U.S. END MARKET ANALYSIS FOR FOOTWEAR FROM EAST …

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U.S. END MARKET ANALYSIS FOR FOOTWEAR FROM EAST AFRICA USAID

SOUTHERN AFRICA

SOUTHERN AFRICA

U.S. END MARKET ANALYSIS FOR FOOTWEAR FROM EAST AFRICA

November 2020

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1. Executive Summary II. Introduction and Scope of ReportIII.Product SummaryIV.East Africa Footwear Exports A. East Africa Footwear Exports to the World

B. East Africa Footwear Exports to the U.S.

V. U.S. Market Summary A. General Market Characteristics

B. Market Size and growth

C. U.S. Footwear Market Segment

D. U.S. Footwear Market Trends

E. Principal Footwear Buyers in The U.S.

F. U.S. Footwear Prices

V. Non-Tariff Requirements A. AGOA Rules of Origin

B. U.S. Footwear Import Tariffs for MFN, AGOA, and GSP

C. Import Regulations

D. Standards and Certifications

E. Packaging and Labeling

VII. U.S. Distribution A. Supplier Selection

B. Distribution Channels

C. Retail Channels

VIII. Sales Promotion A. Key Trade Fairs, (2019 Editions)

B. Key Industry Associations

IX. Competition A. Key Competitors

B. Critical Success Factors

C. Prospects

X. Bibliography

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ACRONYMSAAFA American Apparel and Footwear Association

AAMA American Apparel Manufacturers Association

AGOA African Growth and Opportunity Act

CAGR Compound Annual Growth Rate

CPSC Consumer Product Safety Commission

DoD Department of Defense

FDRA Footwear Distributors and Retailers of America

FFANY Fashion Footwear Association of New York

FIA Footwear Industries of America

FOB Free on Board

GDP Gross Domestic Product

GSP Generalized System of Preferences

ITC International Trade Center

MFN Most Favored Nation

RoO Rules of Origin

SSA Sub-Saharan Africa

TPP Trans-Pacific Partnership

U.S. United States

USAID United States Agency for International Development

USFIA United States Fashion Industry Association

USFMA United States Footwear Manufacturers Association

USITC United States International Trade Commission

WRAP Worldwide Responsible Accredited Production

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I. EXECUTIVE SUMMARY

While the African Growth and Opportunity Act (AGOA), passed in 2000 and extended in 2015 until 2025, provides duty-free access to the U.S. market for African footwear products, East African

countries have for the most part struggled to take advantage of it. Although Ethiopia exported, on average, a little over $25 million in footwear products per year to the U.S. from FY 2016-20, the rest of East Africa generated, in the aggregate, an average of just $0.332 million annually over that period. East Africa’s performance under AGOA is compounded by a slowing U.S. end market. Although the U.S. remains the largest footwear market in the world by a wide margin, the industry has stagnated; projected to result in slow growth for the next five years.

The market is segmented into four categories. The first is sneakers (also known as “athleisure” footwear) that features a sporty look and values form over function. The second, athletic footwear, is designed for use in sports activities. Leather footwear is more closely associated with high-end fashion; while the “textiles and other footwear” category includes town footwear, rubber boots, flip flops, and clogs.

Textiles and other footwear is the largest segment, projected to account for 34.7% of the market in 2025. However, with a compound annual growth rate (CAGR) of 4.2% from 2012-2025, it lags both sneakers and athletic footwear. These are the least expensive shoes on the market. Sneakers, the second largest market segment, projected to account for 27.5% of the market in 2025, is also the fastest-growing; with a 7.9% CAGR. Athletic footwear, although projected in 2025 to remain the smallest market segment at 18.3%, is growing quickly at 5.2% per annum. Athletic footwear has the highest price point on the market. In contrast with the other categories, leather footwear has rapidly lost market share since 2012, when it accounted for nearly 42% of the market by revenue. By 2025 is projected to shrink to half that, at just 21.3%. In fact, over the 2012-2025 period, leather footwear is projected to contract, with a CAGR of -2.5% over that time.

This report identifies four key market trends. First, continued strong growth is expected in the athletic/athleisure segment. Second, there will be a more pronounced orientation toward eco-friendly products. Customers are prepared to pay a premium for footwear made of recycled material or which are made using more sustainable production methods. Third, mass customization will offer the benefits of mass production while allowing customers to customize certain aspects of their footwear purchases. Finally, “experientialisation” will see the rise of more brand-specific stores offering customized customer in-store experiences while providing brands with more rapid feedback on their products.

While East African manufacturers will need to be cognizant of a variety of import-related regulations and standards, from packaging and labeling to consumer safety measures, probably the most prominent of these is WRAP (Worldwide Responsible Accredited Production) certification, which ensures that manufacturers are employing safe, lawful, humane, and ethical manufacturing practices. With respect to distribution and retailing, although e-commerce has played a strong

role in the fashion industry, most footwear is still sold through brick-and-mortar stores due to customer preferences to try footwear on prior to purchase.

