SHOE factories, considered an unessential economic activity during the full movement-control order (MCO 3.0), are facing cash-flow problems after suspending business and reneging on delivery orders.

Only several shoe factories out of the 550 members of the Malaysian Footwear Manufacturers Association are permitted to operate as they make footwear for front-line personnel, said association president Rachel Foo.

“These are factories making shoes for police, medical staff and civil servants. Only these manufacturers have permission to operate, but their number is small, while all the others are suspended,” she said.

As people are working mostly from home and the lockdown discourages leaving the house except for essential tasks, shoe retailers have cut down on orders this year.

Foo expressed worry that a majority of shoemakers, along with most other economic sectors, will only be allowed to reopen in the third phase of the national recovery plan, which could only be after August if key indicators such as a drop in daily Covid-19 cases to below 2,000, and 40% vaccination coverage of the population is met.

“The footwear industry will not be able to sustain until that long. Which sector can? I am afraid that 90% of the industry will fall into cash-flow difficulties and the risk of bankruptcy,” she said.

Those who are mulling a suspension on operations while letting go of workers are also worried they will not be able to recruit workers in the future.

And while the government is encouraging businesses to negotiate with banks for loan moratoriums or to reschedule payments, the reality is much harder.

“When members take the initiative to approach the banks, they get answers like ‘no instructions from the head office’.”

Perak Footwear Industries Association chairman Lee Min Choy agrees with Foo that the third phase of the recovery plan is too late to let the footwear industry resume operations.

In addition to the cash-flow problem, he said, manufacturers also face raw material losses.

“Polyurethane (used to make shoes) has a shelf life. If it is stored for too long, it will oxidise.

“This material accounts for 40% of the cost in shoemaking, so if it can’t be used, manufacturers will face great losses,” Lee said.

Lee’s shoe factory, which has export orders from Indonesia, Singapore and Thailand, has also had difficulties meeting delivery schedules, especially after the initial lockdown from June 1 to 14 was extended until June 28.

“How are we to tell our buyers that our national recovery plan will only allow us to operate in the third phase?” said Lee, whose factory has lost at least RM400,000 in cancelled orders.

“Continuous cancellation of export orders will make it difficult for domestic shoe factories to compete with other countries. Buyers will go elsewhere and not return to us.”

Government doesn’t understand shoemaking sector

Lee said Putrajaya should have understood the footwear manufacturing industry first before deciding on prohibiting operations except for those making front-liners’ shoes.

This is because the majority of Malaysian shoe factories are small in size with 20 to 50 workers, compared with larger factories in other manufacturing sectors contributing to workplace virus clusters.

“As far as I know, no shoe factory or shoe store has been in a virus cluster or has had infections this year,” he said.

A better way to manage work places like factories, is to permit operations based on the Covid-19 zone colours, where green is used to denote an area with no cases. Factories in green zones should be allowed to operate, Lee suggested.

“For example, the number of cases in Ipoh, Perak, has continued to decline over the past few days. There are about 200 shoe factories in the area, 30% of which hold export orders.

“They should be allowed to prioritise their operations to meet orders, otherwise the orders may be cancelled or they will have to pay compensation.”

Malaysian Footwear Manufacturers Association vice president Michelle Kok described how the current lockdown has affected a shoe factory in Kuala Lumpur.

Work to make orders for July and August cannot be started, while goods that were to be delivered earlier are stuck in the warehouse since the factory is not allowed to operate.

“We have goods we cannot shop, and orders we cannot start production for, yet all loans and employees’ salaries still have to be paid,” Kok said.

The month-long lockdown will cost the factory RM500,000, she estimated. Even if its loans are given a three-month moratorium, the factory now has no income.

The market is also weak and Kok does not foresee consumers coming out to shop for shoes after the lockdown.

“With so many factors, I just can’t see clearly what the way forward is.”

Online sales tough

Shoe retailers, meanwhile, have taken a 50% to 70% hit to business, said Foo.

Throughout a year of pandemic when physical shops were open for only a few months, high heels and slippers were the worst-performing in terms of sales, but sports sneakers did well.

Well-known shoe brand Larrie, which is found in shopping malls across Malaysia, is using e-commerce platforms to sell its footwear during the lockdown.

But it is tough-going as most people are wary of buying shoes without being able to try them.

Larrie marketing director Lanson Chong said e-commerce platforms only contribute about 5% of sales.

“It’s a small share but there is no other way to do it, otherwise stock will accumulate.” – June 25, 2021.