in Port
Washington, WI, and employs over 1,000
workers globally.
The majority of Allen Edmonds’ shoes
are produced domestically, with the
company’s Port Washington facility
manufacturing an estimated 2,500 shoes
per day. Outside the United States, the
company maintains a plant in the
Dominican Republic, which specializes in
the production of the company’s slip-ons.
Player Performance
continued
operations of company footwear
products, along with the production Red
Wing Shoes’ various brands, is conducted
in China. While Red Wing Shoes also
producers various leather products and
accessories such as belts, gloves, wallets
and bags, footwear and shoes are
estimated to generate 92.0% of company
revenue in 2019.
Financial performance
Red Wing Shoes is a privately-owned
company. As a result, financial
information about the company is
limited. Nonetheless, IBISWorld analysis
indicates that Red Wing Shoes has grown
over the past five years. Over the five
years to 2019, the company’s industry-
relevant revenue is expected to rise at an
annualized rate of 4.1% to $236.7
million. Red Wing Shoes has remained
favorable with its core consumers by
maintaining and highlighting its made-
in-America products. Additionally, the
recent success of Red Wing Shoes may
be in part attributable to the strong job
market. As unemployment declines,
more consumers are hired for labor
in industries, such as construction
and service, which may require work
boots such as the ones crafted by Red
Wing Shoes.
Allen Edmonds Shoe Corp. (US industry-specifi c segment) – fi nancial
performance*
Year
Revenue
($ million) (% change)
Employees
(People) (% change)
2014 107.8 N/C 446 N/C
2015 104.1 -3.4 475 6.5
2016 105.8 1.6 507 6.7
2017 103.9 -1.8 506 -0.2
2018 100.7 -3.1 518 2.4
2019 100.4 -0.3 521 0.6
*Estimates
SOURCE: IBISWORLD
Allen Edmonds Shoe
Corp.
Market Share: 5.0%
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 30
Major Companies
Other Company
Performance
Founded in 1952 in Abington, MA,
Timberland LLC (Timberland) is a US
manufacturer and retailer of footwear
and outdoor apparel. In 2011, the
company became a subsidiary of VF
Corporation (VF), which owns and
manages more than 30 fellow footwear
and apparel brands, such as Vans and
North Face. VF primarily uses
outsourced contractors to manufacturer
its branded products. While
Timberland is anticipated to generate
Other Companies IBISWorld defines a major player as a
company that generates at least 5.0% of
industry revenue. The majority of
companies operating within the Shoe and
Footwear Manufacturing industry do not
hold a large portion of the market, since
most manufacturing occurs outside of the
United States. Domestic companies
undertake high-value operations, such as
design, marketing and distribution.
While Adidas AG (Adidas) and Nike Inc
(Nike). were once major players in the
industry, they have since exited the
industry by offshoring the majority, if not
all, of their manufacturing operations.
Adidas, a German-owned global
sportswear and equipment designer,
manufacturer and distributor, exited
the US industry in 1993. In 2005,
Adidas purchased Reebok and sold its
interest in Salomon to Amer Sports
Corporation. Adidas is no longer a
major player in the Shoe and Footwear
Manufacturing industry, as nearly all of
its shoes are produced outside of the
United States. Asia is its largest
production hub, representing 97.0% of
total footwear production for the
Adidas and Reebok brands.
Nike exited the Shoe and Footwear
Manufacturing industry in 1984. Nike is
the world’s largest shoe company and
controls an estimated 40.0% share of the
US athletic footwear market. The
majority of Nike footwear is
manufactured overseas via independent
contractors. Offshore, independent
contractors manufacture about 97.0% of
total Nike footwear. Vietnam makes up
44.0% of Nike manufacturing, followed
by China (29.0%) and Indonesia (21.0%).
Nike also has manufacturing agreements
with contractors in Argentina, India,
Brazil and Mexico.
Player Performance
continued
However, this product segment accounts
for an estimated 5.0% of the company’s
total revenue. Overall, Allen Edmonds’
footwear product line is expected to
generate 70.3% of the company’s total
revenue in 2019. This share has declined
slightly over the past five years, as Allen
Edmonds has opted to expand its product
offerings to include apparel and
accessories, both of which are made in
the United States.
Financial performance
According to IBISWorld estimates, Allen
Edmonds has declined over the five years
to 2019, falling at an annualized rate of
1.4% to $100.4 million. Since the
company specializes in the
manufacturing of premium, high valued-
added formal footwear, the company’s
products command higher price points
than imported substitutes. However,
since the company was acquired by
Caleres, it has experienced overall and
industry-relevant revenue decline.
Caleres has signaled an intention to
move more of the company’s
manufacturing presence offshore and
has closed two store fronts due to falling
revenue streams.
Timberland LLC
Market Share: 1.2%
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 31
Major Companies
nearly $1.9 billion in total revenue in
2019, only a fraction of this can be
considered industry-relevant. Out of
more than 370 facilities owned and
operated by Timberland worldwide,
only five manufacture footwear and
shoe products within the United States.
As a result, IBISWorld estimates that
$25.2 million of Timberland’s revenue
can be attributed to company’s
domestic shoe-manufacturing
operations in 2019.
Other Company
Performance
continued
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 32
Capital Intensity Operators in the Shoe and Footwear
Manufacturing industry are expected to
spend $0.05 on capital for every $1.00
they spend on labor in 2019. This ratio
indicates a low level of capital intensity. As
some major companies anticipate and
prepare for the Pentagon’s rollout and full
implementation of the Berry Amendment
to the industry, a slight increase in
depreciation costs and upgrades to
existing infrastructure is expected to occur
over the five years to 2024. Nevertheless,
capital intensity is expected to remain low
to moderate. This is primarily due to the
fact that footwear manufacturing is largely
a labor-intensive process.
Typical industry equipment includes a
variety of machinery used for pattern
making, component and upper
preparation, stitching, bottoming, lasting
and finishing purposes. Although
technology such as sewing and cutting
Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility
Regulation & Policy | Industry Assistance
Capital Intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COM
Dotted line shows a high level of capital intensity
Capital units per labor unit
Shoe &
Footwear
Manufacturing
ManufacturingEconomy
Level
The level of capital
intensity is Low
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 33
Operating Conditions
Technology and
Systems
Technological advancement in the Shoe
and Footwear Manufacturing industry in
the United States is low due to the
labor-intensive nature of the industry.
Sewing and cutting machines have yet to
be automated, still needing to be
operated by industry employees. Most
advancements in industry technology
have stemmed from the upgrading of
existing sewing and cutting machines.
However, because most footwear
manufacturing is completed offshore, it is
less beneficial for domestic
manufacturers to invest in new
equipment or research and development
of manufacturing innovations. To remain
competitive with the inexpensive foreign
labor of international manufacturers, the
industry has been marred with a long
running trend of players cutting
operations or closing down
establishments altogether. However, the
industry has experienced a rise in
establishments in recent years as some
operators have valued the faster supply
chains that result from manufacturing in
the United States.
Tagless labeling technology is expected
to enable increased consumer comfort,
branding opportunities, cost savings and
security management. The footwear
manufacturer or contractor can
incorporate brand logos, anti-
counterfeiting tools, barcodes and
radio-frequency identification technology
into labels in one relatively simple
consolidated process.
Furthermore, internet technology has
connected the world and has enabled
companies to communicate product
information globally. This has further
internationalized supply chains in the
domestic Shoe and Footwear
Manufacturing industry with companies
operating in various international
locations. For example, US companies
conduct the product design, strategy and
marketing, while manufacturing often
takes place overseas. While this
phenomenon took place even before the
advent of internet technology, the speed
of conversion from design to
manufacturing has increased. Design and
product development are expected to
further make use of three-dimensional
tools that enable footwear to be created
in 3D and converted automatically to 2D
for traditional manufacturing methods.
Capital Intensity
continued
machines can be used to assist the
processes, there is still a strong need
for human operation due to the
intricate nature of the work. Since the
footwear production process has been
difficult to automate, many operators
have chosen to outsource production
processes to developing countries to
save on labor costs and price their
goods more competitively.
Level
The level of
technology
change is Low
Revenue Volatility Over the five years to 2019, the Shoe and
Footwear Manufacturing industry has
exhibited a low level of revenue volatility.
Any volatility is due in part to domestic
consumers strong reliance on
international markets. More than 90.0%
of domestic demand is satisfied by
imported footwear, influenced by factors
including exchange rates, foreign supply
chain stability and international
geopolitical circumstances. For example,
an appreciation of the dollar relative to
the currencies of the US trading partners
enables domestic downstream
wholesalers to purchase imports at less
expensive prices, reducing their demand
for domestically manufactured footwear
and shoes.
Level
The level of
volatility is Low
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 34
Operating Conditions
Regulation and Policy As with other apparel manufacturing
industries, the Shoe and Footwear
Manufacturing industry is subject to
several environmental laws, requirements
and regulations imposed by federal, state,
local and international entities.
Footwear manufacturers have
consistently used a plethora of chemical
substances to produce its goods, some of
which are hazardous. As a result, states
such as Minnesota and California have
recently implemented restrictions or
limitations on certain chemicals used by
industry operators. Materials used in
shoe manufacturing is further federally
regulated by the Consumer Product
Safety Commission (CPSC) through laws
such as the Consumer Product Safety
Improvement Act of 2008 and the
Federal Hazardous Substances Act.
Footwear manufacturers are subject to
US customs duties for imported
materials. In early 2003, the United
States began enforcing regulations that
require all importers to submit detailed
manifests to US customs 24 hours prior
to the cargo leaving the country of origin.
Footwear manufacturers may be granted
concessions, which will depend on the
description of the footwear items. For
example, generic descriptions such as
“shoes” will qualify under the new
regulations, but more detailed
information will not.
Level & Trend
The level of
Regulation is
Medium and the
trend is Steady
Revenue Volatility
continued
Changes in footwear fashion trends also
create volatility. A change in fashion can
make particular shoe styles outdated,
which in turn, will lead to weak sales of
one style relative to another. Concurrently,
other styles may experience surges in
popularity boosting sales and contributing
to overall industry volatility.