The U.S. footwear industry is nearly exclusively imports, which account for upward of 95% of all consumption. Most of this comes from Asia; with China recently losing share to Vietnam and, to a lesser extent, Indonesia. China now accounts for about half of U.S. imports, while Vietnam generates about a quarter. Together they dominate the low-cost segment of the market. Imports are likely to

remain dominant due to the lower cost of imported product in a price-sensitive industry, despite a trend toward “re-shoring” production in order to streamline supply chains. While U.S. firms have shown broad interest in geographic diversification (especially away from China), East African exporters will need to compensate for their higher wages and slower speed to market through lower sourcing costs and stronger compliance. East Africa exporters can also target high MFN tariff product groups such as protective footwear where AGOA’s duty free tariffs will give them a cost advantage in the U.S. market.

“Textiles and other footwear is the largest segment, projected to account for 34.7% of the market in 2025.”

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1I. INTRODUCTION AND SCOPE OF REPORT

USAID Southern Africa Trade and Investment Hub (USAID TradeHubThe United States Agency for International Development (USAID) Southern Africa Trade and investment Hub (USAID TradeHub) is a five-year trade and investment program for Southern Africa. The USAID TradeHub is expected to increase global competitiveness and intraregional trade and improve food security in Southern Africa. The Hub engages with partners across the region to increase sustainable economic growth, global export competitiveness, and trade in targeted Southern African countries. It supports these objectives by increasing exports from Southern African countries to South Africa and the United States (under the African Growth and Opportunity Act [AGOA]), boosting capital and technology flows from South Africa to other Southern African countries, and providing targeted trade facilitation support to Zambia. The USAID TradeHub works with market actors to identify and resolve enterprise constraints and to implement sustainable solutions through market-based trade and investment facilitation services. The USAID TradeHub partners with USAID bilateral missions through the USAID/Southern Africa Regional Economic Growth Office in the successful delivery of its objectives.

USAID TradeHub East Africa Trade Promotion and AGOA Buy-in activityThe USAID TradeHub also has an activity in East Africa through a Buy-in arrangement, to promote economic activity between the United States and 5 East African countries - Ethiopia, Kenya, Rwanda, Tanzania and Uganda. This 18-month activity seeks to boost two-way trade and investment between the U.S. and East Africa, under the U.S. Government’s Prosper Africa Initiative, with a focus of expanding exports to the U.S. under the Africa Growth and Opportunity Act (AGOA), and increasing investment and exports of technology from the U.S. to East African firms. The activity also seeks to facilitate reduction of barriers to trade within East Africa.

The USAID TradeHub’s East Africa Buy-in activity

aims to be the focal point in East Africa for businesses and national governments seeking to take advantage of AGOA and those wanting to engage in two-way trade between the U.S. and the 5 East African states through import of goods from the U.S. including technology and equipment. To achieve the activity objectives, the buy-in will provide capacity building assistance to the private sector and state institutions to help them understand the U.S. while creating awareness of business opportunities in both the U.S. and East Africa. The USAID TradeHub will also link enterprises and trade associations in the U.S. with those in East Africa to promote collaboration and business exchange, and in addition, provide technical assistance for trade policy review focusing on removing barriers to trade within East Africa.

In collaboration with national institutions, the USAID TradeHub’s East Africa buy-in activity develops and undertakes trade-enhancing activities involving private enterprises in sectors informed by the national AGOA utilization strategies formulated with the support of previous USAID Trade and Investment Hub projects including undertaking U.S. end-market studies for target product and building capacity of East African enterprises to engage with U.S. businesses. This report is one such end market study, with a focus on footwear.

Scope of the End Market Study The current study addresses mainly footwear products available in East Africa which have potential for export to the United States. The report is intended to provide footwear producers in the East African countries of Ethiopia, Kenya, Rwanda, Tanzania, and Uganda with some actionable intelligence on the U.S. market in a highly accessible format along with references and resources for further research.

III. PRODUCT SUMMARYFootwear is designated HS code 64. Subheadings include:

6401: Waterproof footwear with outer soles and uppers of rubber or plastics, the uppers of which are neither fixed to the sole nor assembled by stitching, riveting, nailing, screwing, plugging or similar processes

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6402: Other footwear with outer soles and uppers of rubber or plastics

6403: Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of leather

6404: Footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials.

IV. EAST AFRICA FOOTWEAR EXPORTS

A. East Africa Footwear Exports to the WorldTable 1 below uses ITC TradeMap data to show all footwear exports from East African countries from 2015-2019 (the most recent year for which data was available for world exports for all countries).

Footwear exports from East Africa to the world have been dominated by Ethiopia and Kenya; with the concentration increasing from an average of 89.7% from 2015-2019 to 97.5% in 2019 (see Figures 1 and 2).

Table 1: East Africa-World Footwear Exports by Country, 2015-2019 (‘000 U.S.D)

Figure 1: Share of Footwear Exports from East Africa to the World, 2015-2019

Source: ITC TradeMap. Presentation by Report Author

Source: ITC TradeMap. Presentation by Report Author.

