Shoemaking in Portugal declined 40%

The troubles of Portugal's shoe-making industry one of the country's main exporters illustrate the challenges that the country has faced over the past decade. China's entry into the World Trade Organization opened the floodgates of cheap imports just as the euro's relatively high value priced Portuguese products out of the market. Other traditional industries, such as textiles and clothing, were similarly affected.

Since 2001, the country's shoe production shrank by 40% to 63.7 million pairs, as sales dropped to euro1.3 billion from euro 1.9 billion, according to industry statistics. Closed-down shoe factories, some of them with broken windows, line up the roadsides in the industry's hub around this town in northern Portugal.

In places like Italy or Switzerland, large, well-capitalized shoemakers have managed to offset the Asian competition by creating global luxury brands, and making up for lost volume with premium prices.

For Portugal, Western Europe's poorest country, this has proven difficult to pull off. Despite investments, Portugal's old reputation for cheap, shoddy footwear still lingers. "The markets do not have the correct perception of the quality of Portuguese products," lamented Alfredo Jorge Moreira, executive director of APICCAPS, the country's shoe and leather producers' association.

Portuguese shoe companies are usually small family-owned firms and they simply lack the scope and resources to launch a global brand of their own, said Leandro de Melo, director of CTCP, the Portuguese footwear industry's technology and research center. "A lot of money is necessary to create an image, and we haven't been able to do that yet," he said.

Employees work at the J. Sampaio & Irmao shoe factory in Felgueiras. Shoes are a major export for the country, but the industry is suffering.
One of the few Portuguese companies that has tried developing an international brand is J. Sampaio & Irmao, which makes the Eject line of bright-colored women's shoes. Despite the national strike, local women in blue overalls toiled Wednesday on stitching machines amid the acrid smell of glue in the company's small Felgueiras factory, tucked in the vine-covered hills of northern Portugal.

Margins are low because, with 300 different models, the factory produces as few as 100 pairs of each type. Sampaio, which sells some euro10 million worth of shoes a year, virtually all of them outside Portugal, hasn't had a profit for two years, said the owner and CEO, Joaquim Carvalho.

The company is now forced to reduce spending on investment and marketing, further undercutting its ability to break out into the premium leagues. "The whole country is tightening its belt, and so are we," Mr. Carvalho said. "Consumers are scared to buy because they fear they may become unemployed tomorrow."

Funding, relatively easy to get a year ago, has also dried up, Mr. Carvalho said: "The Portuguese banks themselves don't have any money and they don't give it to us." Though the company doesn't rely on Portugal for sales, it's far too small to tap international capital markets and remains hostage to Portugal's liquidity crisis.

Portuguese officials insist the crisis isn't justified, and that the markets are lumping their country with Greece and Ireland unfairly. They point out that the deficit is relatively low and, despite the previous round of austerity cuts, the economy grew a relatively healthy 1.5% in the third quarter. "Portugal has historical problems with growth, but we're sorting them out. We're changing the structure to high-value-added products," said Joao Galamba, a lawmaker with the ruling Socialist Party who sits on the finance and economy committees. "The problem," he added, "is that it takes time."