Some ideas to stimulate a recovery in local footwear and leather goods manufacturing

The initial ‘Industry brainstorming session & networking lunch’ on 20 May, organised by the eThekwini Footwear & Leather Cluster (EFLC), took a while to warm up. It was actually intended to ask for suggestions on improving the EFLC’s various programmes (see separate article), but when the meeting was thrown open to the floor, it was clear delegates had come with plenty to say about the state of the industry in general.
The overwhelming sentiment was that local footwear manufacturing was in deep trouble, and that delegates had lost faith in the R-CTFL Masterplan – and all other government interventions and incentives so far.
What they wanted, several speakers said, was for the footwear manufacturing industry to “speak with one voice”, and to “stop talking about how bad things are but not doing anything about it”.
Speak to who, though, and about what?

Delegates at the eThekwini Footwear & Leather Cluster ‘brainstorming session’…appeals for action instead of words.

 

Most of the manufacturers who were there concentrate on supplying chains with footwear, and their most heartfelt wish is that the chains source more locally.
But the footwear and leather goods manufacturing industries in South Africa face multiple challenges. Resolving any of them would improve the situation not just for those manufacturers, but for the entire value chain.
These, as I see it, are the issues to discuss at the promised next ‘industry brainstorming session’.

1. Power is in too few hands: The most obvious difficulty for local manufacturers is the ever-increasing power of the opposite extremes of the footwear industry – retail chains and (nominally athletic) footwear brands. In South Africa’s case, the chains are mostly local, the ‘athletic’ brands are all global. The odd thing is that the chains and the brands are mostly mutually exclusive. You see some Puma and a few other brands in some of the chains, but most chain merchandise is private label. The brands have tied up with a reduced number of lifestyle retailers (and some technical sports retailers to bolster their sport credibility), continue opening their own stores, and growing direct to consumer.

What can be done? Many manufacturers are on bended knee to do more chain business, and stories are rife of orders ‘lost for 50c a pair’. They have argued that the quicker replenishment and longer payment terms offered by local manufacturers are real cost savings, but it’s hard to argue with the lower upfront prices and, it must be said, greater variety, offered by imports. Lower infrastructure costs (see point 6) could reduce local prices, but in the meantime, locally made shoes that sell better at retail because they look better or feel better would make the chains sit up and pay attention. Creativity – or more pointedly the lack of it – was raised at the meeting.
Speakers at the meeting dismissed the R-CTFL Masterplan as having achieved nothing for footwear, but there were comments that clothing manufacturers had successfully fought for reduced duties on imported components. Michael Lawrence, executive director of the National Clothing Retail Federation, has frequently said the footwear industry “needs to bring the PMO ideas” for discussion. The reference is to the R-CTFL PMO meetings, which now take place every 2 weeks via Teams. Footwear representatives could suggest a reduction on component import duties.
As for the brands, lifestyle product is the obvious target for manufacturers. Nike and Adidas used to source locally, Puma still does, and Hush Puppies experimented with it. Aiming to be part of a brand’s global sourcing would be a bigger win than supplying just some of its local needs.
Not quite the same thing, but Equator Belts has had a longstanding international replenishment programme with Walmart, which shows that it is possible for local manufacturers to deal with the biggest international customers.

2. The changing structure of independent retailers: Local manufacturers (and the smaller global brands) say that South Africa’s independent retailers are disappearing. “There are no new accounts in South Africa right now,” Fila distributor Laurence Slotsky complained when The Cross Trainer chain closed.
That’s not quite true. The racial and ethnic makeup of the bulk of the independent retail sector has changed before, and is changing again – this time to Ethiopians, Pakistanis, Somalis and probably other immigrant groups. At least some multigeneration retailers In the Johannesburg CBD – and presumably elsewhere – have sold out to foreigners over a long period of time. That happened as the areas declined and the next generations of those retail families – like the next generations of the earlier retailers – moved into other lines of work.
The ‘foreigners’ – many of whom are presumably now permanent residents or even citizens – cater to the poorer and poorer inner-city residents and were, according to Tego Footwear’s Mohamed Vanker, a lucrative market for equally basic local manufacturers churning out ballerinas and flat sandals. No more, apparently. Now they’re being supplied out of China Cities (see point 5).

What can be done? There are many ways for manufacturers and retailers to work together. Wouldn’t it be a natural partnership for smaller retailers shunned by brands and squeezed by chains, and manufacturers overshadowed by brands and ignored by chains, to create a niche, a destination store, a specialist?
There ARE a couple of local manufacturers who also have their own retail stores as well as (only independent) retail customers, both specialising in women’s leather comfort footwear. They’re not clamouring for chain business.
And when it comes to those ‘foreigners’, reaching out to businesses you don’t know, currently selling products you don’t or can’t make, could well lead to opportunities.
Losing good retailers (and component suppliers, and manufacturers) to bankruptcy is a tragedy, and quite possibly avoidable where there are strong vertical relationships.

3. Footwear trends: The trend in world footwear is synthetic upper sneakers. There are variations within that, and brands rise and fall, but the basic jogger silhouette, offering cushioning, lightness and generous fit, is here for the foreseeable future. Everything else comes and goes.
For several reasons – some valid, some less so – South African footwear manufacturers don’t make them.