2015 2016 2017 2018 2019 Average, 2015-2019

Ethiopia $33,412 $37,118 $45,485 $26,549 $37,163 $35,945

Kenya $38,400 $34,657 $31,783 $34,569 $38,154 $35,513

Rwanda $1,677 $3,790 $3,175 $3,458 $86 $2,437

Tanzania $12,642 $127 $288 $590 $1,211 $2,972

Uganda $3,406 $3,139 $2,809 $4,047 $671 $2,814

Ethiopia Kenya Rwanda Tanzania Uganda

3.7% 3.5%3.1%

44.6%

45.1%

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Despite the fact that Ethiopia and Kenya have accounted for similar export revenues over the past five years, however, their respective export portfolios look dramatically different. In 2018, for example (the most recent year for which country-specific export data was available), nearly three quarters of Ethiopia’s

exports went to the U.S. When Canada is accounted for, 84.5% of Ethiopia’s exports were bound for the North American market. Meanwhile, over 90% of Kenya’s footwear exports were made to regional countries.

Figure 2: Share of Footwear Exports from East Africa to World, 2019

Figure 3: Ethiopia’s Footwear Export Portfolio, 2018




0.1%1.6%

0.9%

48.1%49.4%

Ethiopia's FootwearExport Portfolio, 2018

U.S Canada Kenya China Hong Kong Other

10.9%

2.5%5.6%

73.6%

4.8%2.7%

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Figure 4: Kenya’s Footwear Export Portfolio, 2018


Kenya's FootwearExport Portfolio, 2018

29.8%12.7%

16.0%

29.5%

8.1%4.0%

Uganda Rwanda DRC Tanzania S.Sudan Other

B. East Africa Footwear Exports to the U.S.

Table 2 below uses USITC data to show footwear exports from East African countries to the U.S. for U.S. fiscal years 2016 to 2020 (October to September).

Table 2: East Africa Footwear Exports to U.S. by Country, US Fiscal Year 2016-2020 (‘000 U.S.D)

Country

FY2016

FY2017

FY2018

FY2019

FY2020

5 Year Average

Ethiopia

21,844

27,147

33,783

28,367

15,713

25,371

Kenya

250

104

111

179

471

223

Rwanda

-

-

-

2

-

0

Tanzania

6

3

1

1

1

2

Uganda

134

141

106

84

70

107

TOTAL

22,234

27,395

34,002

28,632

16,255

25,704

Source: USITC, Abstracted by USAID TradeHub.

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Footwear exports from East Africa to the U.S. from Fiscal Year 2016-2020 were dominated by Ethiopia (see Figure 5). As we can see from Table 2, however, Ethiopia’s exports reached a peak of 33.78 million in FY 2018 and have been in decline ever since.

Figure 5: Share of Footwear Exports from East Africa to the U.S., FY 2016-2020

In FY2016-2020 Ethiopia was almost the only East African exporter of footwear to the U.S. (see Figure 6). Besides Ethiopia, only Kenya, with a small share at 1 %, registered any exports to the U.S.

Figure 6: Value of Footwear Exports from East Africa to the U.S., FY 2020 ($’000)

Share of East Africa footwearexports to U.S. average

(FY 2016-2020)

0%

1%0%0%


99%

Source: USITC, Abstracted by

USAID TradeHub.

Value of East African FY 2020 exports to U.S.

471


1 700

15,713

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V. U.S. MARKET SUMMARYA. General Market Characteristics

Sneakers and athletic shoes have become the bright spots in an otherwise slowing industry, reflecting a trend toward health and wellness. In addition, more relaxed dress codes contributed to growth in casual, comfortable shoes typically employed in active lifestyles.1 Imports dominate the U.S. market (an estimated 98 percent of shoes sold in the U.S. are imported2), and most of these are imported from developing countries, where U.S. brands can take advantage of the lower cost of production.

Domestic production relative to imports may increase in the coming years, however, for two reasons. The first is the potential for additional tariffs on imported footwear, particularly footwear from China, which accounts for around half of all imports. The increased U.S. emphasis on pushing U.S. exports and protecting U.S. jobs was epitomized by its withdrawal from the Trans-Pacific Partnership (TPP), which would have reduced tariffs on goods (including footwear) sourced from countries that were party to the Agreement (including Vietnam and Mexico). The second is the Berry Amendment, which will require the Department of Defense (DoD) to purchase 100% of its footwear (among other items, such as food and clothing) from domestic sources.3 There has also been a short-term decrease in imports, possibly due (at least in part) to the impact of Covid-19.

Due to the outsourcing of the largely commoditized production function, most brands focus primarily on high-value activities, including design, marketing, and distribution. Some major manufacturers, including Nike and Adidas, have recently started “re-shoring” production in an attempt to streamline their supply chains; but many of these domestic factories have struggled to stay price-competitive with production factories located abroad.4

Key demand determinants include price, disposable income, brand recognition, and seasonal factors. Overall footwear sales are dominated by individuals from 35-54 years of age (see Figure 7), who collectively make up 44.6% of all footwear purchases.

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419

0

100

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700

Under 25 years

25 to 34 years35 to 44 years45 to 54 years55 to 64 years 65 years and older

All consumer units

Ave

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1. “Footwear in the U.S.,” Euromonitor International, March 2018.2. “Sourcing Snapshot: Global Footwear Manufacturing and Trade,” Sourcing Journal, August 2018.3. “Shoe Manufacturing in the U.S. Industry Report”, IBIS World, March 2020. IBIS World.4. IBIS World.

