Shoe factories in Russia are closing one after another

The shoe industry in Russia is in a severe crisis situation. A number of Russian shoe manufacturers have announced the cessation of their activities this year.

October became a month of alarming news about the sale or possible closure of two of the three factories (in Zlatoust and Orenburg) of one of the largest shoe manufacturers in the country, the Chelyabinsk shoe holding Yunichel.

But following this big news, practically unnoticed in the media, information about the real closure of the Francesco Donni shoe factory in Bryansk came. The Bryansk factory (AO Stella Plus) existed since 1950. The Bright company, developing the Francesco Donni shoe brand, acquired the factory in 2000. The enterprise produced more than 300 models of the brand's shoes.

2024 turned out to be a fruitful year for shoe manufacturing closures across the country. In Kaluga, the Romer shoe factory, with a production capacity of about 470 thousand pairs of shoes per year, ceased to exist. Several more shoe factories in Rostov-on-Don closed.

Medium and small shoe factories are closing down, followed by workshops producing components, workshops making shoe lasts, insoles, and blanks; the entire industry is collapsing like a house of cards.

Causes of the crisis

For large businesses, such as Yunichel, which was one of the three largest manufacturers in Russia, according to the holding's CEO Vladimir Denisenko, a serious factor in reducing production sites was the rise in the cost of loans, as well as increased competition due to the growth of shoe imports from China.

According to statistics from the General Administration of Customs of the People's Republic of China, imports of goods from China to Russia increased by 11% year-on-year in the first 2024 months of 4. Footwear, along with electrical equipment and plastics, ranks third in terms of the volume of Chinese goods supplied to Russia.

It is worth noting that the increase in the key rate of the Central Bank of the Russian Federation in 2024 directly affected only large manufacturers, since medium-sized companies engaged in the production of footwear in the country, according to market participants, are generally not credited. As for the growth of competition from imported products from Asia, this affected everyone, primarily due to the initially unequal conditions.

China, which is the world center of light industry and accounts for 56% of the world's shoe production, wins over Russian manufacturers in terms of infrastructure, availability of the most modern technologies, and shoe production costs. So many Russian brands of shoes and leather accessories prefer to place production in factories in the Celestial Empire rather than within their own country.

"Chinese factories can often offer better prices due to large-scale production and optimized processes; in China, manufacturers adapt faster to new fashion trends, offer different options for components to implement any idea; Chinese manufacturers are constantly improving their equipment and technologies, which ensures a high level of quality...", - comments on her choice in favor of manufacturing products at Chinese factories Maria Baranova, co-founder and designer of the Russian brand of shoes and bags Povod.

In the context of sanctions, in order to avoid a shortage of foreign brand products, Russia opened up the possibility of parallel imports and loosened its grip on control over unaccounted and counterfeit products, market participants believe. The consequence was an increase in counterfeit and grey imports.

Thus, at a recent meeting of the National Shoe Union (NOBS), business representatives drew attention to the presence on the market of a branched network of stores called "Funny Prices", where they sell sneakers of famous brands at a price lower than the manufacturer's, and you can pay for the purchase by transferring to a card or in cash, "bypassing the checkout". Adidas sneakers at suspiciously "funny prices" can be found on marketplaces and even in their outdoor advertising, and, of course, at wholesale clothing markets throughout the country...

Domestic manufacturers cannot cope with the flow of cheap imports, and domestic shoe production becomes economically unprofitable. Entrepreneurs decide to leave the industry and reorient themselves to development in other areas. It turns out to be more profitable to invest money in deposits than to develop production activities.

The problems are growing

Shoe manufacturers in Russia have been talking for many years about the industry's pressing problems - the lack of special educational institutions, vocational schools that would train specialists to work in factories, the difficulties in finding personnel; the high cost of replacing equipment at the enterprise, to which are now added problems with purchasing spare parts in Europe...

“Replacing equipment with new Chinese equipment requires serious investments, and becomes a difficult task in a period when the entire shoe industry, from leather manufacturers to shoe production and bottom parts, is operating at zero or incurring losses,” notes Vladimir Timofeev, CEO of Moscow shoe manufacturer Giotto.

Today, difficulties with the logistics of components and with conducting payment transactions are also noted.

"Due to problems with production and logistics of components, we were unable to fulfill 100% of all our customers' requests; we offered some replacements from our other hit models. Most market participants are understanding of this situation, because it is a common problem," says Nikolai Troitsky, Commercial Director of the Russian shoe manufacturer Burgerschuhe.

To all these and other difficulties is added the increased tax burden. In addition to mandatory labeling, which increases the costs of companies, not so much due to the high cost of the labels themselves, but because of the need to hire additional personnel who carry out the labeling process (the Giotto factory employs three such specialists), market participants expect an increase in the tax burden in 2025.