What can be done? Can sneakers be made in SA? “Absolutely,” says CAD instructor Russell Addinall of Studio Eclectica. “All it needs is an inventive approach.” Incidentally, sneakers have probably contributed far more to the decline in the global leather industry than any other factor, including anti-leather lobby groups. Could leather be used to make sneakers? Sure. Let’s lead the revival.
Addinall spoke forcefully at the ‘brainstorming session’ about the lack of upcoming creative people, and the length of time it takes to train designers and pattern technicians. He also made the point that in the 1980s and 1990s, factories had the skills to switch from sandals and flats in summer to heels and boots in winter, to stay full year-round. Of course, there were no imports then (well there were – from Europe), but nonetheless, if local manufacturing has been dumbed down to flats and sandals only, that needs to change. And they have to make sneakers.
“When competing on price alone, the market is especially challenging,” he said. “Manufacturers should consider more sophisticated constructions as well as putting a creative spin on current international styling trends.
“Factories and SMME’s need to be supported by having access to training workshops to upskill staff and encourage new entrants to the industry.”

Unbeatable prices…but how? SA manufacturers say they cannot buy the units for the prices shown.

4. Local Chinese manufacturers: Most of the Chinese footwear manufacturers in South Africa produce fully moulded EVA clogs and pool sandals, and EVA/PVC flip flops, for – I think – mostly the informal street/hawker and then more structured China City markets, as well as various large and small retail chain stores (some of whom are supplied through agents so that they can claim ignorance about what goes on there).
On the face of it, these businesses are legal and local, although allegations are that some of them are not legally compliant. In my limited experience, many of them are opaque. Rumours abound of them employing undocumented foreigners, underpaying staff, breaking basic working condition rules, and falsifying employment numbers. Some apparently even manage to operate in secret. Overall, there is a sentiment that they contribute very little to the country and its economy, despite the fact that they operate here.
Why don’t other South African factories make the same kinds of footwear, which are a mainstay of basic chain business?
“EVA is a base commodity,” said EVA Industries’ Brandon Geyser. “I can buy it, you can buy it, the Chinese manufacturers can buy it, it’s all the same price, and possibly even from the same supplier. If their shoes are cheaper – and they generally are – it’s because they’re paying less for other factors of production such as labour, working capital and compliance.”

What can be done? The National Bargaining Council of the Leather Industry is tasked with ensuring compliance with the sector wage collective agreements. While they have taken action against some manufacturers, it’s clear that more needs to be done.  To level the playing fields and promote fair competition, the NBCLI may require assistance from the Department of Labour, the Department of Home Affairs, and SAPS. By working together, they could ensure that all manufacturers adhere to labour laws and regulations, ultimately benefiting the South African economy and workers.  Then perhaps other factories would get a share of that moulded EVA footwear business.

5. China Cities: There are photos circulating in Durban of Birkenstock-style sandals being offered in 30-pair pre-packs – to those inner-city retailers and to hawkers – at R52 per pair. The photos are part of a catalogue, but with no name or contact number. Presumably their customers know where to find them.
The most expensive parts of these shoes are the units. Gregg Daniel of Mendelson & Frost, who imports Birkenstock-type PU units from Europe, said the price of his units would “likely be in the range R100-140/pr, depending on how it gets here (courier/LCL/FCL). I have no comparison for units made in the East, but they would be cheaper…perhaps by 20-30%.”
Matthew Hansen of Reunion Components, who makes PU soles in SA, said: “A plain black PU sole like this would cost about R45.00 per pair. Ones with a cork look and with imitation suede sock would cost more.”
My request for the price of locally made PVC soles wasn’t answered, but they would be cheaper than PU. These may not be direct comparisons, and I don’t know what the soles of the Chinese sandals are made from, but a local manufacturer’s complaint that he “couldn’t buy the units for the price they’re selling those shoes for” isn’t far off the mark.
There are ‘China Cities’ in just about every South African town bigger than a village. In fact, anywhere there is a Pep store, there is at least one Chinese shop selling shoes. They sell product exclusively made in China, and given the prices they offer, they are suspected of large-scale evasion of import duties and VAT. As with the Chinese manufacturers, the impression is that they are here to take as much as they can, then move on, leaving nothing in their wake.

What can be done? Customs has no compunction about holding up the containers of legal importers for inspection – at the importers’ expense. It would be a huge operation, but one thing government does have is plenty of staff. Customs, backed up by staff from every possibly involved government department, could descend on every China City in the country and freeze all trade until proper documentation is produced for every single item showing import duties and VAT paid. Subject to legal opinion, that wouldn’t break any laws or go against WTO regulations.
At a guess, they would find so much to interest them that it would be months – even years – before any of those China Cities reopened.

6. Taxes: At an export presentation last month, Leon Buhr of Equator Accessories made a strong case for the entire country to be declared a special economic zone for manufacturing, with lower rates of taxation. He also argued that the various taxes, and higher banking interest rates, contributed more to South Africa’s uncompetitive manufacturing than labour rates.

What can be done? South Africa has a reputation for enacting laws, but not enforcing them. In this case, however, all they would need to do is enact them. The private sector would do the rest.

And so, until the next ‘industry brainstorming session’… 

What the EFLC offers
The eThekwini Footwear and Leather Cluster (EFLC), which is administered by SAFLEC, was established in 2018. It is made up of 5 programmes aimed at strengthening the competitiveness and export capability of the footwear and leather sector in the region. They cover:
 

• Market Access
• Export Development
• Supplier & Firm Level Development
• Design Advancement
• Waste Management & Sustainable Manufacturing