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What Is Footwear Industry Analysis?

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  • Written By: A. Garrett
  • Edited By: John Allen
  • Last Modified Date: 21 November 2016
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Footwear industry analysis is the study of financial statements, market data, and industry trends to determine the financial health of the shoe industry. Entrepreneurs, investors, and financial advisers employ footwear industry analysis to identify the most profitable segments of this economic sector. Proper footwear industry analysis requires research that helps financiers understand the nature of the industry and analysis techniques that allow the researcher to discern meaning from such facts and figures. After data is obtained and reviewed, users of footwear industry analysis create projections for future market, revenue, and profit growth. If footwear industry analysis reveals that the factors influencing profitability are favorable, the business or investor will likely commit capital.

Research is an integral aspect of footwear industry analysis. People who use industry analytics need to know the history of the field, the most influential companies and special interest groups associated with the segment of the shoe industry they want to invest in, and how general business cycles affect revenue and profit. Such footwear industry characteristics influence how the evaluator perceives the industry. Consequently, the data obtained must be accurate and timely. Conductors of footwear industry analysis typically use trade magazines, business publications, and published financial reports as information sources.

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The information gathered for footwear industry analysis is used to determine competition levels, consumer buying power, barriers to entry, and supplier influence. Identifying key companies and market share totals throughout the footwear industry allows analysts to see how saturated with competition a market segment is. This information is usually found in industry reports published by leading business magazines. If a particular segment has too much competition, companies have to spend more money on marketing and product features that distinguish their shoes from others in the field. Furthermore, competition makes consumers more sensitive to price and increases their buying power because there are other shoes they can purchase.

Businesses seeking to enter a market for the first time use footwear industry analysis to delineate barriers to entry that increase costs. To do this, they learn about the nature of the shoe business through trade magazines and industry reports. For example, manufacturing represents one of the biggest costs shoe companies have. Mass production decreases costs per shoe, however a company first entering the industry must spend heavily on the technology, employees, and infrastructure needed to yield such quantities. Footwear industry analysis helps the expanding company see these costs so they can decide if they can afford to venture into the new market.

Understanding the history of the shoe business also shows entrepreneurs and venture capitalists that the industry is dependent on a supply chain. For example, manufacturers need raw materials to produce shoes. Retailers need to be supplied shoes in order to exist. As a result, suppliers have bargaining power that they can use as leverage when negotiating contract terms. Reviewers then look at the income statements of companies operating within the market segment to see the impact of such leverage on profitability

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