While changes in the cost of raw
materials, such as rubber and leather,
have a direct effect on industry purchase
costs, such costs may also ultimately
influence revenue. As the price of inputs
increase, manufacturers may opt to pass
on higher costs to wholesalers and
retailers in the form of higher prices,
preserving profit margins and generating
higher revenue. However, high selling
prices create a disincentive for consumers
to purchase shoes, especially during
times of sluggish disposable income
growth. As a result, consumers may opt
for more affordable import substitutes,
driving down industry revenue.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 35
Operating Conditions
Industry Assistance Operators in the Shoe and Footwear
Manufacturing industry benefit from a
high level of industry assistance, which
comes in the form of tariff protection and
industry associations. Duties on footwear
into the United States range from 0.0%
to 15.0%. This rate depends on the
manufacturer and on the principal
component of the shoe. For example,
leather-made shoes carry different tariff
rates than those made from rubber,
plastic and pig skin. As of now, recently
announced US tariffs are not anticipated
to affect the Shoe and Footwear
Manufacturing industry.
The World Trade Organization (WTO)
sets global rules of trade between nations
participating in the Shoe and Footwear
Manufacturing industry. WTO agreements
establish the legal ground rules for
international trade and the market-
opening commitments taken up by its
members. These agreements are
negotiated and signed by all members of
the WTO and ratified in their parliaments.
Countries such as Mexico, Canada,
Colombia, Chile and South Africa continue
to maintain restrictions on footwear
imports from China where many US
companies manufacture most of their
footwear. However, many domestic
manufacturers can serve these markets
through exemptions or alternative
sourcing from outside China. US
companies importing footwear are subject
to quotas imposed by bilateral agreements
between the US and the countries they are
importing from (i.e. Hong Kong and
Korea). These agreements impose quotas
on the amount and type of footwear that
can be imported.
The establishment of the North
American Free Trade Agreement enabled
increased levels of imports from and
exports to Mexico and Canada. Under the
agreement, the three North American
countries experience duty-free trade
among each other. Canada has
consistently been the top export
destination for US-made footwear during
the five-year period. Furthermore, tariff
and quota reductions implemented in
January 2005 for imported footwear into
the United States have led to higher
levels of import penetration, resulting in
less expensive footwear prices for
consumers. Domestic footwear
manufacturers will be forced to increase
productivity and efficiencies to remain
competitive with less expensive imports.
Regulation and Policy
continued
Manufacturers must abide by US patent
and trademark laws that relate to the
protection of intellectual property.
Penalties are imposed on the infringement
of patents. Penalties are imposed on
footwear manufacturers that contravene
US labor and wage laws. Companies must
also abide by various occupational health
and safety legislation.
Companies within this industry
are subject to environmental and
anti-dumping laws regarding the
discharge of material waste of
some footwear inputs such as
synthetic and leather made footwear.
Additionally, the United Nations
strongly urge many corporations in
manufacturing industries to embrace
the standards set by the International
Labor Organization, which are set to
protect the human rights of all labor
workers globally.
Level & Trend
The level of Industry
Assistance is High
and the trend is
Decreasing
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 36
Key Statistics
Revenue
($m)
Industry
Value Added
($m)
Establish-
ments Enterprises Employment
Exports
($m)
Imports
($m)
Wages
($m)
Domestic
Demand
Trade-weighted
index
2010 2,039.2 609.1 837 815 12,439 581.8 23,900.5 431.7 25,357.9 75.4
2011 2,099.5 517.3 878 858 11,714 674.3 25,516.6 410.3 26,941.8 70.9
2012 2,316.7 552.1 963 944 12,195 687.8 26,316.4 429.2 27,945.3 73.6
2013 2,201.9 524.7 917 899 12,078 644.9 26,825.6 443.2 28,382.6 75.9
2014 2,016.5 545.0 919 902 11,300 653.9 27,575.5 430.0 28,938.1 78.4
2015 1,958.8 562.7 913 895 11,399 640.0 28,909.6 441.3 30,228.4 91.0
2016 1,987.5 470.3 907 895 11,300 550.9 26,890.0 432.6 28,326.6 91.6
2017 1,988.9 527.1 913 902 10,554 531.5 26,272.2 409.8 27,729.6 91.1
2018 2,007.6 537.5 924 913 10,591 561.5 26,809.9 411.7 28,256.0 89.0
2019 2,027.6 539.7 932 921 10,644 632.2 28,702.5 414.1 30,097.9 87.9
2020 2,036.4 538.9 931 920 10,630 657.9 27,524.9 414.1 28,903.4 87.5
2021 2,038.8 536.7 933 922 10,604 666.1 27,498.7 413.3 28,871.4 87.4
2022 2,041.7 535.3 935 923 10,598 668.1 27,332.8 413.3 28,706.4 87.3
2023 2,046.0 535.1 937 926 10,597 668.3 27,330.9 413.4 28,708.6 87.2
2024 2,067.3 538.9 944 932 10,659 670.3 27,956.2 416.2 29,353.2 87.2
Sector Rank 182/193 182/193 86/193 78/193 170/193 149/184 24/184 181/193 77/184 N/A
Economy Rank 659/694 662/694 549/694 512/694 638/694 168/216 25/216 655/694 83/216 N/A
IVA/
Revenue
(%)
Imports/
Demand
(%)
Exports/
Revenue
(%)
Revenue per
Employee
($’000)
Wages/Revenue
(%)
Employees
per Est.
Average Wage
($)
Share of the
Economy
(%)
2010 29.87 94.25 28.53 163.94 21.17 14.86 34,705.36 0.00
2011 24.64 94.71 32.12 179.23 19.54 13.34 35,026.46 0.00
2012 23.83 94.17 29.69 189.97 18.53 12.66 35,194.75 0.00
2013 23.83 94.51 29.29 182.31 20.13 13.17 36,694.82 0.00
2014 27.03 95.29 32.43 178.45 21.32 12.30 38,053.10 0.00
2015 28.73 95.64 32.67 171.84 22.53 12.49 38,713.92 0.00
2016 23.66 94.93 27.72 175.88 21.77 12.46 38,283.19 0.00
2017 26.50 94.74 26.72 188.45 20.60 11.56 38,828.88 0.00
2018 26.77 94.88 27.97 189.56 20.51 11.46 38,872.63 0.00
2019 26.62 95.36 31.18 190.49 20.42 11.42 38,904.55 0.00
2020 26.46 95.23 32.31 191.57 20.33 11.42 38,955.79 0.00
2021 26.32 95.25 32.67 192.27 20.27 11.37 38,975.86 0.00
2022 26.22 95.22 32.72 192.65 20.24 11.33 38,997.92 0.00
2023 26.15 95.20 32.66 193.07 20.21 11.31 39,011.04 0.00
2024 26.07 95.24 32.42 193.95 20.13 11.29 39,046.81 0.00
Sector Rank 61/193 8/184 36/184 178/193 36/193 172/193 180/193 182/193
Economy Rank 395/694 8/216 45/216 436/694 288/694 341/694 476/694 662/694
Figures are in inflation-adjusted 2019 dollars. Rank refers to 2019 data.
Revenue
(%)
Industry
Value Added
(%)
Establish-
ments
(%)
Enterprises
(%)
Employment
(%)
Exports
(%)
Imports
(%)
Wages
(%)
Domestic
Demand
(%)
Trade-weighted
index
(%)
2011 3.0 -15.1 4.9 5.3 -5.8 15.9 6.8 -5.0 6.2 -6.0
2012 10.3 6.7 9.7 10.0 4.1 2.0 3.1 4.6 3.7 3.8
2013 -5.0 -5.0 -4.8 -4.8 -1.0 -6.2 1.9 3.3 1.6 3.1
2014 -8.4 3.9 0.2 0.3 -6.4 1.4 2.8 -3.0 2.0 3.3
2015 -2.9 3.2 -0.7 -0.8 0.9 -2.1 4.8 2.6 4.5 16.1
2016 1.5 -16.4 -0.7 0.0 -0.9 -13.9 -7.0 -2.0 -6.3 0.7
2017 0.1 12.1 0.7 0.8 -6.6 -3.5 -2.3 -5.3 -2.1 -0.5
2018 0.9 2.0 1.2 1.2 0.4 5.6 2.0 0.5 1.9 -2.3
2019 1.0 0.4 0.9 0.9 0.5 12.6 7.1 0.6 6.5 -1.2
2020 0.4 -0.1 -0.1 -0.1 -0.1 4.1 -4.1 0.0 -4.0 -0.5
2021 0.1 -0.4 0.2 0.2 -0.2 1.2 -0.1 -0.2 -0.1 -0.1
2022 0.1 -0.3 0.2 0.1 -0.1 0.3 -0.6 0.0 -0.6 -0.1
2023 0.2 0.0 0.2 0.3 0.0 0.0 0.0 0.0 0.0 -0.1
2024 1.0 0.7 0.7 0.6 0.6 0.3 2.3 0.7 2.2 0.0
Sector Rank 99/193 135/193 73/193 68/193 119/193 6/184 12/184 116/193 7/184 N/A
Economy Rank 445/694 518/694 361/694 341/694 500/694 8/216 16/216 498/694 10/216 N/A
Annual Change
Key Ratios
Industry Data
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 37
Apr 2017 – Mar 2018 by company revenue
Apr 2014 – Apr 2015 – Apr 2016 – Apr 2017 – Small Medium Large
Mar 2015 Mar 2016 Mar 2017 Mar 2018 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 2.7 2.0 1.8 2.4 n/a 2.3 2.6
Quick Ratio 1.2 0.9 0.7 0.7 n/a 0.8 0.9
Sales / Receivables (Trade Receivables
Turnover) 8.3 9.1 11.2 7.6 n/a 9.5 6.7
Days’ Receivables 44.0 40.1 32.6 48.0 n/a 38.4 54.5
Cost of Sales / Inventory (Inventory Turnover) 3.3 2.8 2.7 2.5 n/a 2.4 2.6
Days’ Inventory 110.6 130.4 135.2 146.0 n/a 152.1 140.4
Cost of Sales / Payables (Payables Turnover) 10.5 12.6 12.8 12.9 n/a 14.7 9.0
Days’ Payables 34.8 29.0 28.5 28.3 n/a 24.8 40.6
Sales / Working Capital 3.7 5.2 7.5 4.5 n/a 5.2 3.5
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) /
Interest 5.9 4.8 2.5 6.2 n/a 12.6 9.5
Net Profit + Dep., Depletion, Amort. / Current
Maturities LT Debt n/a n/a n/a n/a n/a n/a n/a
Leverage Ratios
Fixed Assets / Net Worth 0.2 0.1 0.3 0.2 n/a 0.2 0.2
Debt / Net Worth 0.7 1.4 1.8 1.2 n/a 1.0 0.7
Tangible Net Worth 39.8 17.4 16.2 28.7 n/a 48.0 23.3
Operating Ratios
Profit before Taxes / Net Worth, % 14.8 21.1 14.3 12.9 n/a 32.9 7.9
Profit before Taxes / Total Assets, % 3.7 7.0 3.1 6.4 n/a 10.8 5.4
Sales / Net Fixed Assets 16.4 29.0 14.5 22.6 n/a 34.2 15.4
Sales / Total Assets (Asset Turnover) 1.6 1.5 1.7 1.5 n/a 1.7 1.5
Cash Flow & Debt Service Ratios (% of sales)
Cash from Trading n/a 29.6 37.6 33.8 n/a 33.8 n/a
Cash after Operations n/a -2.6 3.2 6.0 n/a 7.6 n/a
Net Cash after Operations n/a 4.6 4.4 5.3 n/a 7.3 n/a
Cash after Debt Amortization n/a -0.4 -0.2 0.1 n/a 0.1 n/a
Debt Service P&I Coverage n/a 1.3 1.2 1.6 n/a 3.6 n/a
Interest Coverage (Operating Cash) n/a 1.3 2.5 7.8 n/a 11.8 n/a
Assets, %
Cash & Equivalents 12.3 10.0 9.5 9.3 n/a 12.7 7.4
Trade Receivables (net) 22.1 23.6 17.7 23.3 n/a 22.6 22.2
Inventory 33.1 38.2 40.3 42.0 n/a 44.8 38.9
All Other Current Assets 3.7 4.7 2.8 3.7 n/a 1.5 7.0
