Macroeconomics

Military conflicts continue to dominate the headlines in the media, but there are other events taking place too that have the potential to be politically significant in the long term.

In Europe, and particularly in Germany, more and more cases of espionage are coming to light, while at the same time more cases of cyber-attacks are also being reported.

Stock markets around the world continue to move sideways. Since the Federal Reserve has not lowered interest rates in recent weeks and has not given any clear signals as to whether it will do so this year, investors are currently cautious. It is not expected that corporate profits will be able to rise to the same extent again in 2024 and we may therefore be facing one of the frequent corrections. Investors will then withdraw from the markets before the summer and then make their final decisions for the current investment year after the summer holidays.

The price of gold, which many saw as being on its way towards the $3000 level, is also taking a break for the time being. The price of an ounce of gold slowly sank back towards $2,300 and nobody can predict whether this is just a pause or whether the trend may be running out of steam. Supporters of the precious metal argue that there has been strong buying from China and India, and justify this with the strategy of wanting to free themselves from dependence on the US dollar.

The oil price fell, although there is no easing of tensions in the Middle East. This is further evidence that the supply of oil at the moment is more than adequate. The price of a barrel of oil is moving back towards $80. Nevertheless, the oil price will continue to reflect political events in the Middle East.

The dollar moved little overall. After a phase of strengthening, which drove it up to a level of $1.06 against the euro, it then fell back to levels above $1.07 following the Federal Reserve’s decisions and comments.

Leather Pipeline

As is so often the case, the news situation and the amount of incoming information from the various markets and stages of the leather pipeline is very thin on the ground at this time of year. In the northern hemisphere, the more active winter months are coming to an end and it cannot be said often enough that as the first quarter draws to a close and temperatures slowly rise as we move into spring and summer, activity in the markets and at the various companies always decreases significantly.

In Europe, this is not a particularly surprising realisation, as the number of public holidays begins to pile up, the summer holidays, even if they are still three months away, are already beginning to cast their shadow and no significant decisions are made in the second quarter with regard to production and articles. Seasonally, demand for furniture is declining; much of the demand that remains focuses on garden furniture, which hardly influences sales of leather.

Consumption in Europe is also declining, unless a large number of tourists open their wallets while travelling through Europe and shop with great enthusiasm in the many destinations they visit. Even if it is too early for this at the moment, there is no-one who believes that there will be a major shopping spree on the high streets of Europe this summer.

The big luxury brands are certainly trying everything they can to counteract this trend at the moment and are building up shopping temples in Europe with all their might. At the moment, no one is sure if this strategy will work. However, the example of Gucci shows how quickly things can go wrong, with customers suddenly finding the product no longer interesting for the price and quickly turning to other brands.

You can afford to make these mistakes in this sector, because the luxury sector offers such high margins that a mistake can easily be compensated for. Those of us who have been around for a while will remember how many brands and labels have come and gone over the last few decades. We don’t even want to list the examples here. Boom and bust is common in this sector.

The icons that have mastered tradition, stability, quality and control of their collections for decades are set apart from this. They would have to make a multitude of mistakes to ruin the status they have built up. However, there are only a handful of companies in this category.

Let us just count the number of brands that are gathered under the umbrella of the four big groups alone. If we then add those that have managed to remain independent, consider that they are all planning significant sales growth and multiply planned sales by the number of companies involved. We can see that success is hardly possible for all of them in the long term.

Just because it worked for a while doesn’t mean that there are enough people who can afford to buy products at these prices to absorb the quantities produced. As we have seen in the quarterly reports of many brands, the lack of sales volume has often been compensated for by price increases. There is no precise overview of what this has done to sales volumes, because there are too many ways to manipulate the sales figures.

The rumours of large stocks of finished, unsold leathergoods just won’t go away. This is about the worst thing that can happen to a luxury brand.

Let us turn to another sector, one that is more mass market and, therefore, more significant to the overall situation in the leather pipeline.

