Value Drivers for a Shoe & Footwear Manufacturer
Shoe and footwear manufacturing businesses are largely held overseas. As such, during the covid-19 pandemic, this industry was significantly impacted due to international trade shutdowns. Imports of shoe and footwear products include 95.9% of the industry. Even with the industry taking a hit in 2020, the annual growth projected is 1.9% over the next five years. As such, now is a great time to enter the industry or exit. Whether buying, selling, or growing, understanding the value of a shoe and footwear manufacturing business is important. This includes understanding key value drivers for a shoe & footwear manufacturer.
Peak Business Valuation, business appraiser, is happy to help with your business valuation. We want you to feel confident in the transaction of your shoe and footwear business. To schedule a free consultation, contact us below.
Value Drivers for a Shoe & Footwear Manufacturer
Below are a few of the main value drivers for a shoe and footwear manufacturing business. A value driver is what drives success for a business. Knowledge of these will help you take steps in the right direction to increase the value of your shoe and footwear manufacturing business. For questions, schedule a free consultation with Peak Business Valuation, business appraiser.
Product Mix
The simplest value driver to think about for a shoe & footwear manufacturing business is the product mix. This is what you are manufacturing. A shoe manufacturer produces all types of shoes. Each season brings new styles, trends, or fads. This can be hard to keep on top of, but that is why it is so essential. A shoe & footwear manufacturer that understands what products a consumer wants are more successful.
Consider expanding your product mix as well. The shoe industry leaves room for creativity. A marketing team should create a diversified product mix that will entice consumers to purchase. When valuing your business, a business appraiser will compare your product mix to similar companies and industry averages.
Recurring Revenue
One of the most important value drivers for a shoe and footwear manufacturing business is recurring revenue. Most of a shoe manufacturer’s revenue comes from recurring revenue sources. Oftentimes, shoe and footwear retailers make contracts with manufacturers to produce their products. Footwear retailers make up 51.1% of the market. This means recurring revenue is crucial. Getting in with big retailers who supply to large markets will increase profits. Recurring revenue is extremely beneficial to a shoe & footwear manufacturer because it means consistent income.
Consistency in revenue encourages a higher fair market value for a business. Recurring revenue sources means less time spent marketing your business to retailers or wholesalers. Marketing can be extremely costly and time-consuming. Recurring revenue is a great way to increase the value of your business while decreasing expenses.
When receiving a business valuation, a business appraiser at Peak Business Valuation will distinguish revenue sources. Recurring revenue increases the value of a business. This is because potential buyers want consistency. Focusing on this key value driver will not only increase the value of your business but increase profitability.
Price
Pricing is key in the footwear manufacturing industry. Your price determines your customer. The quality of your products will also determine your price. As a shoe & footwear manufacturer, be sure to set expectations from the beginning. Every type of shoe is different and requires different materials. The quality of products is a big determinant of the sale price. The better the products that go into making a shoe, the higher the price. Price will influence the type of consumers your business works with. Strategic pricing can help you attract the right retailers and consumers while maximizing your profitability. A valuation expert will look at financial ratios and profitability margins when valuing a shoe and footwear manufacturing business.
Overseas vs. Local
In 1980, the majority of shoe & footwear manufacturers moved their factories overseas. The cost of production is astronomically cheaper overseas. However, there are still shoes made in the United States. For example, shoes for the military are produced in the States, alongside most small businesses. Running an overseas shoe & footwear manufacturing business comes with its own set of challenges. An international team is necessary to run the daily operations of the factory alongside the stateside staff. While importing is not uncommon, it comes with its set of challenges. For example, tariffs can be placed on certain products to encourage locally made products. This can create difficulties for shoe & footwear manufacturers as it increases expenses.
Determine what works best for your business. This value driver will most definitely make or break your business. Almost all well-known shoe retailers produce their shoes in China, Vietnam, or Cambodia. Determine what your consumer wants and consider pricing for both. Ultimately, looking at what keeps costs down and revenues up is most important.
Technology Advances
Last of all is technological advances. Technology is ever-changing and expanding. It can be especially beneficial for the manufacturing industry. Manufacturing is all about production. The faster your business can produce a product, the better. Machines and equipment are readily available for shoe & footwear manufacturers. While technological advances can be costly at the beginning, they will optimize the efficiency of the business. Technology is also great for tracking progress, projects, and employees. Understanding where your efficiency lacks is the first step. A valuation expert will look at efficiency ratios when valuing your business.
Summary
In conclusion, a shoe and footwear manufacturer needs to understand key value drivers to remain on top of the competition. There are many things to consider when valuing a shoe & footwear manufacturing business. Key value drivers play an important role. While supplies continue to be short, the shoe & footwear manufacturing industry continues to grow. There will always be a need for this industry but finding your company’s niche is where success lies.
If you have questions about the value of your shoe & footwear manufacturing business, consider receiving a business valuation from Peak Business Valuation. This will uncover key value drivers that your shoe & footwear manufacturing business is lacking or could improve on. A business valuation is also a great way to understand a fair market value for your business. Whether buying, selling, or maximizing the value of your business, a valuation is a great place to start. For more information, schedule a free consultation today.
Be sure to also check out Valuing a Shoe & Footwear Manufacturing Business, as well as Valuation Multiples for Shoe & Footwear Manufacturing and How to Value a Shoe & Footwear Manufacturing Business.
