Decoding Growth & Investments in the Footwear Industry

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In 2021, the size of the footwear industry in India was estimated at INR 960 bn. With a 20%+ CAGR, the industry is expected to reach INR 1.4 tn by 2024. Organized players alone account for ~30% of the industry, and their share is expected to rise to 40% by 2025. Increasing urbanization, rising aspirations, growing consumer acceptance of newer brands, and digital penetration are some of the reasons that can be attributed to this expected growth.

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Current Trends & Challenges

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Once considered indispensable, footwear is now a lifestyle purchase. With the growth of the Indian economy, there is a noticeable shift in how consumers view footwear. This has presented a vast opportunity for newer companies looking to tap into this space. The launch of several new brands that are solving consumer problems in specific sub-segments is further evidence to this.

A prominent example can be the mass sports footwear category - while sportswear has been dominated by global brands like Nike and Adidas which are at premium price points, there were very few brands catering to sportswear for the masses. This further created an opportunity for domestic brands to emerge and gain market share. Customers in recent times have also shown a preference for premium and handcrafted footwear. Personalization has been another key theme for consumers.

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However, companies in the footwear sector face numerous challenges. Lack of customer loyalty, low barriers to entry, non-integrated structures (dependence on third-party suppliers), a high prevalence of counterfeit products, etc are the most common issues. Although these problems persist, there is a huge scope for startups to cater to these inefficiencies and demands successfully.

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Rise of Startups and VC/PE Interest in the Footwear Segment

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Footwear startups have collectively raised $106 mn in the last 5 years from PEs and VCs. The investor community has shown interest in focused footwear companies that can create a brand in niche segments. Interesting global trends likely to be seen in India include sneakerhead communities, a rise in sustainable footwear (like Allbirds), and performance-based footwear. New-age brands that are largely focused on catering to a specific price point or a category to ensure differentiation have seen success. A key example here would be Asian Footwear which started with a focus on mass-segment sportswear. The company has currently crossed $30 mn in revenues and are profitable.

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Startups like Neeman’s, Yoho, Rapidbox, Plaeto, and Monrow that have come up in recent years can principally be seen adopting a similar strategy – maintaining focus on a specific market need. Neeman’s is known for sustainable footwear, Yoho is focused on orthopedic light footwear, Rapidbox is focused on vegan leather and Plaeto is a tech-driven brand for children. Most of these brands raised funding in 2022.

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As per a Tracxn report, India has 99 internet-first brands while the total number of footwear brands is close to 150. Continued VCs and PE interest can be credited to a variety of factors – the shift from unorganized to organized, rising disposable income levels, and millennials’ focus on buying branded shoes. Today, the consumer purchases occasion-wise footwear. Corporates too have started showing interest in new-age startups to tap into the millennial consumer – for example, a millennial would prefer purchasing Neeman’s instead of a Bata; traditional brands are finding it difficult to tap into this new-age consumer and hence there is an increased interest in startups.

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Decoding the Growth Drivers of the Industry

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The premium, mid-range, and economy categories are growing faster than the mass category in terms of consumer demand. Key drivers for this trend have been the penetration of organized retail like EBOs in tier-2 markets and beyond, better options/designs in footwear, and rising demand for branded offerings. While the men's footwear segment takes the largest market share, the women's footwear market is growing mainly due to the inclusion of women in the workforce. Children’s footwear captures a smaller market share but has a high volume of purchases due to continuous size changes – currently served largely by the unorganized segment.

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What is Driving Startups in the Segment?

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• During COVID-19, as consumers shifted towards a healthy lifestyle, the demand for sports / athleisure footwear jumped

• The new-age millennial prefers comfort and views footwear from a fashion lens. Such customers also focus on the sustainability of the product

• There is a noticeable shift towards non-leather footwear due to the “impact” angle • Diversity and choice are becoming a requirement – “footwear for every occasion” is the new norm

• Shift from unbranded to branded due to increasing disposable income is leading to premiumization of the segment

Therefore, footwear brands that can modify and adapt their offerings to cater to customers will see more success.

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Government Push - A Tenfold Opportunity

According to Piyush Goyal, Union Minister of Commerce, the sector has the potential to grow tenfold soon through increases in production and exports. Recognized by the government as a priority sector under the Make in India mission, the Centre is working towards gaining duty-free access to footwear through free trade agreements, thereby increasing export potential. The sector contributes almost 2% to the country's GDP and is one of the country's major job producers. States like Uttar Pradesh, Tamil Nadu, Maharashtra, Punjab, and Haryana contribute to a majority of the production capacity of the country.

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Recent Acquisitions in the Space

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The sustained interest in the footwear segment has been both from funding as well as an M&A perspective. The market is on a growth path and new-age brands can tap into these growth areas to make a mark in the segment. Reliance Retail recently acquired footwear retailer V Retail – a south India-based retail chain under the brand 'Centro Style'. V Retail operates 32 stores in south India and through this acquisition, Reliance can gain a foothold in the burgeoning footwear market. Centro's strategy to launch international and domestic brands to target young customers augurs well with Reliance's ambition to capture a larger share of the wallet of the consumer.

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Why Footwear and Why Now?

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India is the world’s second-largest footwear producer and consumer, with a production of 16 billion pairs per annum accounting for 13% of the global share. The quantity is largely spread across leather footwear, leather shoe uppers, and non-leather footwear. Currently, about 95% of the produced quantity is used to meet domestic demand. A part of the overall growth of the footwear industry is attributed to the growth of ASP (average selling price) - from INR 308 per pair in 2015 to INR 376 in 2020 and expected to reach INR 490-515 by 2025. Online retail of footwear contributes nearly 2.5% to 3.5% from FY 2020. It is expected to grow at an average growth rate of 26% to 30% from 2020 to 2025. While the average per capita consumption of footwear globally is 3.2 pairs, India was at 1.9 pairs per capita in 2019, which is expected to rise to 2-2.1 pairs by 2025.

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Further, the footwear industry is likely to benefit from several factors, including rising disposable incomes, changing attitudes towards branded products, the growing female workforce, and increasing urbanization. However, it should be noted that the footwear sector is highly competitive. The unorganized sector currently dominates the market, while domestic and global brands fight for a larger share. Thus, companies need to constantly innovate while maintaining a laser-sharp focus on specific sub-segments to gain a foothold in the market and attract investments.

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HOW MERISIS CAN HELP

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The consumer vertical at Merisis is focused on the needs of the ever-changing Indian consumer. As the customer is evolving, consumer brands and services are on the lookout for constant innovation in order to stay relevant. The consumer team at Merisis strives to identify these trends early on and assist companies in the identified sub-segments with their growth plans. The team has extensive experience in fundraising and M&A transactions across the consumer sector – be it in products, services or channels. The Consumer team works hand in hand with all the other verticals in order to provide a consumer’s perspective to the offering. Read More

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Write to us on consumer@merisis.in