Total Current Assets 71.2 76.4 70.3 78.4 n/a 81.6 75.4
Fixed Assets (net) 12.5 11.5 14.2 10.2 n/a 11.4 8.6
Intangibles (net) 8.5 6.7 6.7 6.6 n/a 0.8 11.5
All Other Non-Current Assets 7.8 5.3 8.8 4.8 n/a 6.2 4.6
Total Assets 100.0 100.0 100.0 100.0 n/a 100.0 100.0
Total Assets ($m) 1,734.5 1,929.8 1,426.8 1,446.1 27.4 187.1 1,231.6
Liabilities, %
Notes Payable-Short Term 10.1 15.4 19.0 14.0 n/a 21.1 11.3
Current Maturities L/T/D 1.0 1.2 1.3 1.8 n/a 1.0 0.5
Trade Payables 13.7 16.2 14.4 15.3 n/a 13.5 12.6
Income Taxes Payable 1.4 0.1 n/a 0.5 n/a 0.4 0.8
All Other Current Liabilities 8.0 19.1 21.1 18.3 n/a 5.4 27.1
Total Current Liabilities 34.3 51.9 55.8 49.9 n/a 41.3 52.3
Long Term Debt 8.8 17.9 14.6 5.9 n/a 5.9 6.3
Deferred Taxes 0.7 0.8 1.0 0.6 n/a 0.6 0.9
All Other Non-Current Liabilities 8.0 5.4 5.8 8.3 n/a 3.5 5.6
Net Worth 48.3 24.1 22.9 35.3 n/a 48.8 34.8
Total Liabilities & Net Worth ($m) 1,734.5 1,929.8 1,426.8 1,446.1 27.4 187.1 1,231.6
Maximum Number of Statements Used 31 40 40 37 8 14 15
Industry Financial Ratios
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more
than 260,000 statements of member financial institutions’ borrowers and prospects.
Note: For a full description of the ratios refer to the Key Statistics chapter online.
WWW.IBISWORLD.COM Shoe & Footwear Manufacturing in the US May 2019 38
Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that
new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITY Compares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labor. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity. High
capital intensity is more than $0.333 of capital to $1 of
labor; medium is $0.125 to $0.333 of capital to $1 of labor;
low is less than $0.125 of capital for every $1 of labor.
CONSTANT PRICES The dollar figures in the Key Statistics
table, including forecasts, are adjusted for inflation using
the current year (i.e. year published) as the base year. This
removes the impact of changes in the purchasing power of
the dollar, leaving only the “real” growth or decline in
industry metrics. The inflation adjustments in IBISWorld’s
reports are made using the US Bureau of Economic
Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and
services within the United States, regardless of their
country of origin. It is derived by adding imports to industry
revenue, and then subtracting exports.
EMPLOYMENT The number of permanent, part-time,
temporary and seasonal employees, working proprietors,
partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and
keeps management accounts. Each enterprise consists of
one or more establishments that are under common
ownership or control.
ESTABLISHMENT The smallest type of accounting unit
within an enterprise, an establishment is a single physical
location where business is conducted or where services or
industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
EXPORTS Total value of industry goods and services sold
by US companies to customers abroad.
IMPORTS Total value of industry goods and services
brought in from foreign countries to be sold in the United
States.
INDUSTRY CONCENTRATION An indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players account
for more than 70% of industry revenue. Medium is 40% to
70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods
and services (exclusive of excise and sales tax); subsidies on
production; all other operating income from outside the
firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and capital
work done by rental or lease. Receipts from interest
royalties, dividends and the sale of fixed tangible assets are
excluded.
INDUSTRY VALUE ADDED (IVA) The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is also
described as the industry’s contribution to GDP, or profit
plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade
is determined by ratios of exports to revenue and imports
to domestic demand. For exports/revenue: low is less than
5%, medium is 5% to 20%, and high is more than 20%.
Imports/domestic demand: low is less than 5%, medium is
5% to 35%, and high is more than 35%.
LIFE CYCLE All industries go through periods of growth,
maturity and decline. IBISWorld determines an industry’s
life cycle by considering its growth rate (measured by IVA)
compared with GDP; the growth rate of the number of
establishments; the amount of change the industry’s
products are undergoing; the rate of technological change;
and the level of customer acceptance of industry products
and services.
NONEMPLOYING ESTABLISHMENT Businesses with no
paid employment or payroll, also known as nonemployers.
These are mostly set up by self-employed individuals.
PROFIT IBISWorld uses earnings before interest and tax
(EBIT) as an indicator of a company’s profitability. It is
calculated as revenue minus expenses, excluding interest
and tax.
VOLATILITY The level of volatility is determined by
averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
±20%; high volatility is ±10% to ±20%; moderate volatility
is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all
employees in the industry. The cost of benefits is also
included in this figure.
Industry Jargon
IBISWorld Glossary
NORTH AMERICAN FREE TRADE AGREEMENT
(NAFTA) A generally duty-free agreement signed by the
governments of Canada, Mexico and the United States,
creating a trilateral trade bloc in North America.
OFFSHORING The transfer of manufacturing
operations to another country, regardless of whether
the work is outsourced or stays within the same
corporation or company.
OUTSOURCING Subcontracting process where
manufacturing is conducted by a third party company
either locally or internationally.
Disclaimer
This product has been supplied by IBISWorld Inc. (‘IBISWorld’) solely for use
by its authorized licenses strictly in accordance with their license agreements
with IBISWorld. IBISWorld makes no representation to any other person
with regard to the completeness or accuracy of the data or information
contained herein, and it accepts no responsibility and disclaims all liability
(save for liability which cannot be lawfully disclaimed) for loss or damage
whatsoever suffered or incurred by any other person resulting from the use
of, or reliance upon, the data or information contained herein. Copyright in
this publication is owned by IBISWorld Inc. The publication is sold on the
basis that the purchaser agrees not to copy the material contained within it
for other than the purchasers own purposes. In the event that the purchaser
uses or quotes from the material in this publication – in papers, reports, or
opinions prepared for any other person – it is agreed that it will be sourced
to: IBISWorld Inc.
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is more than assembling facts
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MGMT 405 Spring Quarter 2020
FINAL PROJECT INSTRUCTIONS
Process to Complete the Final Project
The final project for this course is a course-long research process culminating in 3 separate written documents (word ) in which students will present their “research” on global/regional trends impacting a specific industry. This involves a multi-step process. Follow these steps in order to complete the project successfully. These steps are a mandatory part of the assignment. Please read this document very carefully.
Step 1. Choose one of the following global companies for your project:
Marriot
Toyota
AB-Inbev
Boeing
Adidas
Step 2. Download the most recent Annual Report from the Company website.
Go to the company website and find Investor Relations (or a version of it) where financial reports are required by law to be posted. Download the most recent annual report.
Step 3. Download all company and industry reports from Blackboard for your chosen company
These are posted on Blackboard into your “Company Folder” by Dr. Takeda. You will work on one company and one industry.
Step 4. Skim the company reports and industry reports to get an idea of the basics of your company and industry.
Do this first and do it within the first few weeks of the course commencing.
Step 5. Answer the questions in the Industry and Company Analysis Final Project Questions files posted on Blackboard.
There will be more than one file (3 in total), posted over time.
Final Projects Question Set #1 will be due in place of a midterm exam.
Final Project Question Sets #2 and #3 will be due in place of a final exam.
Questions will be very specific and are designed to get students to search the documents and find the relevant information, then, for a select few questions to consider what the information means (in a general sense). Some questions will just be to find and paste the information. Do not do more than the question requires!
Some will require you doing a little more online research. I will indicate where to find the information you need in the library system at http://library.csusb.edu/.
Step 6. Submit your files as Word Docs by the deadlines in the Syllabus.
Filename Protocol for Submission:
Your Lastname Firstname MGMT 405 Section # Final Project Question Set 1 (same protocol for Set 2 and 3).
This is an exercise in research in which you will be looking for clues and for specific information. The point is to acquaint you with Industry Analysis which you will be learning much more about in your future courses. There is no word limit to this because you will literally be answering specific questions that have exact answers. You can copy and paste from the reports into your word in response to most of the questions.
