Opportunity in the Designer Shoe Market
Team #4: MIS 5403 DESIGN INQUIRY AND RESEARCH
Tom Finnerty
Sayanti Saha
Alan Kibler
Joann Kambaja
Sean DeBoer
Counterfeit Shoe Market
• Primarily consists of shoes with low quality
materials that are branded overseas with risk of
seizure by U.S. Customs and local law enforcement
• Opportunity to provide higher quality counterfeit
shoes that are branded after being imported. This
results in more profit per shoe, and no risk of
seizure by U.S. Customs
Research methodology
Primary Research
Primary research was largely made up of
interviews (7 retail client & 3 retail vendors)
and fieldwork from site visits (5 marketplaces).
Key insights derived from the primary research
were:
86% of retail clients mentioned price
as the main driver for buying
71% mentioned fashion or status as a
driver for purchasing
Validation through secondary
research
The team validated the insights deducted
from primary research through the use of
online secondary research. Articles and
academic journals validated information
about the supply chain, and provided
additional insights into the risks of being
in the counterfeit shoe business.
87% of counterfeit goods are imported
from China
When asked, interviewees prefer price
and comfort over quality
2 of 3 retail vendors provided insight
into tiered quality levels of knock-offs
1 of 3 retail vendors identified direct
order of inventory online from China as a
competitive advantage
4 of 5 market places were near public
transportation
All prices were negotiable; average price
point = $25
It is quite simple to order directly
from China via online channels
MSRP of seized footwear: FY13 =
$54.9 million, FY14 = $49.5M
U.S. Customs, Border Protection, local
law enforcement agencies present the
greatest risk to the business
Continued Secondary Research
Continued online research enabled the team to
gather more insight into the counterfeit shoe
market, and the magnitude of the risks
associated with conducting business
operations. Some of the major risks include:
 Seizure of material amounts of inventory
 Factories shut down by authorities
 At most, 10 years in jail for trafficking
counterfeit goods/marks (brands) & a $2
million fine
 Minor crime for retailers
Additionally we explored the various online
sources to find information related to pricing
at all levels of the supply chain. From this we
were able to develop hypothetical financial
statements and explore potential business
opportunities to enter the counterfeit shoe
market.
Footwear market and forces
$200B Global footwear
market (genuine)
$48B
$152B
United
States
Other
Counterfeit Market Forces
• Customers do not realize they are buying subpar materials that are often ill-fitting and can
lead to injury
•
Putian, China houses a large counterfeit
designer shoe industry that operates with
impunity
•
Local counterfeit vendors can be bypassed by
the factories in China selling directly to
customers via online websites
Authentic shoe market is highly competitive and fragmented,
with few major players and an endless array of smaller players
Profiles of buyers and sellers
The Bargain Hunter
(The Buyer)
The Closer
(The Vendor)
The Connector
(The Wholesaler)
The Innovator
(The Brander)
“There’s no such thing as
fake. Anything I can use is
“real”
Stacy
33
Philadelphia, PA, USA
Divorced
1
Bachelor’s Degree
$60,000
Buying a home
Getting daughter into a
good school
“When I put out these shoes,
girls snatch them up!”
“Anything you want, I got. We’ll
give you a good price too!”
“If there currently isn’t a
way, make your own”
Rob
35
Philadelphia, PA, USA
Single
3
High School Diploma
$35,000 - $60,000
Having a legitimate business
James
56
Hong Kong, China
Married
2
Unknown
$70,000
Creating a legacy for the family
Janelle
28
Toms River, NJ
Single
0
Bachelor’s Degree
???
