Market Research report for Mexican Shoe Market/Emyco

Gajendra SisodiaGSO

•The footwear industry is of enormous importance to the Mexican economy, accounting for 0.22% of Gross Domestic Product (GDP) in 2008 and 1% of manufacturing GDP.•Once again, micro and small companies account for the bulk of enterprises in operation (roughly 89%) and employ some 600,000 people•There are approximately 8,000 footwear manufacturers in Mexico, 3,300 of which are located in the state of Guanajuato

Source: http://negocios.promexico.gob.mx/english/11-2012/businessTips/index.html

MEXICAN SHOE MARKET FACTS

•The footwear industry is of enormous importance to the Mexican economy, accounting for 0.22% of Gross Domestic Product (GDP) and 1% of manufacturing GDP.•Of the 250,000 pairs of shoes the country manufactures, 20,000 are exported, while imports stand at 60,000. •The main international market for Mexican-made shoes is the US, followed by Canada and Japan.

MEXICAN SHOE MARKET FACTS (CONTD…)

Strengths

•A well established supplier chain, a highly-skilled workforce and good communications infrastructure.• Affordable and the industry has a long-standing tradition in certain parts of the country like León, Guanajuato.• Manufacturers also have access to international fairs, where their products enjoy a high degree of prestige.

•Local raw materials- Local inputs of leather and synthetics reduce the transportation costs (and time) for obtaining raw materials•Shared suppliers.•Economies of scale.• Educational infrastructure. The León area has a variety of educational, training and research centers all supporting the leather and footwear sector.

Challenges

•International economic crisis could eventually affect sales on the domestic and international markets, demand continues to grow on both.

•Chinese footwear imports talking the market by storm.

Road ahead

•What we are seeing today is a shift towards strategic alliances for the sub-contracting of production processes, which is particularly appealing to investors.

•Mexico and China have reached an agreement, aimed at governing imports of Asian footwear entering Mexico.

•The agreement, which will take effect on 1 May and run until December 2014, aims to prevent cheap footwear flooding the Mexican market.

Source: http://www.just-style.com/news/mexico-signs-footwear-import-deal-with-china_id113922.aspx

Emyco: Company Background

•The company was founded in 1926 by Felipe Martinez, who took advantage of abundant leather supplies and skilled metal craftsmen in the central Mexican city of Leon to lay the foundations of the country's shoe manufacturing industry.• His son, also named Felipe Martinez, joined the firm fresh out of university in 1964 with big plans of his own. "I felt the company needed to become international and to produce leisure shoes," says Martinez.

•1967 : Deal with the American maker of Hush Puppies to distribute the shoes in Mexico. •1972: Emyco reached an agreement with U.S. shoemaker Florsheim to open a chain of Florsheim stores in Mexico. •1990: Emyco bought the chain from Florsheim, along with the use of its brand in Mexico.

Both brands remain very popular in Mexico, where Florsheim's best-known client is President Felipe Calderon

HOW EMYCO OPERATES

•To maintain its competitive edge, Emyco invests heavily in technology and quality control.

• Its main factory, where more than 1,500 employees work, sprawls across several acres of former ranchland on the southern edge of Leon.

• It takes 140 different assembly-line procedures , only one or two of them performed by each worker , to manufacture a single pair of shoes.

• Every finished shoe is inspected.

•As a privately held firm, Emyco doesn't disclose financial information. But the Leon Chamber of Footwear Industry says big outfits like Emyco earn a net profit margin of about 7 percent on an average pair of shoes, which suggests the company made a net profit of about $25 million in 2008.

Source: Mexican Shoemaker Relies on Sex Appeal, Not Bank Credit| Institutional Investor (Mar 2010): n/a.

Challenges for Emyco

•Difficulties the company faces in defending and growing its market are emblematic of the challenges facing the country's medium-size enterprises.

•Although Emyco sells shoes through the American department store chain Macy's, at an average price of $70 a pair versus $50 in Mexico, the company isn't a big exporter.

•The domestic market, where Emyco owns 110 retail stores, accounted for just over 90 percent of the 6 million pairs of shoes it sold in 2009.

Source: Mexican Shoemaker Relies on Sex Appeal, Not Bank Credit| Institutional Investor (Mar 2010): n/a.

•A case in point is Emyco's "Sexy Walk" shoe line for women, launched to help the company bounce back from a 15 percent drop in sales in 2009. •Orders were up 50 percent in the first quarter compared with a year earlier, and Emyco got a boost when Katie White, the lead singer of the British band the Ting Tings, wore "Sexy Walk" high heels at the recent Grammy awards ceremony. •"Our women's shoe production is completely booked until May," says Martinez.

What made them bounce back

Supply chain woes: Store locations of Emyco

Window of opportunity in tight financial times

•According to the local chamber of commerce, the city's 967 shoe factories depend on banks for only 15 percent of their financing on average, while supplier credit accounts for 65 percent.

•A large business like Emyco has the bargaining power to extract better financing terms from its clients than from the banks. For example, Emyco often negotiates with a leading department store chain, Liverpool, offering discounts if the retailer pays early for shoe orders.

Recommendations

Enter into youth segment(15-25 yrs):

•Company designers claimed that granules on the "Sexy Walk"' inner soles activate reflexology pressure points, making the body relax and releasing pheromones that attract men. The science may be debatable, but the marketing is certainly working for Emyco.

•On the same lines using competence of Emyco they should develop some high end products targeted at youth.

Recommendations

Come out with lower price range footwear series:

•Open below premium segment footwear stores and pass on the aspirational value to those who can’t afford the high price range shoes.

•In the process brand values of the premium range should duly be protected and should not be allowed to get diluted.

Form value proposition solution on these fronts:

•Business

•Economical

•Technological

Recommendations

China import treaty

•Till 2014 China treaty is valid , They should take advantage of the time and expand aggressively in domestic markets.

•Foreign markets should be focused on next priority

Recommendations

Focus on untapped markets:

•Markets where ethnic footwears are much in demand should be targeted aggressively

•Brazil, Latin America Countries, Western Europe can be such locations.

Recommendations

Thank You !!