Elmo Leather will stop manufacturing leather in Svendborg on the island of Fyn in Denmark from the end of the year. The group will concentrate manufacturing at their main plant in Svenljunga, Sweden. All 90 employees at the Danish subsidiary will be given notice of dismissal.
The closure will be gradually implemented by the end of the year, when all production at the Danish factory will cease. Negotiations with the unions concerned have started in accordance with Danish labour regulations.
The reasons for deciding to close the facilities are over-capacity and deteriorating profitability. Elmo Leather currently use only 75% of their collective production capacity, which is a huge burden on the company’s profitability.
"Rectifying the problem requires more than a normal rationalisation scheme. We must make closures and concentrate production at our main facilities in Svenljunga’, says Nalle Johansson, president and ceo of Elmo Leather.
By closing down production in Svendborg and moving it to Sweden, Elmo estimate they will achieve full utilisation of their production capacity. The European and US furniture leather markets have decreased dramatically over the past year. Meanwhile competition from Asian tanneries, in particularly China, has intensified considerably, causing pressure on profitability throughout the industry.
The driving forces behind changes on the furniture leather market include trade conditions and, more long-term, structural forces. In Europe, Germany’s economic woes have badly affected demand, not only in Germany but also in neighbouring countries.
On the North American market, there are no domestic manufacturers of furniture leather left. They have either relocated or shut down activities. Increasing amounts of furniture leather for the American market comes from Chinese and South American tanneries. Furthermore, the furniture industry in North America utilises Chinese subcontractors.
‘Even as business conditions improve we predict that a noticeable part of the market will disappear. An increasing share of leather furniture is being exported from manufacturers in Asia. We must adapt our production capacity to this situation’, says Nalle Johansson.
Elmo Leather acquired their Danish subsidiary (formerly Swewi) in October 2000. The reason at the time was Elmo’s need to increase leather manufacturing capacity for the automotive industry.
In the summer of 2001 Elmo Leather were given the authorities’ permit to increase production at Svenljunga, something the company wasn’t able to take advantage of at the time due to the weak demand for furniture leather.
By mid 2003, the liming process at Dronningemaen in Svendborg was closed down. Since then, manufacturing in Denmark has been run at the plant at Vestergade in Svendborg. This plant will also be shut down by the end of the year, slightly more than three years after their acquisition.