Making a name for herself
Needs
Financial stability
Financial stability
Financial stability
Financial stability
Desires
Current styles at a low price
To be seen as a fashion icon
Multiple bills
Overlooked for a promotion
Conflict of interest w/ exhusband regarding daughter
To make more money and expand
business
Retire without stress
Employees leaving company due to
many wholesalers in business
Getting older and son does not want
business
Validation from industry
Frustrations
Money, money, money
Seen as successful provider by
children
Not receiving timely shipments
Behind on monthly child
support payments
Does not see children often
Name
Age
Location
Marital Status
Children
Education
Income
Goals
Lack of connections
Lack of experience in
industry
Market systems and operation
Intellectual property (designs, molds,
and shoe blueprints) “obtained” by
counterfeit manufacturers
US import locations
Counterfeit shoe
manufacturers
Genuine shoe
manufacturers
Seized branded
counterfeit shoes
Customers bypass steps
late in distribution chain
by ordering directly
online
Direct Online
Orders
Distributors supply
counterfeit shoes
to vendors
Branded counterfeits stored in
warehouse
Laborers attach brand logo
to unbranded shoes
Branded designer
counterfeit shoes
Unbranded shoes
based on genuine
designs
Wholesalers
purchase inventory
Customers purchase shoes
from vendors and small shops
Vendors display
shoes for sale
Green arrows denotes the business opportunity
Financial data
Price Buildup vs Competition
Profit Margin
Research was performed to build the most
accurate representation of our $100 replica
designer shoe:
Competition
Manufacture &
Ship
Importing Costs
Freight Insurance
Taxes (10%)
Arrival Cost
Building &
Laborer
Fabric for Brand
Mark
Shipping
"Tax"
Risk 25% markup
Profit
2% Seizure
capture/cost
Dist. Markup
Whole Sale Price
Retail Markup
Sale Price
Our Shoes
Branded
$/shoe
% of
Rev
Unbranded
$/shoe
% of
Rev
25
0.7
0.4
2.5
29
50%
1%
1%
5%
57%
50
0.7
0.4
5.0
56
40%
1%
0%
4%
45%
0.4
1%
1.0
1%
0.0
0.8
0.5
7.2
4.3
0%
2%
1%
14%
9%
0.3
0.8
0.5
14.0
24.9
0%
1%
2%
11%
20%
0.9
13.9
42.6
7.4
50.0
2%
28%
85%
15%
2.0
43.4
99.5
25.5
125
2%
35%
80%
20%
The buildup in pricing on a per shoe basis yields
$40.9 in profit versus the already branded Middle
Man Markup of $10.6. This increase in profit
margins clearly makes up for the greater
investment in higher quality shoes
24.9
2.0
40.9
33%
Price Structure
100%
100%
15%
20%
28%
Capture 2%
seizures
percentage
through sending
unbranded
through
customs
35%
57%
45%
10.6
Branded
14.0
Risk
21%
Profit
2% Unbranded PreSeizure
MM
Branded
Markup Markup
Retail
Unbranded
Distributor
Arrival
Even with our higher price, retailers are
incentivized to sell our post-customs branded
shoes as the margins gained are 5% higher
than the already branded imports
Financial data (continued)- Shipping & Insurance costs
Shipping Costs
Containers Specifications
20' Dry Cargo Container
SPECIFICATIONS
8'6" STANDARD
Asia to California
(ship)
California to New
York (truck)
Inside Cubic Capacity 32.8cu.m (1,158 cu.ft)
Cargo Capacity
21,640 kg (47,716 Ibs.)
Tare weight
2,360 kg (5,204 Ibs.)
OUTSIDE:
INSIDE:
Length
6.05m (19.88 ft)
5.90m (19.35 ft)
Width
2.44m (8.00 ft)
2.35m (7.71 ft)
Height
2.59m (8.50 ft)
2.38m (7.80 ft)
2.28m (7.48 ft)
Width
2.33m (7.64 ft)
Total Costs
Total Days
$864
$2,000
$1,289
$4,153
40
$0
$4715.60
$0
$4715.60
5
Insurance Rates
Cost per item
Basic Coverage Insurance Rates -
For Example: a policy for basic coverage for a domestic
shipment of Computers worth $5000 shipping by Land, would
cost $62.50 ($5000 divided by 100 = 50 x $1.25 rate = $62.50),
see column highlighted yellow in the domestic rates table
below.
Rates are per $100 value of insurance coverage
For Total Loss Coverage Deduct $0.25 cents from the Basic coverage rates
below.
Boxes
boxes of shoes per
container
Import Costs
for INTERNATIONAL Shipments (Outside US & Canada)
Height
Pallets per container
Transit Costs
Domestic transit costs are calculated from LA California to New York New York an estimated distance of 2807 miles.
The American Transportation Research Institute estimated an average cost per mile for freight trucking of $1.68 in 2013.
See their report for more information. According to Section 395 of the Federal Motor Carrier Administration safety
regulations, a driver may drive up to 11 hours during any 24-hour period. Estimating an operating speed of 40 miles per
hour, an estimate of 5 days transit time is derived.
DOOR SIZE:
Boxes of shoes =
Export Costs
For ALL Risk Coverage Add $0.80 cents to the Basic coverage rates below.
360
17
6120
per pallet
pallets per 20 ft
container
per 20 ft container
COMMODITY CATEGORY
OCEAN
AIR
General Merchandise
0.87
0.81
New or Used Machinery
0.87
0.81
Household Goods
2.59
2.49
Fragile Goods
4.55
3.22
Computers/Electronics
1.92
1.67
Fine Arts
2.59
2.49
Rate per item
# of shoes
Cost per pair
Cost of Shoes
Insurance rate
Divide by 100
Insurance per shoe
6,120
$50
6,120
$25
$306,000
87%
100
2,662.2
0.435
$153,000
81%
100
1,239.3
0.2025
Conclusion and recommendations
 Provide higher quality counterfeit shoes



Better materials, better shoes
More profit per shoe
Differentiate from majority of vendors both online and
local vendors offering low quality shoes
 Affix brand logo after import

no risk of seizure by U.S. Customs
 Establish a U.S. warehouse, tap into supply of highquality knockoffs and hire laborers to begin affixing
brand
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