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B. Market Size and Growth

The U.S. is the largest footwear market in the world by a significant margin (see Figure 8).

Figure 8: Revenue of the Global Footwear Market by Country (Millions of U.S.$), 2019

The U.S. footwear manufacturing industry has contracted over the last five years, however, falling at a CAGR of 0.8% since 2015. Projected growth from 2020-2025 is anticipated to be slow, at an annualized rate of just 0.1% p.a. (see Figure 9). The industry’s contribution to U.S. GDP over that period of time, meanwhile, is projected to shrink, due in part to high levels of competition, especially from low-cost imports. Statista project somewhat faster growth over the same period, at 1.8%, but this is still projected to lag other major markets including China (5.5%), Germany (2.8%), and the UK (2.6%).5

Figure 9: Projected Growth, U.S. Shoe Manufacturing, 2020-2025

5. “Footwear Report”, Statista, July 2020. 6. Characteristics as described by IBIS World.

Industry Outlook 2020-2025

Perc

enta

ge

Year

1

0

-1

-2

-3

20 21 22 23 24 25

Shoe & Footwear Manaufacturing source: IBISWORLD

Source: Statista

C. U.S. Footwear Market SegmentsThere are multiple ways to segment the U.S. footwear market. In Section A we presented consumer segmentation by age. However, consumer segmentation can also be thought of in other ways (see Figure 10). Characteristics of each are discussed briefly.6

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Figure 10: U.S. Footwear Market by Consumer Segment, 2020

51.8% 25.5% 19.5% 3.2%

Men’s footwear(except athletic)

Rubber and plastic footwear includingathletic footwear

Women’s footwear(except athletic)

Other footwear

• Men’s Footwear: Characterized by slow changes in style, particularly compared with women’s shoes.• Rubber and Plastic Footwear, including Athletic Footwear: Vulcanized, molded or cemented soles and fabric uppers. Includes children’s, women’s and men’s shoes, and typically includes rubber boots, canvas shoes, rubber sandals and galoshes.• Women’s Footwear: Characterized by rapid style changes, with the sophisticated, high-end market serviced by Italian imports. • Other Footwear: Includes specialized athletic shoes, protective coverings, work boots, water shoes and house slippers.

Segmentation can also be considered by use.7 The footwear market can be segmented into:

• Athletic Footwear: Designed specifically for athletic purposes.• Leather Footwear: Includes town footwear, boots, sandals and clogs with leather uppers for women, men and children.• Sneakers: Also known as “athleisure”, this category features everyday footwear designed with a sporty look but where fashion outweighs function.• Textiles and Other Footwear: Models not made of leather and/or cannot be assigned to athletic footwear. Town footwear with textile, rubber or plastic uppers as well as rubber boots, flip flops and wooden clogs.

Shoe & footwear Manufacturing Source: IBISWorld

7. “Footwear Report”, Statista, July 2020.

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Figure 11 shows revenue per capita for each of these segments since 2012 and projected out to 2025. A close look at the figure suggests that three of the segments represent an ever-increasing share of per capita

Figure 11:Average Revenue per Capital in the footwear market

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0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Sneakers

The sneakers segment is the fastest-growing segment, with a projected CAGR of 7.9% from 2012-2025. It is projected to be the second-largest segment by 2025, trailing only textiles and other footwear. Athletic Footwear

Source: Statista Consumer Market Outlook, 2020. Presentation by Report Author

Source: Statista Consumer Market Outlook, 2020. Presentation by Report Author.

0

2

4

6

8

10

12

14

16

18

20

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Athletic Footwear

Athletic FootwearFigure 13: Revenue from Athletic Footwear Segment (Billions of U.S.$), 2012-2025

SneakersFigure 12: Revenue from Sneakers Segment (Billions of U.S.$), 2012-2025

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The athletic footwear segment is projected to grow at a CAGR of 5.2% from 2012-2025. Although projected to be the smallest segment in 2025, it has the second-fastest growth rate and will nearly have overtaken leather footwear by revenues by that time.

The leather footwear segment is projected to grow at a CAGR of -2.5% from 2012-2025. It is the only segment to post negative growth over this period. After its status as the largest segment in 2012, it will be nearly overtaken by athletic footwear to be the smallest by 2025.

The textiles and other footwear segment is projected to grow at a CAGR of 4.2% from 2012-2025, at which time it is projected to be the largest segment of the market.

Leather FootwearFigure 14: Revenue from Leather Footwear Segment (Billions of U.S.$), 2012-2025

Textiles and Other FootwearFigure 15: Revenue from Textiles and Other Footwear Segment (Billions of U.S.$), 2012-2025

0

5

10

15

20

25

30

35

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Leather FootwearSource: Statista Consumer Market Outlook, 2020. Presentation by Report Author.

0

5

10

15

20

25

30

35

40

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Textiles and Other FootwearSource: Statista Consumer Market Outlook, 2020. Presentation by Report Author.