Adidas project
Mohammed A Duhaiqi
Margaret B. Takeda
California State University of San Bernardino
Management 405
June 9 , 2020
FINAL PROJECT QUESTIONS
THIRD SET
CFRA EQUITY RESEARCH COMPANY REPORT
Q1. What is the “Recommendation” for this company’s stock? How many Stars are
highlighted?(at the very report) What do those stars mean? (at the very bottom of the
report)
The recommendation is to hold, expansion of the overly-aggression of the retail operation and
expanding the geopolitical crisis in these regions. 3 STARS are highlighted and the STARS
mean the qualitative recommendations determined and assigned by the equity analysts. In reports
containing stars, recommendations relate to the glossary section of the report for detailed
methodology and definition of STARS rankings.
Q2. What is the Analysts’ Risk assessment LEVEL for the company? Name the level then
copy and paste the brief explanation.
The risk assessment level is Medium. Our risk assessment balances the slower economic growth
in Europe, with defensive features in the group’s outsourced production (low fix cost base) as
well as greater potential than peers for cost-cutting in opex.
Q3. Please provide the details of ONE”Highlights” item listed
The Adidas constant exchange rate
Revenues declined by 19% at brand Adidas and 12% at Reebok brand. In Asia Pacific, revenues
declined at 45% leading to the closure of stores in Japan, China, and South Korea. Some
countries like Russia and North America were spared.
Q4. What is the corporate strategy as outlined in the business summary?
Adidas is inspiring and enabling people to realize the benefits and power in sports through the
following: Developing a foundation in teams in sports, innovations and creativity in sports
investments in the global sports brands, through creating flexible distribution channels and
focusing on long-term and sustainable shareholder values. The corporate strategy is to ensure
that people enjoy the love for sports.
Q5 Summarize the industry outlook- choose 3 distinct points and summarize them here
The Automobiles and components industry
This is the largest car making industry in the world producing cars like Volkswagen and BMW.
It also makes tires like Continental and Michelin. The car industry is highly sensitive to
economic growth and consumer satisfaction in general. The industry responds to the changes in
the environment that affect the growth of the economy.
The Consumer Durables and Apparel industry.
This consists of luxury goods and the homebuilding industry. Luxury goods include designers,
retailers, and manufacturers of the end products. Companies in the homebuilding industry ensure
that there are residential accommodation units that are affordable by lowering mortgage rates.
The Consumer Services industry
This includes hotels, restaurants, leisure services, and other accommodation centers. The
consumer service industry offers clients the end service that will generally satisfy the user after
use.
Your research on COVID and your company and industry
Q1. Find 2 articles related to the current global pandemic and its impact on your
Company. Copy
the URLs and place them here.
The CNBC article ‘Adidas says first-quarter profits fell more than 90% due to coronavirus stores
closure’ by Elliot Smith and Matthew J. Belvedere. This article helps in determining the financial
position of the Adidas group more so in this COVID-19 pandemic. The article highlights that the
company’s revenue has decreased by 90% proportion. https://www.cnbc.com/2020/04/27/adidas-
q1-2020-earnings.html
https://www.cnbc.com/2020/04/27/adidas-q1-2020-earnings.html
https://www.cnbc.com/2020/04/27/adidas-q1-2020-earnings.html
The Inside games article ‘Adidas earnings hit hard by coronavirus pandemic’ by Michael
Houston on 30 April 2020. This article helps to determine the success measures of the Adidas
group and
whether the company will continue surviving in the current global pandemic.
https://www.insidethegames.biz/articles/1093763/adidas-covid-19-profits-quarter
Q2. Find 2 articles on the current global pandemic and its impact on your Industry. Copy
the URLs and place them here.
The pharmaceutical journal article ‘Everything you should know about the Coronavirus
outbreak’ by Kristoffer Stewart, Dawn Connelly, and Julia Robinson in May 2020. This article
helps the Adidas group to understand the measures to observe to prevent the spread of the global
pandemic. https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-
should-
know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
The World Health Organization article on Coronavirus, This article provides a report on COVID
and suggests that Adidas should trade online to avoid contact with its customers to prevent the
spread of the disease. https://www.who.int/health-topics/coronavirus#tab=tab_1
Extra credit
https://www.insidethegames.biz/articles/1093763/adidas-covid-19-profits-quarter
https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-should-know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-should-know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
https://www.who.int/health-topics/coronavirus
April 28, 2020
No, i have found only one report
References
https://www.cnbc.com/2020/04/27/adidas-q1-2020-earnings.html
https://www.insidethegames.biz/articles/1093763/adidas-covid-19-profits-quarter
https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-should-
know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
https://www.cnbc.com/2020/04/27/adidas-q1-2020-earnings.html
https://www.insidethegames.biz/articles/1093763/adidas-covid-19-profits-quarter
https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-should-know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
https://www.pharmaceutical-journal.com/news-and-analysis/features/everything-you-should-know-about-the-coronavirus-outbreak/20207629.article?firstPass=false
.
FINAL PROJECT QUESTIONS
THIRD SET
REPORT TO USE:
CFRA EQUITY RESEARCH COMPANY REPORT
Please answer the following questions specifically. The questions are designed to encourage students to learn about and read typical Company and Industry Reports. CFRA Equity Research reports are what professional consultants and Wall Street Analysts use to understand company and industry behavior.
Only answer the question. Do not provide opinions or long paragraphs of copy pasted materials. You are encouraged to copy and paste directly from the report provided.
FROM THE CFRA EQUITY RESEARCH COMPANY REPORT (50%)
What is the “Recommendation” for this Company’s Stock? How many Stars are highlighted? (at very top of the report) What do those Stars mean? (at very bottom of report)
What is the Analysts’ Risk Assessment LEVEL for the Company? Name the Level then copy and paste the brief explanation.
Please provide the details of ONE “Highlights” item listed.
4. What is the Corporate Strategy as outlined in the Business Summary?
5. Summarize the Industry Outlook – choose 3 distinct points and summarize them here.
YOUR RESEARCH ON COVID and YOUR COMPANY and INDUSTRY (50%)
1.Find 2 articles related to the current global pandemic and its impact on your Company. Copy the URLs and place them here.
2.Find 2 articles on the current global pandemic and its impact on your Industry. Copy the URLs and place them here.
EXTRA CREDIT 10 Points: What is the date of your Report? Did you find a more recent report than the one provided? If so, submit the report pdf along with this assignment.
Filename Protocol: Lastname Firstname MGMT 405 Section # Final Report Q3
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without written permission. Copyright © 2020 CFRA. This document is not intended to provide personal investment advice and it does not take into account the specific investment
objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek independent financial advice regarding the suitability and/or appropriateness of making an investment
or implementing the investment strategies discussed in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such investments, if any,
may fluctuate and that the value of such investments may rise or fall. Accordingly, investors may receive back less than they originally invested. Investors should seek advice concerning any impact this investment may have on
their personal tax position from their own tax advisor. Please note the publication date of this document. It may contain specific information that is no longer current and should not be used to make an investment decision. Unless
otherwise indicated, there is no intention to update this document.
1
Analyst’s Risk Assessment
LOW MEDIUM HIGH
Our risk assessment balances the slower economic growth
in Europe, with defensive features in the group’s
outsourced production (low fix cost base) as well as
greater potential than peers for cost-cutting in opex.
Revenue/Earnings Data
Revenue (Million EUR)
1Q 2Q 3Q 4Q Year
2021 — — — — E 24,000
2020 — — — — E 19,000
2019 5,883 5,509 6,410 5,838 23,640
2018 5,548 5,261 5,873 5,233 21,915
2017 5,447 5,038 5,677 5,056 21,218
2016 4,562 4,199 5,222 4,500 18,483
Earnings Per Share (EUR)
1Q 2Q 3Q 4Q Year
2021 — — — — E 9.50
2020 — — — — E 3.00
2019 3.17 2.33 3.26 0.93 9.97
2018 2.65 2.05 3.26 0.47 8.45
2017 2.26 1.71 2.68 -0.02 6.62
2016 1.80 1.47 1.98 0.02 5.29
Fiscal Year ended Dec 31. EPS Estimates based on CFRA’s
Operating Earnings; historical GAAP earnings are as reported in
Company reports.
Dividend Data
Amount
(EUR)
Date
Decl.
Ex-Div.
Date
Stk. of
Record
Payment
Date
3.35 Mar 13 May 10 May 13 May 14 ’19
2.60 Mar 14 May 10 May 11 May 15 ’18
2.00 Mar 08 May 12 May 15 May 16 ’17
1.60 Mar 03 May 13 May 12 May 13 ’16
1.50 Mar 05 May 08 May 07 May 08 ’15
1.50 Mar 05 May 09 May 08 May 09 ’14
Dividends have been paid since 2003. Source: Company reports
Past performance is not an indication of future performance
and should not be relied as such.
Forecasts are not reliable indicator of future performance.
Highlights
u Adidas constant exchange rate (CER) revenues
declined by 19% to EUR4,753 million in Q1 2020
(-19% in EUR terms) with a 20% decline at
brand adidas and a 12% decline in Reebok.
Revenues in Asia Pacific (-45%) declined the
most with store closures since the end of
January in Greater China, Japan, and South
Korea; followed by Emerging Markets (-11%),
and Europe (-8%) as these regions were
affected in March. Latin America (flat), North
America (+1%), and Russia/CIS (+9%) were less
affected as these regions locked-down later in
the quarter.
u Q1 2020 gross margin declined 4.2%-pts to
49.3% with a less favorable regional mix on the
huge sales decline in Greater China, negative
currency developments, and costs related to
order cancellations. EBIT plunged 93% to EUR65
million with a 13.5%-pts decline in operating
margin as Adidas retained most of its marketing
expenses in the quarter and other operating
overheads including bad debt allowances did
not fall as much as sales.
u Q1 2020 diluted EPS from continuing operations
came in at EUR0.13 down 96% on the steep
EBIT decline. We lower our 2020 EPS estimate
to EUR3.0 (EUR8.5) and our 2021 EPS estimate
to EUR9.5 (EUR11.5).
