Iran’s Shoe Industry Needs a Good Polish

The footwear industry in Iran, as an old player in the country’s economy, has faced many hurdles in recent years.

Iran is one of the oldest producers of footwear, yet it is one of the most neglected domestic industries.

The industry is currently in a slump, with footwear producers facing numerous problems.

  Main Factors

Ali Lashgari, chairman of the Association of Managers and Experts of Iranian Shoe Industry and a member of Iran Chamber of Commerce, Industries, Mines and Agriculture, believes people’s purchasing power has played a major role in plunging this industry into recession.

“Population has increased but the annual per capita consumption of footwear has not,” Lashgari told Financial Tribune in an interview.

However, according to a study by the association, Iran is the largest consumer of shoes in the Middle East and the 18th largest consumer in the world. The country’s annual per capita footwear consumption is 2-2.5 pairs.

The low per capita consumption, Lashgari says, stems from either people’s low purchasing power or their general reluctance to regularly change their shoes.

Abbas Esmaeili, a member of the Board of Directors of Tehran Handmade Shoemakers Union, thinks unfriendly customs procedures pose another obstacle to producers and business owners.

“The industry is highly dependent on the import of raw materials. Sometimes it takes a very long time to clear goods through customs,” he told Financial Tribune.

  Dumping Woes

Hamid Najjarzadeh, vice chairman of Natural and Synthetic Leather and Shoe Materials Sellers Union, believes the root cause of the industry’s recession goes back to the 80s and the Iraq-imposed war on Iran.

“Until the beginning of the conflict in 1980, Iran’s shoe industry witnessed considerable growth in production and exports. Many well-known brands throughout the country were successful,” he said.

After eight years of war, Najjarzadeh said, the country faced many problems caused by foreign counterparts who deliberately worked to derail Iran’s economy by dumping their products in the war-torn Iranian market to the detriment of domestic manufacturers.

  Absence of Well-Known Brands

The absence of well-known domestic brands is another major reason for the industry’s slump.

In the past, famous brands like Melli, Bella, Wien and Nahrein were major players in the domestic market, as they established strong distribution networks across the country while ensuring high quality of products and services at reasonable prices. They also created a vast number of jobs.

However, these brands suffered greatly after the factories were nationalized and put under government control following the Islamic Revolution of 1979. Today, these companies have either considerably shrunk in size or stopped production altogether.

  Scourge of Smuggling

Iran’s shoe industry has been greatly disadvantaged by rampant illegal imports.

Citing global statistics, Lashgari said, in 2013, 2014 and 2015 about $229 million, $574 million and $252 million worth of footwear products were imported respectively, which amounts to an annual average of $350 million over the three year.

However, according to the Islamic Republic of Iran Customs Administration, during the three years to March 20, 2016, the average value of footwear imports stood at only $5 million.

“The figures clearly indicate that the value of smuggled products is 70 times more than the value of legal imports,” Lashgari said.

Esmaeili voiced concern about the huge volume of footwear smuggled into the country.

“The roots of smuggling must be eradicated. We must take a tough stance against contraband, as they have immensely affected this industry,” he added.

According to Najjarzadeh, domestic producers can currently meet only 10% or at most 20% of domestic footwear needs while the rest is dominated by Chinese products, only 5% of which are imported to Iran through legal channels.

  Potential for Growth, Job Creation

The shoemaking industry is capable of creating sustainable jobs and promoting economic growth.

According to Lashgari, more than 80 industries, including leather (natural or synthetic), textile and chemical industry, are involved in the process of shoe production.

“If we revive the shoe industry, other relevant industries will also flourish,” he said.

He cited the examples of Turkey, Pakistan, Brazil, Vietnam and, above all, China which have managed to bring prosperity to different sectors of their economies by relying on the footwear industry.

Lashgari believes the shoe industry has the potential to create as many jobs as in the auto industry.

Emphasizing the role of exports in the expansion of domestic industry, Esmaeili said, “We can create more jobs and bring in more dollars on condition that the government helps us in doing so.”

According to the official, Tehran, Tabriz, Mashhad, Isfahan and Qom are major Iranian cities active in the shoemaking business.

  The Bigger Picture

Lashgari provided detailed statistics on the global and domestic footwear industry.

Global footwear exports in 2015 stood at 14.2 billion pairs with a total value of $126.3 billion, marking a 4.5% decrease in value and a 12% decline in volume compared to 2014.

“China—the largest producer of footwear in the world—suffered a 4.9% and 18% decline in value and volume of its global footwear exports respectively in 2015,” he said.

“China’s footwear exports were under 10 billion pairs that year.”

Nonetheless, China was the top footwear exporting country in 2015, followed by Vietnam, Belgium, Germany, Hong Kong, Italy, India, England, Indonesia and Turkey.

Just like production, exports are heavily concentrated in Asia, accounting for 85% of the world total. Europe comes second, representing 13%, with no other continent reaching more than 1%.

Vietnam exported 91% of its footwear products in 2015. Cambodia exported 83%, China 73%, Thailand 62% and Turkey 52% of their footwear products. The rate for Iran stood between 15% and 20%.

The global average export price of footwear in 2015 stood at $8.8 a pair. Italy’s average export price stood at $46.21 while the price for Pakistan was $9.58, for China $5.18 and for Turkey $3.47.

Leather shoes, which have more added value, made up 39% of the total value and 15% of the total volume of global footwear exports in 2015. The average export price of leather shoes in Asia was $17.8 and $39.9 in Europe.

The top 10 leather shoe exporting countries are China, Italy, Vietnam, Hong Kong, Germany, Indonesia, Spain, Belgium, India and Portugal.

In 2015, Iran was the 12th biggest producer of footwear in the world, as it exported 200-210 million pairs that year.

During the five years to March 20, 2016, which marks the end of the fiscal March 2015-16, Iran exported 40 million pairs of shoes worth $122 million with the average export price standing at $3.05 per pair.

With respect to leather shoes, 4% of the total quantity and 8.5% of the total value of Iran’s footwear exports belonged to leather shoes, with the average export price standing at $5.3.

In the last 15 years, Iraq has been the biggest importer of Iranian shoes, followed by Azerbaijan, Afghanistan, Turkmenistan, Uzbekistan, Georgia, Tajikistan, Saudi Arabia, Russia and Ukraine.

  Solution

Lashgari stressed the need to have a more active role in the global footwear industry.

“We should make plans to attract foreign investors because Iran’s 80-million-strong market is a golden opportunity for them. But bear in mind that we must have bilateral cooperation with the global community for both sides to benefit and not just them,” he said.

“We must have plans to keep up with the latest technology. This way, we can improve our domestic production and exports.”

In his opinion, if people’s purchasing power increases, their participation in economic activities will grow. This will create more jobs, improve standards of living and increase consumption.

Esmaeili also said that as long as Iran remains away from the global market, this industry cannot improve.

It is evident that a lot needs to be done for the domestic shoe industry to realize its true potential. Increasing the number of domestic brands that can gain the Iranian consumers’ trust, improving designs rather than replicating foreign brands and enhancing the distribution network’s efficiency are primary steps that should be taken in this regard.