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International brands that are moving their third-party operations to India are unlikely to reduce product prices for Indian consumers, according to Nuvama's September report on footwear trends.
Outsourcing is primarily geared toward cost efficiency in international markets rather than benefiting domestic consumers through reduced prices says the report. The report adds that International players such as Nike and Adidas have been outsourcing manufacturing to Apache Footwear (Hyderabad) since 2008, primarily for its international markets. But despite outsourcing manufacturing to India which is a cheaper alternative to manufacturing abroad, Nike and Adidas have not decreased prices globally. "Taking a cue from the above, we believe international players that have moved third-party operations to India are not expected to pass on the benefit of cheaper production costs to Indian consumers going forward." said the report On 30th August 2024, the Ministry of Commerce and Industry amended the existing Footwear quality control order (QCO), which allows footwear manufacturers and retailers a transition period until 31st July 2026, during which they can continue to sell products that do not bear the Bureau of Indian Standard (BIS) mark. Thereafter, all footwear sold in the domestic market will have to comply with BIS standards. The extension however is specifically for sales purposes and does not apply to the procurement of new merchandise, which ends on 31st July 2024. Local production in India is expected to continue widening the supply chain footprint of international brands like Nike and Adidas, but it is unlikely to close the price gap between mid-premium local brands and their international counterparts. The price differences will persist, as these companies focus more on their global pricing strategies and profitability rather than tailoring prices to the local markets. While local procurement for materials like PVC and PU is still in its infancy in India, the growing number of third-party operations presents a significant opportunity for local raw material suppliers. Global OEMs like Shoetown, Feng Tay, Pou Chen, and Apache have focused solely on manufacturing, avoiding retail operations. While companies continue to improve their back-end processes and work on easing out non-core inventory, the sector faces a mix of challenges and opportunities. (ANI)
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