Investment Rationale/Risk
u Our recommendation is 3-STARS (Hold). After a
disappointing 2014, Adidas delivered strong
sales and earnings recovery from 2015 to 2019
driven by accelerated revenue growth in North
America, Western Europe and most emerging
markets including Greater China. For the full
year 2020, management retracted their
guidance as the impact of Covid-19 remains
unpredictable. Sales in Greater China
accelerated 55% in the first 3 week of April but
revenue is significantly impacted in other
regions. Consequently, Adidas’ top- and
bottom-lines are expected to decline more
significantly Q2. We stay neutral as we think
other regions have the potential to rebound as it
did in Greater China.
u Key downside risks that may prompt us to lower
our target price and/or recommendation
include: (i) an overly-aggressive expansion of its
retail operations, (ii) geopolitical crisis in its
regions, and (iii) prolonged Covid-19 health
crisis.
u Our 12-month target price of EUR230
represents 2021 P/E of 24x, which is
comparable to its 5-year average forward P/E of
c.25x. We think Adidas should not be trading at
a significant discount as the underlying
business remains strong and can rebound
strongly post-crisis.
Price Performance
30-Week Mov. Avg. 10-Week Mov. Avg. GAAP Earnings vs. Previous Year Volume Above Avg. STARS
12-Mo. Target Price Up Down No Change Below Avg.
Source: CFRA, S&P Global Market Intelligence
Past performance is not an indication of future performance and should not be relied upon as such.
Analysis prepared by Adrian Ng, CFA on Apr 28, 2020 07:20 PM, when the stock traded at EUR 206.80.
Recommendation HOLD « « « « « Price 12-Mo. Target Price Report Currency
EUR 206.80 (as of Apr 27, 2020 12:00 AM ET) EUR 230.00 EUR
Equity Analyst Adrian Ng, CFA
GICS Sector Consumer Discretionary Summary Adidas is the 2nd largest player in the global athletic footwear and apparel market after Nike.
Sub-Industry Apparel, Accessories and Luxury Goods
Key Stock Statistics (Source: CFRA, S&P Global Market Intelligence (SPGMI), Company Reports)
52-Wk Range EUR 316.05 – 166.92 Oper.EPS2020E EUR 3.00 Market Capitalization[B] EUR 40.33 Beta 0.75
Trailing 12-Month EPS EUR 9.7 Oper.EPS2021E EUR 9.50 Yield [%] 1.97 3-yr Proj. EPS CAGR[%]
Trailing 12-Month P/E 21.32 P/E on Oper.EPS2020E 68.93 Dividend Rate/Share EUR 3.85 SPGMI’s Quality Ranking A
$10K Invested 5 Yrs Ago N/A Common Shares Outstg.[M] 196.00 Institutional Ownership [%] 44.0
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 2
Business Summary April 28, 2020
CORPORATE OVERVIEW: Germany-based Adidas AG, founded in 1949, is a global manufacturer of sporting
goods, clothing, shoes and accessories. The company acquired the Salomon Group in December 1997 and,
in May 2005, Adidas divested Salomon. It was formerly known as adidas-Salomon AG and changed its name
to Adidas AG in June 2006 after the disposal. In 2006, it acquired Reebok International Ltd for EUR3.7 billion.
The acquisition provided Adidas with estimated sales of EUR9.5 billion (USD11.8 billion), creating the
second-largest competitor in the global athletic footwear and apparel market, after Nike.
MARKET PROFILE: In 2019, 26% of total revenues was generated in Europe, 23% in North America, 34% in
Asia Pacific, 3% in Russia/CIS, 7% in Latin America, and 6% in Emerging Markets. The group is subdivided
into two core brands. (i) The Adidas brand (91% of group net sales in 2019) offers a collection of technically
engineered footwear and sports clothing. It is structured into two product categories: Sport Performance
globally offers athletics products in several categories including football, basketball, tennis, and training,
while Sport Inspired offers trendsetting street wear to sports/lifestyle consumers and; (ii) the Reebok brand
(8%) is a leading worldwide designer, developer and marketer of sports, fitness and casual footwear, apparel
and hardware products with strong positioning in the North American market, home to about half of the
global sporting goods market.
CORPORATE STRATEGY: The Adidas Group strives to inspire and enable people to harness the power of sport
in their lives. Sport is its very purpose. The following strategic pillars reflect its values rooted in sport: (i)
Portfolio of authentic sports brands, (ii) Developing a team grounded in its heritage in sport, (iii)
Investments focused on highest-potential markets and channels, (iv) Creating a flexible supply chain, (v)
Innovation, (vi) Focusing on sustainability and (vii) Creating long-term shareholder value.
CORE STRENGTHS: One of the core strengths of the group is its well-positioned and strong brand image. The
Adidas brand in particular has been successfully associated with technical and performance-oriented
products as well as leisure and fashion-oriented sportswear, two co-existing markets which are both
enjoying meaningful growth rates and are driven by a different customer base. With increasing consumer
interest in life-style- and leisure-oriented collections, driven among other factors by growing female
participation in the sportswear market, the group’s Reebok brand is performing satisfactorily in most
geographic markets, we believe. Adidas competes with a variety of sporting apparel companies, including
Nike and Puma. Nike, unlike Adidas, has less developed leisure product lines, which we believe leaves Adidas
better positioned to exploit the growing female demand.
FINANCIAL TRENDS: Adidas grew constant exchange rate (CER) revenues by 6% to EUR23,640 million in
2019 (+8% in EUR terms) thanks to strong growth in the adidas brand (CER: +7%) and continued growth in
the Reebok brand (CER: +2%). Revenues in Emerging Markets grew the most (CER: +13%) followed by Asia
Pacific (CER: +10% with 15% growth in China), Russia/CIS (CER: +8%), North America (CER: +8%), and Latin
America (CER: +7%) while revenues in Europe (+3%) returned to growth. 2019 gross margin increased
0.2%-pts to 52.0% with higher air freight costs and a less favorable pricing mix partly offset by a more
positive channel mix. EBIT remained stable at EUR2,660 million while margin improved 0.4%-pts to 11.3%,
at the lower end of guidance. For 2020, Adidas retracted its full year guidance as the Covid-19 pandemic
brought about great uncertainty and unpredictability.
Corporate information
Investor contact
S. Steffen (49 91 32 84 0)
Office
Adi-Dassler-Strasse 1, Herzogenaurach, Bavaria, 91074
Telephone
49 91 32 84 0
Fax
49 91 32 84 22 41
Website
www.adidas-group.com
Officers
CEO & Member of
Executive Board
K. B. Rorsted
Head of Global Operations
& Member of Executive
Board
M. Shankland
CFO, Labor Director &
Member of Executive Board
H. Ohlmeyer
Board Members
B. K. Uebber
B. Rohrig
F. Scheiderer
G. Weigl
H. Kauffmann
I. Landau
J. Ulrich
K. Menges
M. Storl
N. N. Sawiris
P. Auerbacher
R. Hermann
R. Nosko
T. Rabe
U. Müller
Domicile
Germany
Founded
1920
Employees
53,218
Stockholders
90,000
Auditor
KPMG LLP – Klynveld Peat
Marwick Goerdeler
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 3
Quantitative Evaluations
Fair Value Rank NR 1 2 3 4 5
Lowest Highest
Based on CFRA’s proprietary quantitative model,
stocks are ranked from most overvalued (1) to most
undervalued (5).
Fair Value
Calculation
N/A
Volatility LOW AVERAGE HIGH
Technical
Evaluation
NEUTRAL Since March, 2020, the technical indicators for ADS GY
have been NEUTRAL”
Insider Activity NA UNFAVORABLE NEUTRAL FAVORABLE
Expanded Ratio Analysis
2019 2018 2017 2016
Price/Sales 2.42 1.68 1.61 1.67
Price/EBITDA 17.98 13.06 13.99 17.43
Price/Pretax Income 22.38 15.49 16.88 20.16
P/E Ratio 29.88 21.59 25.23 28.37
Avg. Diluted Shares Outstg. (M) 197.61 202.04 204.24 206.15
Figures based on fiscal year-end price
Key Growth Rates and Averages
Past Growth Rate (%) 1 Year 3 Years 5 Years
Net Income 16.10 24.78 32.17
Sales 7.87 8.55 10.22
Ratio Analysis (Annual Avg.)
Net Margin (%) 8.36 7.10 6.11
% LT Debt to Capitalization 33.77 22.79 20.04
Return on Equity (%) 28.60 25.98 21.60
Company Financials Fiscal year ending Dec 31
Per Share Data (EUR) 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
Tangible Book Value 22.32 20.55 18.90 15.95 12.28 14.00 12.91 11.34 9.18 7.11
Free Cash Flow 10.68 9.82 4.43 3.53 2.86 0.74 0.77 2.43 2.06 3.07
Earnings 9.70 8.45 6.62 5.29 3.37 2.67 3.68 2.51 2.93 2.71
Earnings (Normalized) 8.04 7.29 6.16 4.38 3.35 2.75 3.48 3.35 2.54 2.40
Dividends 3.85 3.35 2.60 2.00 1.60 1.50 1.50 1.35 1.00 0.80
Payout Ratio (%) 34 31 37 31 48 64 36 40 27 13
Prices: High 296.35 216.00 199.95 159.50 93.41 92.92 92.64 69.12 57.42 51.48
Prices: Low 183.95 166.40 143.80 83.45 54.61 53.89 66.28 51.42 43.22 35.00
P/E Ratio: High 30.6 25.6 30.2 30.1 27.7 34.8 25.2 27.5 19.6 19.0
P/E Ratio: Low 19.0 19.7 21.7 15.8 16.2 20.2 18.0 20.5 14.7 12.9
Income Statement Analysis (Million EUR)
Revenue 23,640 21,915 21,218 18,483 16,915 14,534 14,203 14,883 13,322 11,990
Operating Income 2,646 2,351 2,066 1,489 1,110 975 1,234 1,187 925 892
Depreciation + Amortization N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Interest Expense N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Pretax Income 2,559 2,379 2,022 1,535 1,039 835 1,113 851 869 806
Effective Tax Rate 25.0 28.1 33.0 29.6 34.0 32.5 30.5 38.4 30.0 29.5
Net Income 1,976 1,702 1,097 1,017 634 490 787 526 613 567
Net Income (Normalized) 1,588.6 1,473.9 1,258.2 902.4 675.2 574.6 727.6 701.4 530.6 501.5
Balance Sheet and Other Financial Data (Million EUR)
Cash 2,654 2,719 1,811 1,703 1,463 1,752 1,689 1,984 1,423 1,453
Current Assets 10,934 9,813 8,645 8,886 7,497 7,347 6,857 6,877 6,328 5,880
Total Assets 20,680.0 15,612.0 14,019.0 15,176.0 13,343.0 12,417.0 11,599.0 11,651.0 11,237.0 10,618.0
Current Liabilities 8,754 6,834 6,291 6,765 5,364 4,378 4,732 4,374 4,338 3,908
Long Term Debt 1,595 1,609 983 982 1,463 1,584 653 1,207 991 1,342
Total Capital 11,827 8,130 7,140 8,080 7,486 7,499 6,828 6,796 6,419 6,244
Capital Expenditures 598 611 678 578 464 499 422 376 318 227
Cash from Operations 2,819 2,686 1,648 1,348 1,090 701 634 942 807 894
Current Ratio 1.25 1.44 1.37 1.31 1.40 1.68 1.45 1.57 1.46 1.50
% Long Term Debt of Capitalization 33.8 20.8 13.8 12.2 19.6 21.2 9.7 18.0 15.5 21.5
% Net Income of Revenue 8.4 7.8 5.2 5.5 3.7 3.4 5.5 3.5 4.6 4.7
% Return on Assets 9.11 9.92 8.85 6.53 5.39 5.07 6.63 6.48 5.29 5.72
% Return on Equity 28.6 27.6 21.7 17.9 12.2 10.2 14.4 10.1 12.5 13.5
Source: S&P Global Market Intelligence. Data may be preliminary or restated; before results of discontinued operations/special items. Per share data adjusted for stock dividends; EPS diluted.