From January 1, 2025, organizations and individual entrepreneurs on the simplified tax system are recognized as VAT payers. Only those whose income for 2024 does not exceed 60 million rubles are exempt from this obligation. The introduction of 5% VAT for the simplified tax system significantly increases the cost of production, so 2025 may be even more difficult for the industry.

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Leather and footwear

It is worth noting that under the conditions of European sanctions, since 2022, domestic tannery producers have been deprived of the opportunity to export their products abroad. Until 2022, Russia was among the top five countries in the export of finished leather. As Alexandra Andrunakievich, Director General of the Russian Union of Tanners and Shoemakers, explains, our leather was in great demand in Europe due to the optimal combination of price and quality. But finished leather is now subject to sanctions, and exporting products to Europe has become impossible, and for China and India it is expensive. Moreover, India has introduced a 10% duty on all imports of finished leather. But tanners also cannot count on selling their products on the domestic market.

The production of footwear with leather uppers in Russia this year has decreased by 6,2% year-on-year, and the reduction in the volume of leather children's footwear has reached 8,6% year-on-year, Alexandra Andrunakievich cites statistics.

Naturally, with the reduction of production, the development of tanneries is paralyzed. Other related industries are also suffering - workshops for the production of shoe lasts, soles, and shoe blanks, - notes Nikolai Troitsky, Commercial Director of the Russian shoe manufacturer Burgerschue.

What can help?

Against the backdrop of a sharp decline in the production of footwear for the population, especially children's footwear (the decline in production volumes over the past three years has amounted to 30%), the experience of the Republic of Uzbekistan looks positive.

As Alexandra Andrunakievich noted, Uzbekistan, in order to develop its own footwear industry, reduced the tax burden on shoe manufacturers, zeroing out all taxes except VAT, and this bore fruit: in a few years of protectionist policy, Uzbekistan has become one of the world's leading manufacturers and supplies its products to 42 countries.

"Perhaps, introducing such a measure in our country for at least 3-5 years would allow our shoe industry to survive," she suggests. In Turkey, the national association of shoe manufacturers TASD, having drawn attention to the difference in the cost of shoe production within the country and in China, addressed its government with a number of proposals to support domestic production. It was proposed to reduce taxes on the import of raw materials and components for the shoe industry; the tax burden on companies engaged in shoe production; introduce strict control over the flow of illegal products and counterfeit goods; provide opportunities for long-term financing at a low interest rate for companies that, despite difficult economic conditions, continue to invest in the development of production and the renewal of the technological base.

The gap in operating conditions for companies operating by the rules and for those operating in the shadows on the Russian market has become so large that it threatens the existence of domestic production, says Armen Avetisyan, founder and owner of the shoe company "McFine" and the shoe manufacturing enterprise "Taltex". To level the playing field, the state should ease the tax burden on light industry enterprises.

"It is very difficult for domestic producers to compete with importers at the current rates of tax on wages," he says. "In Russia, we have a number of regions that are recognized as territories of advanced development (TD), where there is a special tax regime, and tax rates on wages do not exceed 8,5%. If we want to preserve light industry, taxes on wages must be reduced to this level. Otherwise, light industry will be completely given over to China."

Another important support measure, in his opinion, could be subsidized loans: "Currently, such subsidized loans are issued only for the purchase of equipment, but in the current situation, they are also needed to replenish working capital. Because the issue is not closed by purchasing equipment alone."

Pessimism and confusion

The bankruptcy of the largest shoe manufacturer in Russia, Ralf Ringer, which owns 4 factories in the country, was alarming news for the industry.

The company has been litigating with the tax authorities for the past three years; the company is accused of failing to pay insurance premiums, taxes, fines and penalties totaling hundreds of millions of rubles. The seizure of accounts by the Federal Tax Service prevented the company from paying its debt for renting production facilities at the Taldom Shoe Factory, and the landlord, the Stivali company, filed for bankruptcy of Ralf Ringer JSC in June last year due to a debt of 20,7 million rubles. On December 6, the court granted the request, and bankruptcy proceedings were launched against Ralf Ringer JSC.

The founder and head of Ralf Ringer, Andrey Berezhnoy, said that the bankruptcy of JSC Ralf Ringer did not affect the company's operations, since all key business processes are now carried out through other legal entities. He noted that since November 2021, Ralf Ringer has been challenging additional tax assessments, which it considers "completely unfounded" and has managed to achieve a threefold reduction in the disputed amounts; the proceedings are ongoing. Berezhnoy emphasized that the business itself "is functioning and will continue to function."

Not all domestic manufacturers have such a “combat” installation in all senses. Most of them look to the future with pessimism and confusion.

“If the current situation continues in the next 3-5 years, there will be no shoe industry in Russia,” says the owner of one of the small shoe brands, with production in St. Petersburg.

Editorial Office Shoes Report sent an appeal to the Ministry of Industry and Trade aleatherg for comment on the situation, but the request remained unanswered.

Marina Shumilina