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Show ujiUMwuTaiaiiw rTwm'iT Tii iii i mni imjm wmmm DIVERSIFICATION AIDING SHOE COMPANIES The domestic shoe industry has long been plagued by problems preventing the achievement of a consistent earnings earn-ings record. Over the past three decades, the chief obstacle to improved profitability has been the relentless advance ad-vance in operating expenses. Another trouble spot has been the intense competition com-petition from lower-cost-and often more stylishly appealing-nonrubber footwear from abroad. As a result, U.S. firms have not been able to capitalize extensively on this country's large-scale economic and population growth. Over the past ten years, for example, domestic production produc-tion of nonrubber shoes and other types of footwear has been almost consistently consistent-ly in a downtrend while foreign imports have been steadily on the rise. This has been especially troublesome in the case of women's shoes. FIGHTING BACK In recent years, however, the shoe industry in-dustry has been making serious efforts to combat its difficulties, with some of the leading companies managing to rack up more satisfactory marks in annual an-nual sales, earnings, and dividend distributions. Among tactics used has been the relocation of production facilities in cost-advantageous regions, both at home and abroad. In addition, modern management techniques have been adopted in product pro-duct designing, production procedures, and marketing and promotion strategies. Some companies have nrii.de significant strides in establishing chains of retails shoe outlets. In certain such instances, operations have been broadened in include the merchandising merchandis-ing of various sorts' of apparel and accessories, ac-cessories, whi.',h--under normal circumstances-enjoy more lucrative profit margins. The government has been trying to aid the industry in stimulating exports of shoes and other footwear. Efforts have thus far met with only modest suc-'cess, suc-'cess, although persistence may bring more substantial results in the future. Since July 1977, the government has made several grants under the Footwear Industry Revitalization Program Pro-gram for study of the impact of computerized com-puterized design and production methods to assess the value of new technology for industrial procedures, and to see what lessons can be learned from the detailed financing and management of an industry-wide footwear center. As to the matter of combating foreign imports, some notable benefits have resulted from the government's negotiations leading to the limitation of shoe imports from Taiwan and South Korea. It still remains to be seen, however, whether those agreements will be renewed at the conclusion of their four-year terms, and whether similar restraints can be negotiated with other nations. INVESTMENT ASPECTS With an improvement in operating results in recent years, some leading domestic shoe manufacturers and retailers have been able to strengthen their financial positions and now face t the future more optimistically. Shoe retailing will benefit in the period ahead from the expansion in those segments of the population with high consumption and a rapid growth on income. in-come. This promise must, of course, be tempered somewhat by soaring costs for labor, raw materials (particularly for hides, which are in tight supply), and shipping. ..as well as by the temporary tem-porary weakening of the economy. Nevertheless, the Research Department Depart-ment of Babson's Reports is of the opinion opi-nion that prospects for the shoe industry in-dustry as a whole deserve to be viewed constructively. While our current ; recommendations for stock purchases focus unon issues in fields wilh invps;!. ment opportunities that we believe to be more attractive than those in the shoe groups, investors already holding shares of the leading shoe producers and retailers would appear to have ample am-ple justification for maintaining their commitments because of their basic values. |