Since 1998, I have been involved with the leather business as a journalist and, like everyone else in a similar position, I get a lot of calls from friends, in this case Italian, asking me how everything is going and for updates. Recently, more specifically, some of these friends also asked me if I know a luxury brand that can offer them more production, because the ones they are in contact with already have dramatically decreased in their estimation.
This is happening all over the leather footwear world, but the most significant cases concern the leather goods demand, especially for small craftsmen that seem to be mainly in the Florence area, which relate to the most exposed brands in the Chinese market.
Beijing’s slowdown weighs heavily on the accounts of some luxury holdings, such as Prada (-9% sales in Inner China in the first nine months 2015); Kering (with a drop of 3.1% in Q4 for Bottega Veneta’s Chinese sales); and Hugo Boss (-3% in Asia-Pacific in 2015, with the expected closure of 20 Chinese shops).
The damage is partly offset by the weak euro, which supports European exports to the dollar area, but the organic values expressed by the luxury holding budgets reveal the extent of the decline, which began in 2015.
As a result, the ‘Chinese alarm’ is now widespread in the fashion and leather world. The response of the brands has, on the one hand, resulted in the search for new target markets, mainly selected from the rest of Asia and with some new efforts in Africa, and, on the other hand, the consolidation of Western positions. The latter road is strengthened with excellent answers offered by the North American market, at least as long as the dollar remains strong.
More to consider
Of course, China is not a closed chapter. Some reports, such as the one presented in February by Exane BNP Paribas, confirm that brands like Moncler, Givenchy, Fendi, Saint Laurent, Valentino and Louis Vuitton will continue to grow in terms of Chinese sales "thanks to their positioning built year by year in the country", and that the most affected brands will be Prada, Gucci and, partially, Furla.
When the Chinese slowdown made the alarm bells ring, European players were revealed to be too exposed to China, and now they need to redistribute the market share by strengthening Western countries (which are also the reference for tourist shopping) and to change operations within their organisation. The consequences have been, on the one hand, the reduction of finished product stocks, which were used to meet the demands mainly founded on basic items and destined to the Chinese final customers, and, on the other hand, an acceleration of delivery times to keep the audience attention on the market.
"It’s a more aggressive strategy based on innovation as a constant engine of growth," says Alessandro Iliprandi, CEO of the Italian tanning group Bonaudo, which supplies high-quality skins to some of the most important luxury brands. "Some customers noticed that the new product continues to be well sold and therefore they imposed more launches of collections during the year, with faster deliveries imposed on suppliers. For tanneries, this involves new challenges in following this type of customer; we must guarantee more service, shorter delivery times and small quantities."
But is this effort sustainable for tanners? "We all know now that the 2014 luxury boom will not come again, at least for a few years. Circumstances are difficult, but I’m still confident and I think that, in a few [years], we will interpret this critical phase in a positive way. This is the end of an illusion, because luxury can’t be standardised," Iliprandi adds.
A trend shake-up
Gruppo Mastrotto anticipated the faster deliveries trend with a major investment in terms of assortment ready for use, as a just-in-time system of bovine leathers for footwear, leather goods, garment, upholstery and automotive, with some specific offers for the nautical and aviation industries.
"Our Express service is very flexible; we provide to not only medium and small customers but also big brands – finding all the finished leathers that suit their requirements in our rich assortment collections. Each customer is in the position to select from among 20 collections and from over 1,000 colours," says Chiara Mastrotto, Gruppo Mastrotto’s chairperson.
The Arzignanese company launched the Express service to satisfy customers’ requests and to optimise time-to-market while maintaining a wide-range offer. "With Gruppo Mastrotto Express, our customers are freed from the financial and management weight related to the necessity of a finished leather in-house stock for their productions; as they have, in fact, completely at their disposal, a fully stocked logistics hub and, consequently, a unique competitive advantage." Mastrotto says.
Of course, faster deliveries support the partial return of footwear and leather goods production from Asia to Europe; the so-called reshoring phenomenon that, if not within the countries characterised by the highest cost of labour and services such as France, Germany, UK or Italy, is intended to grant easily accessible production areas when compared with China or other Asian countries.
Countries of interest
In regard in particular to the Balkans, with a recovery in manufacturing investments in Serbia, Bosnia and Croatia, "Certainly, we can only look with favour to a revival of the manufacturing production in Europe," Mastrotto says. "Anyway, our market is more and more open to the global challenge as designers and brands also tend to play with a globalised scenario, with production chains distributed and often delocalised far from headquarters. For this reason, I would say that the service is more tied to macroeconomic logic, in which the rapid recovery of a market can match stagnation or slower growth in another continent."
Everything changes, and changes take place faster and faster. Sooner or later, China will speed up and the same will happen in Russia, which, for different reasons, is the most critical market for European brands. Awaiting the return of the two major players in the Eastern world, European tanner must seize all the opportunities offered by the Eastern crisis. "If we respond effectively, we will be even more competitive than before," concludes Iliprandi.
