Shoemakers, reeling from surging labour costs and fierce competition, are increasingly becoming shoe sellers to tap growing consumer wealth in the mainland. Prime Success International Group and Yue Yuen Industrial (Holdings) are among shoemakers that are aggressively opening stores rather than factories. Research firm Euromonitor said shoe sales in the mainland expanded to 161 billion yuan last year and were set to accelerate. Footwear wholesalers also are finding retailing more attractive. Euromonitor estimates sales will increase 8.7 per cent to 175 billion yuan this year. With a population of 1.3 billion, each mainlander is expected to spend 135 yuan on shoes this year. The market is expected to grow to 212 billion yuan by 2009. Yue Yuen, the world's biggest sports shoemaker, aims to more than double its retail outlets in two years. 'The gross margin for retailing is usually higher than for manufacturing, although selling expenses may be higher,' said Yue Yuen investor relations director Terry Ip. 'Wages and increases in material price will be the challenge for manufacturers.' Yue Yuen has about 1,250 self-run and franchised stores and this will reach more than 3,000 in the next year or two. Belle International transformed itself from a wholesaler to the top mainland retailer in both sports and women's footwear after acquiring a retail business in the middle of last year. Belle's listing in May made it Hong Kong's biggest consumer stock, with a market capitalisation of HK$80.9 billion, surpassing electronics giant Gome Electrical Appliances with a value of HK$43.3 billion. Analysts said growth would be primarily driven by rising consuming power and an influx of international shoe brands. Next year's Olympic Games in Beijing would boost sales of sports shoes, they said. The secret behind Belle's success is that it works with department stores operators, as they expand nationwide to capture the high-end customer. Almost 91 per cent of Belle's footwear stores are in department stores, said Jake Lynch, an analyst at Macquarie. Belle sells Nike, Adidas and Reebok sport shoes through 1,052 outlets and also operates more than 2,800 women's footwear outlets and concessionaire counters under the Belle, Teenmix, Tata and Staccato brands. It also has the licence for Joy & Peace and Bata. The company aims to open 1,000 new outlets each year. Moving from wholesaling to retailing has boosted the company's margins. Operating outlets or counters in department stores involves revenue-sharing with the owners of the outlets who are driven by same-store sales. Belle said its net profit amounted to more than 976 million yuan last year, almost three times the 234 million yuan earnings in 2005 before it turned to retailing. 'As the owner of a highly ranked brand portfolio, Belle has bargaining power over any department store,' Mr Lynch said. 'Department stores can't stand to lose' top-ranked brands. Yue Yuen is now more than just a manufacturer for brands such as Nike and Adidas and has licensed shops selling Reebok shoes, as well as operating under its owned YY Sports name. Yue Yuen said last month that its first-half underlying profit increased 9.6 per cent, boosted by surging revenue from its higher-margin retail operations. Revenue for wholesaling and retail grew 37 per cent to US$189 million, accounting for 9.9 per cent of turnover compared with 8 per cent a year ago. Prime Success, a shoemaker and retailer, added 495 sales points for its flagship Daphne brand last year, or 1,447 outlets. It also opened 253 new outlets for its Daphne 28 brand last year. The aggressive expansion of retail business came as the company saw its gross profit margin drop six percentage points to 18 per cent last year as a result of surging production costs for footwear. Mainland sportswear companies Li Ning and Anta Sports Products, which are heavily involved in wholesaling their products, are now opening more flagship stores themselves in key mainland cities, anticipating a surge in sales driven by the Olympics. Nike and Adidas, among the early birds that have established a significant presence on the mainland, are also following suit. Their expansion has created lucrative business for local shoe retailers who understand retailing in the mainland, in terms of store locations and negotiations with landlords and department stores. Li Ning, which relies heavily on retail franchise partnerships, plans to add 500 stores this year, bringing its total to 4,800 locations. The homegrown player is planning to have 5,700 stores in operation by 2009, most of which will be franchised. Last year, it expanded directly operated stores by 24.5 per cent to 458. Li Ning chief financial officer Tan Wee Seng has said that the company's retail network will only sell self-branded products. However, analysts have warned that Li Ning's reliance on franchising could make it vulnerable if any of its franchised outlets were badly managed. Anta, which owns a popular athletic footwear brand in the mainland, plans to add 400 retail outlets by the end of the year, boosting its total to 4,500, after raising up to HK$2.5 billion from a Hong Kong initial public offering this month.