E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked. UR-Under Review.
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 4
Sub-Industry: Apparel, Accessories and Luxury Goods Peer Group*: Apparel, Accessories and Luxury Goods
Peer Group
Stock
Symbol Exchange Currency
Recent
Stock
Price
Stk. Mkt.
Cap. (M)
30-Day
Price
Chg. (%)
1-Year
Price
Chg. (%)
P/E
Ratio
Fair
Value
Calc.
Yield
(%)
Return
on Equity
(%)
LTD to
Cap (%)
Adidas AG ADS GY XTRA EUR 206.80 40,329.0 -1.0 -9.8 10.0 N/A 2.0 28.6 33.8
Nike Inc. NKE XTRA EUR 89.37 138,973.0 7.4 1.2 2.0 N/A 1.1 42.7 28.0
Puma AG PUM XTRA EUR 55.12 8,270.0 -1.7 2.4 NM N/A N/A 17.0 26.9
*For Peer Groups with more than 10 companies or stocks, selection of issues is based on market capitalization.
NA-Not Available; NM-Not Meaningful.
Note: Peers are selected based on Global Industry Classification Standards and market capitalization. The peer group list includes companies with similar characteristics, but may not include all the companies within the same
industry and/or that engage in the same line of business.
Industry Outlook
The Consumer Discretionary sector comprises
industries which supply a range of consumer
goods (excluding FMCG – fast moving consumer
goods) and consumer-facing services. These
industries include Automobiles & Components,
Consumer Durables & Apparel, Consumer Services,
and Retailing.
The Automobiles & Components industry includes
many of the world’s largest car makers such as
BMW and Volkswagen and tire makers such as
Michelin and Continental. Car manufacturing is
highly sensitive to general economic growth and
consumer confidence, given its relatively high
operating leverage and low average margins.
We remain negative on the Automobiles &
Components industry. The industry is very heavily
impacted by the trade disputes given the global
nature of its supply/manufacturing chain and
markets. With the continuing back and forth
between truce and escalation in the global trade
dispute, we believe the industry share prices and
financial results will remain volatile in the near
future.
The Consumer Durables & Apparel industry
includes luxury goods and the homebuilding
industry.
Luxury goods, consisting of designers,
manufacturers and retailers of high-end products
and includes Burberry, Hermes and LVMH. With
manufacturing often based in developed markets
and emerging markets a key source of sales,
currency fluctuations are an important factor in
profitability.
Companies in the homebuilding industry develop
and sell a variety of residential accommodation
units. Key drives of this industry are availability of
credit, mortgage rates, house price affordability,
demand and supply. In the U.K. this industry is
exposed to government policies which influence
affordability and supply. We are positive on the
long-term outlook of this sector but closely
monitor short term developments during a
phase of political uncertainty and issues on
Brexit.
We are slightly positive on the outlook of the
Consumer Durables & Apparel industry
currently as we think the inelasticity of demand
for luxury goods is balanced by stretched
valuations, the increasing threat of
substitutions and continuing concerns over the
impact of Brexit.
The Consumer Services industry (which
includes hotels, restaurants, cruise lines and
other leisure services) is very dependent on
discretionary consumer spending with capacity
variations and occupancy rates being
important profit determinants.
We are somewhat negative on the Consumer
Services industry given recent social unrest
globally, unpredictable weather patterns and
uncertainties arising from Brexit.
Retailing includes manufacturers and retailers
of mass-market clothing as well as DIY
formats. This includes departmental stores
such as Next and Marks & Spencer’s as well as
more mass-market fast-fashion retailers such
as Inditex and H&M.
We have a slightly negative view on Retailing
given the economic uncertainty arising from
fears of a hard Brexit and slower real wages
growth dampening consumer spending,
somewhat offset by improving executions of
online strategies.
Overall, we are neutral on the Consumer
Discretionary sector as we think the sticky
nature of luxury goods is counteracted by
geopolitical events like Brexit affecting
consumer sentiment.
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 5
Analyst Research Notes and other Company News
April 28, 2020
08:15 AM ET… CFRA Maintains Hold Position on Shares of Adidas (ADS GY
205.40***):
We maintain our Hold call on Adidas with a higher 12-month target price of EUR230
(EUR190) which represents 2021 P/E of 24x, which is comparable to its 5-year
average forward P/E of c.25x. We think Adidas should not be trading at a significant
discount as the underlying business remains strong and can rebound strongly post-
crisis. We lower our 2020 EPS estimate to EUR3.0 (EUR8.5) and our 2021 EPS
estimate to EUR9.5 (EUR11.5). Q1 2020 revenue declined 19% to EUR4,753 million
on both constant currency and EUR terms led by a 45% decline in Asia Pacific due to
store closures on Covid-19. EBIT plunged 93% to EUR65 million with a 13.5%-pts
decline in operating margin while EPS from continuing operations declined 96% to
EUR0.13 as Adidas retained most of its marketing expenses in the quarter and other
operating overheads including bad debt allowances did not fall as much as sales.
Management retracted their 2020 guidance as the impact of Covid-19 remains
unpredictable. / Adrian Ng, CFA
March 13, 2020
11:00 AM ET… CFRA Maintains Hold Position on Shares of Adidas (ADS GY
173.88***):
We maintain our Hold call on Adidas with a lower 12-month target price of EUR190
(EUR270) which represents 2020 P/E of 22x, which is a discount to its 5-year
average forward P/E of c.25x. We think Adidas should be trading at a discount now
despite its strength as a major player in the sports and athleisure industry given the
weak environment. We lower our 2020 EPS estimate to EUR8.5 (EUR11). Adidas
grew constant exchange rate (CER) revenues by 6% in 2019, which was at the lower
end of its 5% to 8% guidance range. EBIT remained stable while margin improved
0.4%-pts to 11.3%, at the lower end of guidance. For 2020, management is guiding
for 6% to 8% revenue growth, slight decline in gross margin, and EBIT margin
growth of 0.2%-pts to 0.5%-pts. However, these do not include the impact of Covid-
19, which we expect to be significant. The company guided that there would be an
EUR1 billion impact to revenue from Greater China in Q1 2020 alone. / Adrian Ng,
CFA
November 07, 2019
09:04 AM ET… CFRA Maintains Hold Position on Adidas (ADS GY 281.35***):
We maintain our Hold call on Adidas with 12-month target price of EUR270 which
represents 2020 P/E of 24.5x, which is similar to its 5-year average forward P/E of
c.25.1x. We think Adidas deserves to trade around its historical multiples as it
consistently held its position as a major player in the sports and athleisure industry.
