Consumer spending on leather25 April 2004
The crisis continues with seemingly no light at the end of the tunnel. And the main reason is the fact that consumer spending has changed. I read a very interesting set of thoughts expressed by Ron Sauer in one of his reports in February. I also think that consumer spending has changed as a result of the general economical crisis that has hit the world and which has made us suffer for more than three years, the longest crisis ever experienced by the leather industry as far as I know. Consumer spending has not changed overnight or because the fashion world has abandoned leather. I believe that there are elements in the manufacturing and distribution chain of leather manufactured goods who, in an incredible way, have taken undue advantage over the introduction of the euro, triggering at least part of the change in consumer spending. Although I agree with Ron Sauer that consumer spending has changed, I don't agree with all the factors he has mentioned. Other industries are just as unhappy as we are. In an earlier Limeblast, I mentioned the fact that the conversion to the euro was a great feat. Hundreds of years of wars in Europe have not been able to achieve what has been done in peacetime by patient negotiations. Europe becomes, in spite of the squabbling, more and more united. The euro currency is an example, a great example, and those who did not agree with the concept were wrong and they know they were wrong because none of their doomsday predictions have come true; on the contrary. However, governments did not foresee that many trading sectors would, and have, taken undue advantage of the conversion to the euro with the result that Euroland has suffered from a huge inflation. Official figures report that the inflation in the EU is only 2% but people who run a household will tell you that inflation is at least 20%. Wages remained the same, whereas services and prices increased by up to 100%. Greece seems to be the country that is most hit as some sectors tripled their prices. The leather manufactured goods sector and the shoe retailers doubled their prices. Shoes that cost 100,000 lire, or 100 DMarks or 100 Dutch guilders before the introduction of the euro, now cost €100 euro, which is the rough equivalent of 200,000 lire, 200 DMarks and 200 guilders. Ron Sauer is mistaken because a decent pair of shoes never cost as much as €200. For €200 you bought top class luxury shoes, which still cost more or less €200 today. The regular price of a good pair of shoes was somewhere between €50 and €75 whereas now €100 is the minimum you pay for an ordinary pair. There is no good reason for this price hike and consumers know it. Hides and skins never cost as little as they do today. Labour costs did not increase because wages have remained roughly the same as before the introduction of the euro. So somewhere along the chain there are people who take huge profits and who actually are acting as catalysers to make people change their dressing habits. In the traditional, non-leather sector, there are also similar price hikes for certain types of clothes. Some reason that prices increased is because with less quantities sold, the overheads increase per unit cost and this is discounted in the unit price. I don't think that consumer spending is as wild for cheap items as Ron Sauer believes. People first of all are trying to make ends meet and after they have paid the rent, the mortgage, the insurance and, after they have visited the supermarket, they try to spend as well as possible, provided they have anything left. Sure, those who travelled to the Maldives for their holidays still do but they are not the average citizen. There are not too many consumers who have decided to buy less leather articles and take a plane instead to some vacation paradise. True, people do change their mobile phones, but they can buy those on monthly instalments, whereas a leather bag or pair of shoes has to be paid for on the spot and in full. Ron Sauer states that top quality leather is not so important any more. This is contradicted by the huge investments made in Italy for the construction of new tanneries which are actually gambling on the success of top quality leather, leaving the average quality leather for the Far East to produce. Limeblast reported on this as recently as December. Tanneries that produce top quality leather are suffering from the present crisis to a lesser extent than the tanneries that produce low and medium quality leathers. One factor is that, even if the sales base is smaller, there is also far less competition. The number of clients for top leather articles is much less volatile than for leathers that are bought by working or middle class consumers. The Far East can, of course, make our televisions, our printers, our cell phones, even whole cockpits or tail sections of the last generation of Boeing or Airbus aircraft, but there is a huge difference between making top class leather and (mass) producing technical items. These are entities that cannot be compared. Mass production of technical items benefits the quality, because a large part of mass production is computer controlled. If you can make one, you can make 100,000. You standardise, implement strict numeric quality control, and you are on your way. Mass production and top quality leather do not really see eye to eye. Leather is a natural product which is much less easy to shape than a piece of aluminium. It needs constant attention, control of processing baths at all stages and the human Fingerspitzengefühl and not precision tools. To make a drum load of pure aniline leather and obtain a batch of just one colour from hide to hide is not something you can do in the same way as producing a number of stainless steel ashtrays. Far Eastern countries such as China, the Indian subcontinent, Korea and others all have a highly developed tanning industry but produce rather classic items which are of good average quality but stand in no comparison to what tanners in Spain, the UK and Italy obtain. China produces first class luxury leather goods, but in order to manufacture there they still have to import the top class leather and accessories from Europe. I'd like to keep it that way! Sam Setter firstname.lastname@example.org Editor's note: I suspect Sam has never in his life bought shoes from Loakes, Church's, Gucci, Lobb etc.