TAIPEI (Business Today/TVBS News) — Whether it's the mysterious new HOKA shoes worn by U.S. President Joe Biden or the trendy Adidas Samba sneakers endorsed by the South Korean group BLACKPINK, they all come from a low-profile shoe manufacturer in Taichung: Lai Yih Group (來億集團).
The "mysterious shoe king" generated NT$28 billion in revenue last year, with an EPS of NT$6.26. Over the past five years, Lai Yih has produced over 300 million pairs of shoes. If each shoe is 25 cm long, lining them up end to end would encircle the Earth almost twice.
Established in Taichung in 1987, Lai Yih employs over 55,000 people and has facilities in Vietnam, mainland China, Myanmar, and Indonesia. The company specializes in vulcanized casual shoes and cold-pressed sports shoes. While Pou Chen Group (寶成) and Feng Tay Enterprises Co., Ltd. (豐泰) dominate the global sports shoe market, Lai Yih leads in vulcanized shoes. Recently, sports shoes have accounted for 70% of its production.
Lai Yih's top three clients are all major brands: Adidas is the largest, contributing approximately 58% of sales; Nike Group's Converse is the second largest, with 21.4%, and Deckers' HOKA, which saw a significant stock price increase over the past year, is third at 13.4%.
Lai Yih gained its initial competitive advantage by entering Southeast Asia early.
Lai Yih Chairman Chung Te-li (鐘德禮) has seen Taiwan's shoe industry flourish. After graduation, he joined a shoe factory where Adidas placed orders through agents and was impressed by their quality and production management. After 11 years in the industry, Chung and five friends, including current General Manager Lin Chang-yung (林昌永), co-founded Lai Yih in 1987. Their partnership spans over 37 years.
Leveraging its Early Manufacturing Advantage in Vietnam
Lai Yih aimed to expand into China but lagged behind major players like Pou Chen by two to three years. As a result, it pivoted to Vietnam, setting up its first foreign-owned shoe factory in Ho Chi Minh City in 1990.
"When we first arrived in Vietnam, we were swatting flies with one hand and eating with the other," Chung reminisced. Early entry into Vietnam established the groundwork for today’s Lai Yih, leveraging low labor costs and duty-free export advantages to European clients.
Lai Yih entered Vietnam early and led the industry by moving to Southern Vietnam in 2003, investing in the Yichun Factory (億春廠) in Yonglong Province, now its largest facility. Lin explains that the foresight to anticipate future production needs requires a larger workforce. Besides Vietnam, China, and Myanmar, Lai Yih has also been establishing a presence in Indonesia for two years, with the Indonesian factory soon entering mass production.
Apart from the early manufacturing edge in Vietnam, Lai Yih‘s distinctive design development and forward-thinking automation strategies have significantly bolstered its competitiveness.
Lai Yih currently has five factories in Vietnam, with the Adidas development center being the most prominent. This 800-member team develops 1,600 shoe models for Adidas each year. Beginning with a client's design sketch, they create 3D simulations to optimize products, cut costs, and propose innovative materials, turning designers' creative concepts into wearable, mass-producible shoes.
Lin notes the designers initially created a honeycomb pattern that had to be both wearable and three-dimensional, leading to numerous material tests. "From our extensive experience in shoe manufacturing, we knew soft materials were necessary. But these materials also had to accommodate various designs and even achieve metallic effects, requiring constant experiments."
Non-Disclosure: Employees Bring Shoes in Black Bags to Meetings
Lai Yih takes on the crucial task of developing products for brand manufacturers, necessitating stringent confidentiality protocols. Lin remembers the chaos sparked by the limited edition Adidas YEEZY BOOST series, which Lai Yih helped produce in 2020. Customers required 360-degree camera surveillance throughout the factory, and employees had to leave their phones outside. During meetings, they carried shoes in black plastic bags to prevent the exposure of unreleased models.
Automation stands as a major strength for Lai Yih. Chung remarks that the company has invested significantly in improving production processes and developing automated equipment. For example, an automatic fabric-cutting machine can save ten operators and 60,000 yards of material each month.
Computerized sewing machines can replace almost 40% of labor, boosting production efficiency. Automated rubber sole injection can save five operators, making it more environmentally friendly and reducing carbon dioxide emissions. "Despite being a traditional industry, Lai Yih has nearly 100 software engineers, enough to establish a tech company," Chung said.
"An automated machine costs more than NT$100 million. We once considered shoemaking a labor-intensive industry, but now it's a tech and capital-intensive field," Chung admits. Engineers even develop programs for robotic arms, and AI can recognize various sole types for automatic glue application, making operator tasks easier.
Brand manufacturers strive to reduce delivery times. Lin discloses, "The development and production processes have been shortened. Initially, delivery periods were 90 days, then 60 days, 45 days, and now they are 30 days to swiftly react to market trends and demands."
Lai Yih operates bases in Vietnam, China, Myanmar, and Indonesia and has a workforce exceeding 55,000.
Decisive Investments: Winning Over Brand Manufacturers
A vice president at a shoe material supplier explains that their company primarily provides accessory materials, closely linked to sports shoe manufacturers, forming a triangular relationship to serve brand clients. This supplier has worked with Lai Yih since 1997, observing that the company has diversified its operations over the years without heavily depending on specific brands. Their main collaborative brand is Adidas, especially for major shoe models like the currently popular Samba and the NMD from five or six years ago.
This executive notes that Chung is hands-on and detail-oriented, key factors in Lai Yih's rapid growth in recent years. "For example, when shoe manufacturers request increased production, Lai Yih decisively invests to meet the necessary capacity quickly, making Adidas's supply in Vietnam the largest." From a supplier's viewpoint, collaborating with Lai Yih is a joint effort. "If material issues occur, they don't simply blame the material suppliers. Instead, they work together to address problems and ensure timely deliveries."
Examining Lai Yih's performance over the past three years reveals that the pandemic affected profits in 2021, with orders deferred to 2022, resulting in strong profits that year. However, inflation and inventory digestion by brand manufacturers led to lower profits in 2023 compared to 2022. They expect to return to normal profitability this year.
Analyzing the revenue trends of Lai Yih's three major clients over the past decade, Adidas grew by approximately 51%, Converse by about 44%, and HOKA's six-year revenue trend showed a rapid growth rate at 824%, with continued momentum anticipated. The Paris Olympics in late July will further highlight the massive business opportunities in the sports industry amid the global fitness trend.
As an integral part of the global supply chain, Lai Yih consistently works on ESG initiatives. For instance, the solar panels on their factory roofs once held the record for the highest power generation globally for a single rooftop photovoltaic project until China overtook them last year, now placing them second. Moreover, they recycle 100% of treated wastewater for plant irrigation and toilet use. In response to brand manufacturers' net-zero carbon goals, Lai Yih is actively preparing.
"Can you think of anything that can replace shoes? Probably not. Shoes are essential goods; there's always demand. Traditional phones might be replaced, but the shoe industry has existed since ancient times," Lin notes. The fitness craze has gradually shifted from Western countries to the East, with more people now engaging in fitness and running.
Previously, one pair of shoes served multiple purposes, but now everyone owns several pairs for different activities. This ancient industry remains at the cutting edge of trends, evolving into a tech industry. Lai Yih, set to go public in mid-June, plans to continue expanding its reach.
Here is the link to the Chinese story:
拜登穿的HOKA鞋、BLACKPINK代言愛迪達SAMBA，都是來億做的…把製鞋當科技廠、拚出年營收280億，解密台中低調鞋王