Adidas’s Q3 2019 revenue grew 6% at constant exchange rates to EUR6,410 million
vs. the S&P Capital IQ consensus estimate of EUR6,313 million. EBIT remained
stable at EUR897 million (vs. consensus estimate of EUR886 million) while margin
declined 1.3%-pts to 14.0%, with higher freight costs, a less favorable pricing mix
and certain operating expenses being moved from Q4 to Q3. Q3 2019 diluted EPS
from continuing operations came in at EUR3.26, ahead of the consensus estimate
of EUR3.15. We remain neutral on Adidas despite the relatively strong result given
that the competitive pricing environment eating into margins. / Adrian Ng, CFA
August 09, 2019
02:04 PM ET… CFRA Maintains Hold Position on Adidas – Q2 2019 Results Beat
Estimates except for Revenues (ADS GY 267.45***):
We maintain our Hold call on Adidas with a higher 12-month target price of EUR270
(EUR250) which represents a 2019 P/E of 27.5x, which is similar to its 3-year
average forward P/E of c.26.8x. We think Adidas deserves to trade around its
historical multiples as it consistently held its position as a major player in the sports
and athleisure industry. Adidas’s Q2 2019 revenue grew 4% at constant exchange
rates to EUR5,509 million vs. the S&P Capital IQ consensus estimate of EUR5,542
million. EBIT rose 13% to EUR1,518 million (vs. consensus estimate of EUR1,506
million) while margin expanded 0.9%-pts to 13.3%, with higher freight costs offset
by the gross margin expansion. Q2 2019 diluted EPS from continuing operations
came in at EUR2.33 (+13%), ahead of the consensus estimate of EUR2.30. We
remain neutral on Adidas despite the relatively strong result given the continuing
supply chain issue which appears to be affecting revenue growth. / Adrian Ng, CFA
May 06, 2019
07:38 PM ET… CFRA Lowers Adidas to Hold from Buy – Results Remain Strong
Despite Supply Chain Disruption (ADS GY 249.80***):
We lower our call on Adidas to Hold from Buy with a higher 12-month target price of
EUR250 (EUR240) which represents 2019 P/E of 25.5x, which is a similar to peers at
c.24.4x. We think Adidas deserves a similar multiple to peers as it is a major player
in the sports and athleisure industry. Adidas grew constant exchange rate (CER)
revenues by 4% in 1Q 2019 (6% in EUR terms) thanks to strong growth in the adidas
brand (CER: +5%) and the Russia/CIS (CER: +22%) and Asia Pacific (CER: +12%,
driven by a 16% growth in Greater China) regions. 1Q 2019 gross margin rose 2.5%-
pts leading to a 17% increase in EBIT and 1.4%-pts increase in EBIT margin. 1Q
2019 basic EPS was EUR3.17 (up 19%), ahead of S&P Capital IQ consensus
estimate of EUR2.86. Adidas maintained its guidance for the full year 2019, saying
that the supply chain issues will only be overcome in the second half of the year. We
lower to Hold given the recent run-up in share price and the continuing supply chain
issue. / Adrian Ng, CFA
March 15, 2019
07:48 AM ET… CFRA Maintains Buy Opinion on Adidas – Strong 2018 Results, but
2019 Guidance Weaker due to Supply Chain Issues (ADS GY 211.60****):
We maintain our Buy call on Adidas with the same 12-month target price of EUR240
which represents a 2019 P/E of 24.5x, which is a similar to peers at c.23.4x. We
think Adidas deserves a similar multiple to peers as it is a major player in the sports
and athleisure industry. Adidas grew constant exchange rate (CER) revenues by 8%
in 2018 (3% in EUR terms) with strong growth in Greater China (CER: +23%) and
online sales (+36%). 2018 gross margin rose 1.4%-pts to 51.8% million while EBIT
margin expanded 1.1%-pts to 10.8%, in line with management guidance. For 2019,
management expects revenue growth between 5% and 8%, EBIT margin to increase
to between 11.3% and 11.5%, and net income growth of 10%-14%. We maintain our
2019 EPS estimate at EUR9.80 and introduce a 2020 estimate of EUR11.00. The
growth guidance is slower than the one in the previous year as Adidas is facing
issues with a supply chain shortage. We maintain positive given that demand
remains strong. / Adrian Ng, CFA
November 08, 2018
02:08 PM ET… CFRA MAINTAINS BUY OPINION ON ADIDAS – STRONG EARNINGS,
GUIDANCE UPGRADED EVEN AS WESTERN EUROPE SALES SLOWER THAN EXPECTED
(ADS GY 198.60****):
We maintain our Buy call on Adidas with the same 12-month target price of EUR240
which represents a 2019 P/E of 24.5x, which is a similar to peers at c.24.1x. We
think Adidas deserves a similar multiple to peers as it is a major player in the sports
and athleisure industry. We increase our 2018 and 2019 estimates to EUR8.45
(EUR8.13) and EUR9.80 (EUR9.11) respectively given the strong results. Adidas’
constant exchange rate (CER) revenues grew 8% in 3Q 2018 (3% in EUR terms).
Gross margin rose 1.4%-pts to 51.8% while EBIT margin expanded 1.3%-pts to
15.3%, lifting 3Q 2018 EBIT up 13% to EUR901 million. 3Q 2018 EPS came in at
EUR3.26 (up 21%), well ahead of S&P Capital IQ consensus estimate of EUR3.03.
Management upgraded their guidance for EBIT margin growth to +1.0%-pt (from
+0.5%-pts to 0.7%-pts)and EPS growth to 16%-20% (from 13%-17%), but
downgraded revenue growth guidance to 8%-9% (from c.10%) on a slow Western
Europe. Maintain Buy on strong result. / Adrian Ng, CFA
Note: Research notes reflect CFRA’s published opinions and analysis on the stock at the time the note was published. The note reflects the views of the equity analyst as of
the date and time indicated in the note, and may not reflect CFRA’s current view on the company.
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 6
Analysts Recommendations
Monthly Average Trend Buy Buy/Hold Hold Weak Hold Sell GOLD Ticker
B BH H WH S
No. of
Recommendations
% of Total
1 Mo.Prior
3 Mos.Prior
Buy 12 32 11 0
Buy/Hold 4 11 4 0
Hold 18 47 19 2
Weak hold 2 5 1 0
Sell 2 5 3 0
No Opinion 0 0 0 0
Total 38 100 38 2
Wall Street Consensus Estimates
Estimates Previous Year Current Year Next Year Actual (Normalized Diluted)
Fiscal Year Avg Est. High Est. Low Est. # of Est. Est. P/E
2021 9.54 12.78 6.80 33 21.68
2020 3.72 4.55 2.75 11 55.54
2021 vs. 2020 p 156% p 181% p 147% p 200% q -61%
Q1’21 2.14 2.53 1.93 4 96.41
Q1’20 0.72 1.25 0.41 12 287.33
Q1’21 vs. Q1’20 p 198% p 102% p 371% q -67% q -66%
Wall Street Consensus Opinion
NO_MATCH
Wall Street Consensus vs. Performance
NO_MATCH
Forecasts are not reliable indicator of future performance.
Note: A company’s earnings outlook plays a major part in any investment decision. S&P Global Market Intelligence organizes the earnings estimates of over 2,300 Wall Street analysts, and
provides their consensus of earnings over the next two years, as well as how those earnings estimates have changed over time. Note that the information provided in relation to consensus
estimates is not intended to predict actual results and should not be taken as a reliable indicator of future performance.
Note: For all tables, graphs and charts in this report that do not cite any reference or source, the source is S&P Global Market Intelligence.
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 7
Glossary
STARS
Since January 1, 1987, CFRA Equity and Fund Research Services, and its
predecessor S&P Capital IQ Equity Research has ranked a universe of U.S.
common stocks, ADRs (American Depositary Receipts), and ADSs (American
Depositary Shares) based on a given equity’s potential for future performance.
Similarly, we have ranked Asian and European equities since June 30, 2002.
Under proprietary STARS (Stock Appreciation Ranking System), equity analysts
rank equities according to their individual forecast of an equity’s future total
return potential versus the expected total return of a relevant benchmark (e.g.,
a regional index (MSCI AC Asia Pacific Index, MSCI AC Europe Index or S&P 500®
Index)), based on a 12-month time horizon. STARS was designed to meet the
needs of investors looking to put their investment decisions in perspective. Data
used to assist in determining the STARS ranking may be the result of the
analyst’s own models as well as internal proprietary models resulting from
dynamic data inputs.
S&P Global Market Intelligence’s Quality Ranking
(also known as S&P Capital IQ Earnings & Dividend Rankings) – Growth and
S&P Capital IQ Earnings & Dividend Rankings stability of earnings and dividends
are deemed key elements in establishing S&P Global Market Intelligence’s
earnings and dividend rankings for common stocks, which are designed to
capsulize the nature of this record in a single symbol. It should be noted,
however, that the process also takes into consideration certain adjustments
and modifications deemed desirable in establishing such rankings. The final
score for each stock is measured against a scoring matrix determined by
analysis of the scores of a large and representative sample of stocks. The range
of scores in the array of this sample has been aligned with the following ladder
of rankings:
A+ Highest B Below Average
A High B- Lower
A Above C Lowest
B+ Average D In Reorganization
NC Not Ranked
EPS Estimates
CFRA’s earnings per share (EPS) estimates reflect analyst projections of future
EPS from continuing operations, and generally exclude various items that are
viewed as special, non-recurring, or extraordinary. Also, EPS estimates reflect
either forecasts of equity analysts; or, the consensus (average) EPS estimate,
which are independently compiled by S&P Global Market Intelligence, a data
provider to CFRA. Among the items typically excluded from EPS estimates are
asset sale gains; impairment, restructuring or merger-related charges; legal
and insurance settlements; in process research and development expenses;
gains or losses on the extinguishment of debt; the cumulative effect of
accounting changes; and earnings related to operations that have been
classified by the company as discontinued. The inclusion of some items, such
as stock option expense and recurring types of other charges, may vary, and
depend on such factors as industry practice, analyst judgment, and the extent
to which some types of data is disclosed by companies.
12-Month Target Price
The equity analyst’s projection of the market price a given security will
command 12 months hence, based on a combination of intrinsic, relative, and
private market valuation metrics, including Fair Value.
CFRA Equity Research
CFRA Equity Research is produced and distributed by Accounting Research &
Analytics, LLC d/b/a CFRA (“CFRA US”; together with its affiliates and
subsidiaries, “CFRA”). Certain research is produced and distributed by CFRA MY
Sdn Bhd (Company No. 683377-A) (formerly known as Standard & Poor’s
Malaysia Sdn Bhd) (“CFRA Malaysia”). Certain research is distributed by CFRA
UK Limited (“CFRA UK”). CFRA UK and CFRA Malaysia are wholly-owned
subsidiaries of CFRA US.
Abbreviations Used in Equity Research Reports
CAGR – Compound Annual Growth Rate
CAPEX – Capital Expenditures
CY – Calendar Year
DCF – Discounted Cash Flow
DDM – Dividend Discount Model
EBIT – Earnings Before Interest and Taxes
EBITDA – Earnings Before Interest, Taxes, Depreciation & Amortization
EPS – Earnings Per Share
EV – Enterprise Value
FCF – Free Cash Flow
FFO – Funds From Operations
FY – Fiscal Year
P/E – Price/Earnings
P/NAV – Price to Net Asset Value
PEG Ratio – P/E-to-Growth Ratio
PV – Present Value
R&D – Research & Development
ROCE – Return on Capital Employed
ROE Return on Equity
ROI – Return on Investment
ROIC – Return on Invested Capital
ROA – Return on Assets
SG&A – Selling, General & Administrative Expenses
SOTP – Sum-of-The-Parts
WACC – Weighted Average Cost of Capital
Dividends on American Depository Receipts (ADRs) and American Depository
Shares (ADSs) are net of taxes (paid in the country of origin).