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Source: Statista

D. U.S. Footwear Market TrendsThere are a number of trends that will have a bearing on the development of the U.S. footwear sector in the coming years. These include 1) continued growth in the athletic/athleisure segment; 2) a stronger orientation toward eco-friendly products; 3) mass customization; and 4) experientialisation. Growth in the Athletic/Athleisure SegmentAccording to the NPD Group, athleisure accounted for about 65 percent of new dollar value gains. Athletic footwear sales, in turn, are being driven in large part by increases in participation in athletic activities such as running and hiking; while the athleisure segment has been driven by an increasing trend toward casual clothing. Trends within the athletic footwear segment include innovations in sole technology and a growing preference for premium and customized products.8 Speed to market has also become a priority; with some companies (such as Under Armour) employing 3-D printing technologies to produce quality footwear more quickly.9 Athletic footwear sales, by volume, is shown in Figure 16.

Figure 16: Athletic Footwear Sales by Volume (in Millions of Pairs)

Mass CustomizationMass customization combines the benefits of mass production with the ability to allow the individual consumer to customize their final product, allowing the buyer to co-create the product they purchase. This is generally done either with an app, through a web interface, or in-store. An example of this is NikeID.10

ExperientialisationExperientialisation refers to dedicated retail outlets owned by a single brand that allows that brand more control over the customer’s in-store experience. They typically also generate faster turnaround times as well as more immediate customer feedback that can be incorporated into product design.11

Orientation Toward Eco-Friendly ProductsEco-friendly (or sustainable) production generally involves improved environmental practices along a company’s manufacturing and supply chain, which may include either the final product (Nike produces sustainable sneakers made of Flyknit material made from 50% recycled fiber)12 or more eco-friendly production practices such as plastics recycling. Consumers are increasingly willing to pay a premium price for a product that is perceived to be eco-friendly (see Figure 17).

71 91 129 150

183

249 284

311 336 358 378 393

0 50

100 150 200 250 300 350 400 450

2010 2011 2012 2013 2014 2015 2016 2017 2018 (e) 2019 (p) 2020 (p) 2021 (p)

8. “Top 3 Trends Impacting the Athletic Footwear Market in the U.S. Through 2020,” Technavio, August 2016. 9. “Market Analysis, Size, Share and Forecast 2018-2026,” Credence Research, October 2018.10. “Footwear Report”, Statista, July 2020. 11. Ibid.12. www.prnewswire.com/news-releases/sustainable-footwear-market-size-worth-11-8-billion-by-2027--cagr-5-8-grand-view-research-inc-301059115.html

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• Textiles and Other Footwear: Models not made of leather and/or cannot be assigned to athletic footwear. Town footwear with textile, rubber or plastic uppers as well as rubber boots, flip flops and wooden clogs.

Figure 17: Willingness to Pay for More Eco-Friendly Apparel or Footwear Amongst U.S. Consumers, 2018

Due in large part to the surge in athletic and athleisure wear, Nike holds a strong position among teens in the U.S. market (see Figure 18).

Figure 18: Leading Footwear Brands Amongst U.S. Teens as of Fall, 2019

No37%

Yes63%

No Yes

Source: Statista

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E. Principal Footwear Buyers in the U.S. Key players operating in the U.S. footwear market include Nike, Foot Locker, Skechers, Caleras, and Wolverine World Wide, Inc. The relative size of each, by turnover, is illustrated in Figure 19 below.

F. U.S. Footwear PricesFootwear prices in the U.S. vary dramatically. While prices in each category have generally trended upward since 2012 and are projected to continue doing so (see Figure 20), there are dramatic differences by cate-gory, both in prices and in projected growth. Athletic footwear and, to a lesser extent, leather shoes enjoy higher-end positions in the market; while sneakers are a more commoditized item. Meanwhile, while prices are projected to climb 44.5% in textiles and other footwear and 46.3% in leather footwear between 2012 and 2025, prices for sneakers will remain relatively flat while athletic footwear is projected to increase just 12.9% over the same period.

Figure 19: Leading Footwear Companies in the U.S. by Turnover, 2018

Source: Statista

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Figure 20: Price Trends by segment of Footwear Market

V. NON-TARIFF REQUIREMENTSA. AGOA Rules of OriginThe African Growth and Opportunity Act (AGOA) provides duty-free access to a wide range of products (over 6,400, including footwear) from sub-Saharan African (SSA) nations. AGOA was originally enacted in 2000 and renewed in 2015 for an additional 10 years. Duty-free access to the U.S. market is subject to a Rules of Origin (RoO) provision. This provision specifies that the imports to the U.S. must come directly from an SSA nation (rather than having transited first through a third country). At least 35 percent of the value of the product must accrue to the African nation from which it is being exported. This may include production and/or processing. Up to 15 percent of the final value of the product may be of U.S. origin, while inputs from other qualifying SSA countries may also contribute to meeting the 35 percent requirement. More details on AGOA rules of origin can be found on https://agoa.info/about-agoa/rules-of-origin.html

B. U.S. Footwear Import Tariffs for MFN, AGOA, AND GSPAs noted in Part A of this section, tariffs under AGOA have been lowered to 0% for the duration of the agreement, currently in force until 2025. Table 3. below summarizes the import tariff under Most Favored Nation (MFN), AGOA, and the General System of Preferences (GSP) for footwear products. This is a rele-vant consideration for East African exporters since, although AGOA can be a useful market entry mecha-nism, tariffs after 2025 may return to their pre-AGOA levels in the event that the accord is not renewed; making these tariffs an important strategic consideration for East African exporters as they make their determinations about how best to enter the U.S. market. Table 3: U.S. Import Tariffs Under MFN, AGOA, and GSP

