Executive Summary.

US shoe sales were mixed in the second quarter of 2013 with good results reported by women’s companies and strong sales by self-service branded outlets. While Nike did well, other sports brands and their retailers reported weak results.

The outlook for US shoe business for the rest of 2013 is much more subdued than it was at the start of the year. The US economy continues to struggle with low single digit results with no breakout in sight.

China’s share of US shoe imports continued to decline but only slightly in the first half of 2013, while imports from Vietnam, Indonesia and Cambodia showed huge increases.

On the leather front, shoes increased by nearly 7% in value in the first half, while those from China only increased by about 1.4%. Leather apparel increased sharply by some 29% in value, while China increased by even more on a percentage basis.

Shoe imports into the EU were about flat in the January-May 2013 period, with China increasing its market share, and Vietnam, Indonesia, India, and others losing market share in modest amounts. Given the poor overall economic performance in Europe, the shoe sector seems to be holding up better than would have been expected.

US Business January-June Overview. US GDP growth accelerated to 2.5% in the second quarter of 2013, up from a mere 1.1% in the first quarter.

Nevertheless, the outlook for the rest of 2013 remains subdued with most economists predicting that the last two quarters will be weaker than the second.

While there is no chance of a US recession, there is also no chance of a breakout in growth.

The continuing lack of business confidence, especially the anti-business posture of the Obama administration including its tax, health and energy policies, is holding back investment, jobs and growth.

On the consumer front, the auto sector is enjoying the best run since the Great Recession, driven in part by cheap finance, low fuel prices and the catch up of purchases necessitated by the old age of so many US cars on the road.

The housing market, which had been recovering nicely, has slowed down again, owing to the run up in prices, declining inventory, and tapped out buyers.

Strong performance in the durables sectors often translates into weaker sales in the consumer discretionary sectors like apparel and shoes.

Footwear Sales. The weak performance of the shoe sector in the first quarter largely continued in the second.

There were some strong performances from the leaders in the self-service branded space as the bargain oriented DSW and Famous Footwear showed smart store for store gains.

Leaders in the mall based full service sector turned in surprisingly weak sales numbers with athletic top retailer, Footlocker, barely in the black and funky fashion house, Genesco, slightly in the red.

On the brand side, Nike’s global performance continues its powerful trajectory, with strong sales in the US offsetting weak performance in China and Europe. Its arch rival, adidas, continued to report sales less than last year, driven largely by the poor results of its Reebok division. Unlike Nike, adidas seems to have found a winning formula in China with its ‘adidas originals’ street influenced apparel and shoes.

The leading US street shoe brands all did well with women’s specialist, Brown Shoe, and youth specialist, Sketchers, recording double digit increases, while young women’s specialist, Steve Madden, recorded a small gain (albeit against a huge double digit increase from 2nd quarter 2012).

Overall, the leading US department stores all did poorly for the quarter, perhaps signaling a break in the long run of strong performance by better merchandise retailers, the one space that has held up remarkably well during the last few years.

Results were just as weak with the leading mass market chains – Wal-Mart was in the red slightly store wide for the quarter, while Target eked out a one percent store for store increase during the quarter.

None of this bodes well for the crucial holiday season in the fourth quarter.

Footwear Suppliers to the US. Overall US shoe imports grew by some 4.3% in volume compared to the first half of 2012, reflecting the optimism that characterized retail and wholesale buying for the spring/summer last fall. Unfortunately that optimism seems to have been largely a mistake.

China once again dominated sales with 82.2% volume market share, albeit down from an 84.2% market share in the first half of 2012.

Continuing the trend from 2012, Vietnam and Indonesia imports increased sharply in the first half, reflecting the shift by athletic buyers away from China to their lower cost Asian cousins.

From a small base, Cambodia showed spectacular growth, although the potential for large scale production there is pretty much out of the question, given its small population, limited workforce, etc.

Spain, India, Thailand, DR, and Italy also recorded smart gains for the first half of 2013.

China. In pairs, China saw an increase of just 1.7% for the first six months of 2013, with dollar sales ahead by 1.9%, and average price unchanged at $7.83.

Overall, China’s GDP reportedly grew at 7.8 in the second quarter of 2013, although there is considerable skepticism among global economists that growth was that strong, given the weak performance of so many of China’s export customers in the EU, US, etc.

On the other hand, there is no doubt that the Beijing leadership set off a huge credit burst in the second quarter as bank lending hit new highs and investment soared to new highs – hardly the formulae for increasing consumption balanced against excessive investment, supposedly the goal of the new leadership.

Also the RMB has appreciated some 2.5% against the dollar in 2013, creating worries for exporters.

The outlook for China shoe exports to the US for the rest of 2013 is subdued and a flat performance is likely.

Footwear Suppliers to the EU. With imports accounting for some 85% of EU shoe consumption, the 1.3% growth of imports by volume in the first half of 2013 is quite remarkable, given the recession virtually everywhere in Europe.

China increased its volume market share to 76.3%, while Vietnam and Indonesia lost share (likely due to the poor performance of the leading sports brands in Europe).

Turkey, Cambodia, Bangladesh, Morocco, and Bosnia all recorded smart increases.

Reportedly, EU shoe production for 2012 increased to 592 million pair up from 582 million pair in 2011.

With some signs that the some EU countries are finally coming out of the two year recession, one can reasonably anticipate somewhat strong shoe sales in the quarters ahead.

Footwear. During the first half of 2013, US imports of leather shoes were up 6.6% in value with China’s leather shoe imports up 1.4%. So China’s share of leather US shoe imports fell slightly during the period.

Vietnam, Italy, Indonesia, and Mexico recorded smart increases in leather shoe shipments to the US during the first half.

Other. Apparel recorded a huge increase, while bags, belts, etc. and finished leather were all down for the first half.

Enclosures.

1. US Footwear Imports Jan-June 2013

2. US Footwear Retail/Brand First Half 2013

3. US Department Stores First Half 2013

4. EU Footwear Imports Jan- May 2013