Qualitative Risk Assessment
Reflects an equity analyst’s view of a given company’s operational risk, or the
risk of a firm’s ability to continue as an ongoing concern. The Qualitative Risk
Assessment is a relative ranking to the U.S. STARS universe, and should be
reflective of risk factors related to a company’s operations, as opposed to risk
and volatility measures associated with share prices. For an ETF this reflects on
a capitalization-weighted basis, the average qualitative risk assessment
assigned to holdings of the fund.
STARS Ranking system and definition:
««««« 5-STARS (Strong Buy):
Total return is expected to outperform the total return of a relevant benchmark,
by a notable margin over the coming 12 months, with shares rising in price on
an absolute basis.
««««« 4-STARS (Buy):
Total return is expected to outperform the total return of a relevant benchmark
over the coming 12 months, with shares rising in price on an absolute basis.
««««« 3-STARS (Hold):
Total return is expected to closely approximate the total return of a relevant
benchmark over the coming 12 months, with shares generally rising in price on
an absolute basis.
««««« 2-STARS (Sell):
Total return is expected to underperform the total return of a relevant
benchmark over the coming 12 months, and the share price is not anticipated
to show a gain.
««««« 1-STAR (Strong Sell):
Total return is expected to underperform the total return of a relevant
benchmark by a notable margin over the coming 12 months, with shares falling
in price on an absolute basis.
Relevant benchmarks:
In North America, the relevant benchmark is the S&P 500 Index, in Europe and
in Asia, the relevant benchmarks are the MSCI AC Europe Index and the MSCI AC
Asia Pacific Index, respectively.
Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 8
Disclosures
S&P GLOBAL™ is used under license. The owner of this trademark is S&P Global Inc. or its
affiliate, which are not affiliated with CFRA Research or the author of this content. Stocks
are ranked in accordance with the following ranking methodologies:
STARS Stock Reports:
Qualitative STARS recommendations are determined and assigned by equity analysts. For
reports containing STARS recommendations refer to the Glossary section of the report for
detailed methodology and the definition of STARS rankings.
Quantitative Stock Reports:
Quantitative recommendations are determined by ranking a universe of common stocks
based on 5 measures or model categories: Valuation, Quality, Growth, Street Sentiment, and
Price Momentum. In the U.S., a sixth sub-category for Financial Health will also be displayed.
Percentile scores are used to compare each company to all other companies in the same
universe for each model category. The five (six) model category scores are then weighted
and rolled up into a single percentile ranking for that company. For reports containing
quantitative recommendations refer to the Glossary section of the report for detailed
methodology and the definition of Quantitative rankings.
STARS Stock Reports and Quantitative Stock Reports:
The methodologies used in STARS Stock Reports and Quantitative Stock Reports
(collectively, the “Research Reports”) reflect different criteria, assumptions and analytical
methods and may have differing recommendations. The methodologies and data used to
generate the different types of Research Reports are believed by the author and distributor
reasonable and appropriate. Generally, CFRA does not generate reports with different
ranking methodologies for the same issuer. However, in the event that different
methodologies or data are used on the analysis of an issuer, the methodologies may lead
to different views or recommendations on the issuer, which may at times result in
contradicting assessments of an issuer. CFRA reserves the right to alter, replace or vary
models, methodologies or assumptions from time to time and without notice to clients.
STARS Stock Reports:
Global STARS Distribution as of June 28, 2019
Ranking North America Europe Asia Global
Buy 34.4% 29.0% 41.1% 33.5%
Hold 56.1% 54.8% 46.4% 54.6%
Sell 10.5% 16.2% 12.5% 11.9%
Total 100.0% 100.0% 100.0% 100.0%
Analyst Certification:
STARS Stock Reports are prepared by the equity research analysts of CFRA and its
affiliates and subsidiaries. Quantitative Stock Reports are prepared by CFRA. All of the
views expressed in STARS Stock Reports accurately reflect the research analyst’s
personal views regarding any and all of the subject securities or issuers; all of the views
expressed in the Quantitative Stock Reports accurately reflect the output of CFRA’s
algorithms and programs. Analysts generally update STARS Stock Reports at least four
times each year. Quantitative Stock Reports are generally updated weekly. No part of
analyst, CFRA, CFRA affiliate, or CFRA subsidiary compensation was, is, or will be
directly or indirectly related to the specific recommendations or views expressed in any
Stock Report.
About CFRA Equity Research’s Distributors:
This Research Report is published and originally distributed by Accounting Research &
Analytics, LLC d/b/a CFRA (“CFRA US”), with the following exceptions: In the UK/EU/EEA, it
is published and originally distributed by CFRA UK Limited (“CFRA UK”), which is regulated
by the Financial Conduct Authority (No. 775151), and in Malaysia by CFRA MY Sdn Bhd
(Company No. 683377-A) (formerly known as Standard & Poor’s Malaysia Sdn Bhd) (“CFRA
Malaysia”) , which is regulated by Securities Commission Malaysia, (No. CMSL/A0181/2007)
under license from CFRA US. These parties and their subsidiaries maintain no responsibility
for reports redistributed by third parties such as brokers or financial advisors.
General Disclosure
Notice to all jurisdictions:
Where Research Reports are made available in a language other than English and in the case
of inconsistencies between the English and translated versions of a Research Report, , the
English version will control and supersede any ambiguities associated with any part or
Neither CFRA norsection of a Research Report that has been issued in a foreign language.
its affiliates guarantee the accuracy of the translation.
Neither CFRA nor its affiliates guarantee the accuracy of the translation. The content of this
report and the opinions expressed herein are those of CFRA based upon publicly-available
information that CFRA believes to be reliable and the opinions are subject to change without
notice. This analysis has not been submitted to, nor received approval from, the United
States Securities and Exchange Commission or any other regulatory body. While CFRA
exercised due care in compiling this analysis, CFRA AND ALL RELATED ENTITIES
SPECIFICALLY DISCLAIM ALL WARRANTIES, EXPRESS OR IMPLIED, to the full extent
permitted by law, regarding the accuracy, completeness, or usefulness of this information
and assumes no liability with respect to the consequences of relying on this information for
investment or other purposes.
No content (including ratings, credit-related analyses and data, valuations, model, software
or other application or output therefrom) or any part thereof (Content) may be modified,
reverse engineered, reproduced or distributed in any form by any means, or stored in a
database or retrieval system, without the prior written permission of CFRA. The Content
shall not be used for any unlawful or unauthorized purposes. CFRA and any third-party
providers, as well as their directors, officers, shareholders, employees or agents do not
guarantee the accuracy, completeness, timeliness or availability of the Content.
Past performance is not necessarily indicative of future results.
This document may contain forward-looking statements or forecasts; such forecasts are
not a reliable indicator of future performance.
This report is not intended to, and does not, constitute an offer or solicitation to buy and sell
securities or engage in any investment activity. This report is for informational purposes
only. Recommendations in this report are not made with respect to any particular investor
or type of investor. Securities, financial instruments or strategies mentioned herein may not
be suitable for all investors and this material is not intended for any specific investor and
does not take into account an investor’s particular investment objectives, financial
situations or needs. Before acting on any recommendation in this material, you should
consider whether it is suitable for your particular circumstances and, if necessary, seek
professional advice. CFRA may license certain intellectual property or provide services to,
or otherwise have a business relationship with, certain issuers of securities that are the
subject of CFRA research reports, including exchange-traded investments whose
investment objective is to substantially replicate the returns of a proprietary index of CFRA.
In cases where CFRA is paid fees that are tied to the amount of assets invested in a fund or
the volume of trading activity in a fund, investment in the fund may result in CFRA receiving
compensation in addition to the subscription fees or other compensation for services
rendered by CFRA, however, no part of CFRA’s compensation for services is tied to any
recommendation or rating. Additional information on a subject company may be available
upon request.
CFRA’s financial data provider is S&P Global Market Intelligence. THIS DOCUMENT CONTAINS
COPYRIGHTED AND TRADE SECRET MATERIAL DISTRIBUTED UNDER LICENSE FROM S&P
GLOBAL MARKET INTELLIGENCE. FOR RECIPIENT’S INTERNAL USE ONLY.
The Global Industry Classification Standard (GICS®) was developed by and/or is the
exclusive property of MSCI, Inc. and S&P Global Market Intelligence. GICS is a service mark
of MSCI and S&P Global Market Intelligence and has been licensed for use by CFRA.
Other Disclaimers and Notices
Certain information in this report is provided by S&P Global, Inc. and/or its affiliates and
subsidiaries (collectively “S&P Global”). Such information is subject to the following
disclaimers and notices: “Copyright © 2018, S&P Global Market Intelligence (and its
affiliates as applicable). All rights reserved. Nothing contained herein is investment advice
and a reference to a particular investment or security, a credit rating or any observation
concerning a security or investment provided by S&P Global is not a recommendation to buy,
sell or hold such investment or security or make any other investment decisions. This may
contain information obtained from third parties, including ratings from credit ratings
agencies. Reproduction and distribution of S&P Global’s information and third party content
in any form is prohibited except with the prior written permission of S&P Global or the related
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cause, or for the results obtained from the use of such information or content. S&P GLOBAL
AND ITS THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES,
INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
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Credit ratings are statements of opinions and are not statements of fact or
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of securities or the suitability of securities for investment purposes, and should not be relied
on as investment advice.”
Certain information in this report may be provided by Securities Evaluations, Inc. (“SE”), a
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Stock Report | April 28, 2020 | XTRA Symbol: ADS GY
adidas AG
Redistribution or reproduction is prohibited without prior written permission. Copyright © 2020 CFRA. 9
In no event shall SE Parties be liable to any party for any direct, indirect, incidental,
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For residents of the European Union/European Economic Area:
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Limited is regulated by the UK Financial Conduct Authority (No. 775151).
For residents of Malaysia:
Research reports are originally produced and distributed by CFRA MY Sdn Bhd (Company No.
683377-A) (formerly known as Standard & Poor’s Malaysia Sdn. Bhd) (“CFRA Malaysia”), a
wholly-owned subsidiary of CFRA US. CFRA Malaysia is regulated by Securities Commission
Malaysia (License No. CMSL/A0181/2007).
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Research reports are originally distributed Accounting Research & Analytics, LLC d/b/a
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