Mechanism Import Tariff MFN 0 to 48%; some specific rates of duty are up

to 90 U.S. cents per pair AGOA 0% GSP Not applicable

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Exporters from East Africa should examine categories which have high Most Favored Nation (MFN) import tariffs, such as protective shoes, and examine how they can utilize AGOA duty-free benefits to be more price competitive in the U.S. market, although there are several other competing tariff preference programs. Exporters can look up the tariff rates on the USITC site https://hts.usitc.gov/

C. Import RegulationsAll imports must comply with Consumer Product Safety Commission (CPSC) regulations through laws such as the Consumer Product Safety Improvement Act of 2008 and the Federal Hazardous Substances Act.Manufacturers may not infringe U.S. patent and trademark laws on intellectual property protection, US labor laws, and health and safety legislation. This is described at greater length in the discussion on WRAP certifi-cation in section (b) below.

Companies within this industry are subject to environmental and anti-dumping laws related to the discharge of material waste of footwear inputs such as synthetic and leather made footwear.

Customs duties must be paid on imported materials. All importers must submit detailed manifests to US customs 24 hours prior to the cargo leaving the country of origin.13

All footwear imported into the U.S. requires the following documents for clearance:

• Commercial Invoice• Bill of Lading (Ocean Bill of Lading, Waybill, Cargo of Lading (Ocean Bill of Lading, Waybill, Cargo Receipt, or Airwaybill)• Packing List

In addition, standard commercial invoice requirements include the following:• Must be written in English • Invoice Date • Name of Purchaser• Name and address of Seller• Name and address of actual factory. If the invoicing party is the factory, this must be clearly stated on the invoice, for example “Factory is the invoicing party”• Country of Origin• Name of Buying Agent or Selling Agent • Purchase Order Number(s), Department Number(s), Letter of Credit number (if applicable) • Style Number from Purchase Order. • Description of the style as detailed below under Additional Invoice Requirements • Unit of Measure (number, pairs, dozens, etc.) • Quantity shipped • Net and Gross weight of the shipment • Shipping Marks and carton count (per Corporate Logistics Routing Guide) • Purchase price in the currency of the purchase with currency type specified. This must be shown either as the FOB/Ex-Factory price OR a breakdown by cut-make-trim and fabric• INCO Terms of Sale (FOB, CFR, etc.) • All discounts, and reasons for the discounts • All charges (packing, declaration fees, etc.) • United States Port of Entry to which merchandise is destined

13.Source: IBIS World.

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Additional invoice requirements for footwear include:• Style name/description • Gender of wearer/Size breakdown on Invoice

D. Standards and CertificationsBuyers of imported footwear in the U.S. generally prefer that the producing factory has some social com-pliance certification. The most commonly used standard for sewn products is the Worldwide Responsible Accredited Production (WRAP) Certification, which provides for safe, lawful, humane, and ethical manu-facturing. This includes several steps, including an application (made at a cost of $1,195), a pre-audit self-as-sessment, monitoring against WRAP’s twelve principles, evaluation, and certification. Qualifying production facilities will then be awarded WRAP certification at either the Platinum level (Platinum facilities have passed every audit with no corrective actions or observations and maintained continuous certification with no gaps between certification periods), Gold level (no issues and valid for12 months) or Silver (6 months, with minor issues that need be addressed). More detailed information about WRAP can be found at http://www.wrapcompliance.org/certification.

E. Packaging and LabelingAccording to the U.S. Customs Service, footwear must be: 1. Marked in legible English;2. Marked permanently and indelibly such as the nature of the article will permit; and3. If the words United States, America, USA, or any city or state of the United States appears on the foot-wear or shoe box, but is not the country of origin, the actual country of origin must appear in close prox-imity to the locality name in lettering of comparable size preceded by the “Made in,” “Product of,” or similar wording.

A textile label sewn on an inner seam or indelible ink stamp are accepted forms of marking. Both shoes in a pair must be marked. If a textile label is used, it cannot be folded over so that the country of origin cannot be seen easily.

All footwear must be listed in U.S. sizes. In addition to the number of pairs shipped in each size catego-ry (listed above), the first cost of each size category must also be included. The percentage breakdown of external surface area of the upper and outer sole and the type of leather used on upper are also required. If the leather is “Patent Leather,” provide the thickness of synthetic lacquer (plastic) of coating or lamination. If waterproof, provide documentation, and if sports footwear, provide sport for which it is designed.

VII. U.S. DISTRIBUTIONA. Supplier SelectionAccording to a recent survey of the fashion industry , supplier selection is generally based on three consid-erations; 1) speed to market; 2) sourcing cost; and 3) risk of compliance. The same survey suggested that sourcing costs are driven principally by labor costs. However, cost of raw materials and shipping costs fin-ished second and third in the same survey; pointing to the importance of logistics costs in U.S. firm sourcing decisions. In addition, 87.5 percent of firms suggested that ethical sourcing considerations are more import-ant than they were five years ago; and that they focus on three primary considerations, including 1) treat-ment of workers, 2) fire safety, and 3) building safety. These three items are covered in the assessment for social compliance certification such as for WRAP.

