Eyes on Turkish shoe brands amid debt issues

A number of Turkish shoe brands have recently announced debt restructuring plans one by one, from Hotiç to Yeşil Kundura and Beta. Another chain, Shoes Center, announced its plans to exit the market by closing down its stores.

Shoemaking is in fact one of the most crucial sectors of the Turkish economy. Turkey is the fifth biggest shoemaker in the world with the capacity of making 500 million pairs of shoes on an annual basis. The country makes nearly $1 billion worth exports annually of its $5 billion worth output. The sector created many nationwide brands in the recent years. However, amid a significant loss in the Turkish Lira’s value, we have started to witness negative developments happening with these brands.

Hotiç, Yeşil Kundura and Beta filed for debt restructuring plans which can be defined as a “reconstruction agreement between the debtor and its creditors.” Shoes Center has been exiting the market by shutting down all of its stores in central Istanbul.

Unhealthy growth

The sector’s problems date back 10 years ago, according to industry players. The industry is run by small family businesses, which adopt traditional production methods. Most of them borrowed bank loans in recent years to be present in almost all mushrooming malls, according to sector players.

Being highly dependent on foreign markets in securing raw materials, the indebted sector has recently been hit by the lira plunge.

I talked to Mehmet Büyükekşi, a key sector player and former head of the Turkish Exporters Assembly (TİM).

Saying that the companies in financial hurdles were the deep-rooted sector players, he noted: “The sector suffers from key structural problems. The receivable dues have continuously been shortening. Banks have paused offering loans. Many sector players face problems in managing operational costs.”

The new economic program has fueled optimism, according to him.

“We will overcome these difficulties,” Büyükekşi added.

Mall rents in foreign currencies

Sinan Öncel, the head of the United Brands Association (BMD), emphasized on the rising production and operational costs, triggered by the need for brands to pay their mall rents in foreign currencies, as the main sources of hurdles.

“It has also become difficult to get fresh loans,” he added.

Many of the new malls were financed with dollar or euro loans, and their owners, who have seen their debt burden rise as the lira fell, charge rent in hard currency to offset the risk.

More debt restructuring announcements may follow, the sector players have feared.