14. “2017 Fashion Industry Fashion Industry Benchmarking Study,” U.S. Fashion Industry Association, July 2017.

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C. Retail ChannelsRetail stores continue to be the dominant channel to reach consumers, due to their ability to offer a su-perior buying experience to the customer.15 Because consumers prioritize fit, size and quality when they make footwear purchases, their overwhelming preference is to try on products before buying. As a result, store-based retailing, which includes both apparel and footwear specialist retailers and sports goods stores, continues to show strong growth (see Figure 22).

Figure 22: Shoe Store Sales in the U.S., 1992-2018

Figure 21: U.S. Wholesale Market Segmentation by Revenues, 2020

B. Distribution Channels42.2% of all shoes are sold directly through retail outlets. Companies such as New Balance are vertically inte-grated and sell through their own stores. Wholesalers, which sell to retailers, are the next-largest channel ac-counting for about half (20.6%) the sales that retailers do. Interestingly, however, women’s footwear is dispro-portionately sold through wholesale channels. Although women’s footwear represents only about one fifth of the total market (see Figure 10, earlier) it represents over three-fifths of the wholesale market (see Figure 21).

15. Allied Market Research, 2015.

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make footwear purchases, their overwhelming preference is to try on products before buying.16 As a result, store-based retailing, which includes both apparel and footwear specialist retailers and sports goods stores, continues to show strong growth (see Figure 22).

Figure 22: Shoe Store Sales in the U.S., 1992-2018

While most retail sales continue to be made through brick-and-mortar stores, small online retail outlets are growing, which has enabled small online stores to provide footwear at a range of price points. Furthermore, some of the larger (brand) retailers are starting to move more aggressively into the e-commerce space, where growth in the U.S. has dominated online sales. For example, 41% of all sales at Nike.com were generated in the U.S. in 2019.17

Figure 23: Share of U.S. Consumers Shopping at Shoe Retailers as of 2019

16. Euromonitor, 2018.17. ecommerceDB.com, 2020

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VIII. SALES PROMOTIONA. KEY FOOTWEAR TRADE FAIRS

B. Key Industry Associations

American Apparel and Footwear Association (AAFA)AAFA was formed in August 2000 through the merger of the American Apparel Manufacturers Association (AAMA) and Footwear Industries of America (FIA). AAFA advocates for the interest of the apparel and footwear sector in the U.S., representing more than 1,000 world famous name brands, retailers and manufacturers and is the public and political voice of the apparel and footwear industry from throughout the United States and around the globe. AAFA works to ensure continued success and growth of the apparel and footwear industry, its suppliers, and its customers. AAFA represents hundreds of clothing, footwear, and sewn products companies and their suppliers and provides exclusive expertise in trade, brand protection, and supply chain & manufacturing to help members navigate the complex regulatory environment and lower costs. The Association provides members with several benefits including access to information and exclusive insights on regulation and policy, and opportunities for networking and collaboration.

* Note that due to COVID-19 most of these trade shows have been cancelled or postponed. Footwear Sourcing at MAGIC was delivered as an online trade event between September and December 2020.

DATE TRADE FAIR DESCRIPTION LOCATION REMARK

February 4-7, 2019 Footwear Sourcing at MAGIC *

Fast fashion footwear for men, women, juniors and children

Mandalay Bay Convention Centers, Las Vegas, Nevada, USA

Biannual event (February and August)

February 5-7, 2019 FN Platform Fair for luxury to lifestyle branded footwear for men, women, juniors and children

North Hall, Las Vegas Convention Center, Las Vegas, Nevada, USA

March 11-13, 2019

June 17-19, 2019

October 14-16, 2019

Transit: LA Market Week

Exhibition for fashion footwear

CMC Penthouse, 13th floor, B-Wing, Los Angeles, California, USA

Transit Footwear Exhibition in Los Angeles takes place five times a year

February 5-7, 2019

June 4-6, 2019

August 6-8, 2019

December 3-5, 2019

Fashion Footwear Association of New York (FFANY)

International shoe fair

Warwick New York Hotel, New York, New York, USA

February 25-27, 2019

Coterie Links women’s apparel, accessories and footwear designers with retailers

Jacob Javits Centre, New York, New York, USA

Another exhibition usually held in August,

February 27-28, 2019

August 6-7, 2019

August 14-15, 2019

The Materials Show

Trade show for shoes and sportswear

Portland, Oregon and Wilmington, Massachusetts, USA

Key Footwear Trade Fairs, (2019 editions)

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Footwear Distributors and Retailers of America (FDRA)

Founded in 1944, FDRA serves the full footwear supply chain and boosts the bottom lines of its members through innovative products, training and consulting on footwear design and development, sourcing and compliance, trade and customs, advocacy, and consumer and sales trend analysis for retailers selling shoes around the world. Members include the majority of U.S. footwear manufacturers, brands, retailers and importers. In all, FDRA supports nearly 500 companies and brands worldwide, representing 90% of total U.S. footwear sales. In 2020, FDRA took over management of the Fashion Footwear Association of New York (FFANY).

United States Fashion Industry Association (USFIA)The United States Fashion Industry Association (USFIA) represents brands, retailers, importers, and wholesalers based in the United States and doing business globally. Founded in 1989, USFIA works to eliminate tariff and non-tariff barriers that impede the fashion industry’s ability to trade freely and create jobs in the United States. Headquartered in Washington, D.C., USFIA is the voice of the fashion industry in front of the U.S. government as well as international governments and stakeholders. With constant, two-way communication, USFIA seeks to stay ahead of current and future regulatory challenges. Through its publications, educational events, and networking opportunities, USFIA also connects with key stakeholders across the value chain including U.S. and international service providers, suppliers, and industry groups.

United States Footwear Manufacturers Association (USFMA) United States Footwear Manufacturers Association (USFMA) is a nonprofit 501(c)(6) association founded in 1986 to protect and enhance the footwear industry’s manufacturing base in the United States. USFMA members include both domestic footwear manufacturers as well as domestic suppliers. As a whole, the domestic footwear manufacturing industry employs more than 12,000 workers.

IX. CompetitionA. Key CompetitorsCompetitors to East African footwear are numerous including the U.S. footwear manufacturing industry which employs 12,000 workers. China remains the dominant producer of imported footwear in the U.S., accounting for nearly half of all U.S. imports. However, it has been losing market share to Vietnam (up from 16.1% in 2015 to 25.8% in 2020. This is probably due in part to natural diversification away from China, but has probably also been spurred by increased tariffs (and/or the threat of increased tariffs) on Chinese-origin products. Indonesia, meanwhile, has also picked up market share (from 5.3% to 6.2% over the same period), although Vietnam remains the primary beneficiary due to its low labor and materials costs. Italy retains a small share but on the basis of a very distinct market position; relying on its reputation for high quality and strong brand recognition rather than low costs. Figure 24 shows the leading source countries for U.S. footwear.

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B. Critical Success FactorsAs noted earlier in the report, sourcing decisions are made largely on the basis of three factors; speed to market, sourcing cost, and risk of compliance. The following table was compiled by the U.S. Fashion Industry Association in its 2017 report. It presents a rough idea of how the Sub-Saharan Africa region-AGOA (SSA-AGOA) is viewed relative to other common sourcing alternatives. Five asterisks indicate performance that is far above average; three asterisks average performance; and one asterisk performance well below average.

Figure 24: U.S. Import Value of Footwear 2019, by Country of Origin

SOURCING BASE SPEED TO MARKET SOURCING COST RISK OF COMPLIANCE

USA ***** ** ****

Mexico **** *** ***

CAFTA-DR **** *** ***

China *** **** ***

Vietnam *** **** ***

Cambodia ** **** **

Indonesia ** **** ***

Sri Lanka ** **** ***

India ** **** **

SSA - AGOA ** **** ***

Bangladesh ** ***** *

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C. Prospects

The East Africa footwear sector will continue to face substantial competition from Asian producers, although U.S. domestic production is unlikely to represent an imminent threat due to its higher costs. The current trade tensions with China is probably helpful to East Asian producers, as U.S. footwear firms are more likely to diversify their production locations. The U.S. withdrawal from the Trans Pacific Partnership (TPP) may benefit East African exporters, as Vietnam was a signatory, and would have presented even greater price competition to East African exporters.

As we can see from Table 5. above, the region as a whole features competitive sourcing costs and average compliance risk, but below average speed to market. While this is partly a function of the region’s distance from the U.S. market, it is also partly a function of sub-standard logistics. Because the region’s speed to market will always likely be lower than average due to its landlocked geography and distance from the U.S. market, it will need to compensate through lower sourcing costs and high reliability on compliance. Additionally, East African exporters will need to review and adjust their current focus on leather footwear exports. These are particularly prominent in Ethiopia, which is probably the regional country best-positioned to compete with Asian firms given its low labor costs and access to local leather as raw material. Other countries can seek to identify tariff

categories offering maximum duty differential against MFN imports and focus on those. Finally, niche footwear products using styles and materials unique to East Africa, with superior workmanship, and timely delivery will enable East Africa to expand its exports in spite of strong competition.

X. Bibliography

“Footwear Market in the U.S.”, Statista, June 2020.

“Footwear in the U.S.,” Euromonitor International, March 2018.

“Footwear Report”, Statista, July 2020.

“Market Analysis, Size, Share and Forecast 2018-2026,” Credence Research, October 2018.

“Shoe Manufacturing in the U.S. Industry Report”, IBIS World, March 2020.

“Sourcing Snapshot: Global Footwear Manufacturing and Trade,” Sourcing Journal, August 2018.

“Sustainable Footwear Market Size, Share & Trends Analysis Report By Type (Athletic, Non-athletic), By End User (Men, Women, Children), By Region, And Segment Forecasts, 2020 – 2027”, Grandview Research, May 2020.

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For more information, contact:-

USAID TradeHubEast Africa Buy-In Activity

Email: [email protected]

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