The retro trend in fashionable sports shoes continues. One brand after another is bringing out models from the seventies and eighties and modifying them very little. Anyone who is out and about in big cities today should take a look at the feet of the younger generation. The adidas models led by Samba and Gazelle can be seen everywhere and in every conceivable colour. It would be of very little importance to us if these shoes were not almost all made with leather uppers. If other brands, and most recently Puma with its Palermo model, have the same success and this trend becomes even more widespread, then we certainly won’t have to worry too much about the producers who have the quantity, the quality and the right location of leather manufacturing for the next season.

To round off this pleasing story, we can also report that the younger generation, some of whom are vegan, obviously have no problem at all with leather. On the contrary, they seem very fond of the properties of their leather shoes. People who have only had plastic on their feet for years are suddenly very surprised at the positive experiences they can have with leather shoes.

Once again, this is just further proof that many in the leather industry, including many consumer goods manufacturers, can allow themselves to be driven far too much by mainstream media. The truth remains; consumers buy what they like and what they think others will also like. If these products also have good properties, then ideological stances can quickly become irrelevant. We therefore continue to believe that we should focus less on apologising and explaining and more on marketing, pointing out the better properties of leather products and using this to persuade consumers to buy. This includes the truth that leather does not pollute the oceans with microplastics and that nowadays leather factories around the world produce leather under environmentally responsible conditions. You can repeat the stories and images of the tiny number of exceptions to this over and over again, but that doesn’t make them a true reflection of the wider industry.

Of course, this is of relatively little help in the automotive and furniture sectors. There is still no retro wave here, although, if you think about it, it is more than time for it. Of course, this would also require genuine retro products and models and materials to be offered on the market again. Frankly, we would find it extremely attractive to open a car door and be hit with the smell of the good old days. The smell of vegetable or partly vegetable leather was and is unique. It can only be compared to petrol, coffee, wood or flowers. It is not for nothing that so many perfume manufacturers advertise the leathery notes of their creations. We would bet a good bottle of wine that cars of certain brands and beyond the normal price limits would certainly be an attraction if they revived these odours. Spraying the interior to cover up the annoying odour of artificial materials is certainly a second-best solution.

There is a lot of talk behind the scenes at the moment about how the European leather industry might fare in the coming years. Nobody wants to say who might fall victim to the current situation. Nevertheless, a lot of thought is being given to how capacities can be reduced without causing major financial damage. There are many ideas including takeovers, mergers, co-operation agreements and strategic communities. It remains to be seen how much willingness there is to press ahead. Very few people believe that the European leather industry will look the same as it does today in a few years’ time.

The order situation for furniture and automotive tanners remains weak and the situation in the other sectors is only marginally better, leaving aside the niches and extreme specialists.
The large, dominant industrial companies in Asia are very busy. There are shifts in production, there are new supply chains, but overall this sector is currently benefiting from low commodity prices and competitive production costs. The situation appears to be somewhat different for medium-sized producers, particularly those in northern China. Here, optimism and the herd instinct fuelled many hopes, which are obviously proving to be too optimistic at the moment.

Reports of missing orders, cancelled orders and non-payment are beginning to pile up. We have not yet been able to verify whether the extreme weather conditions in southern China, where it is well known that there is still a lot of leather trading and leather processing, are also playing a role here.

The split market is also divided into two parts. Suede that can be used for the renaissance of sports shoes is in high demand. The market for collagen and gelatine, which served as stabilisers for so long, cannot be clearly assessed at the moment. Here too, it seems that production and sales are not in a healthy balance.

The market for sheep skins is currently without any movement. Major decisions regarding the use of leather in clothing and leathergoods for the next season are indeed pending. We have no really reliable information on how these decisions will ultimately turn out. We have already emphasised several times in the past that the starting position for leather in both the lining and clothing sectors is basically good. We also know that the successful brands are definitely discussing lamb, goat and sheep as material options. In these sectors, however, the animal origin plays an important role, especially in women’s fashion. However, if a breakthrough is achieved here at major retailers, it would be the proof that mainstream retailers are willing to embrace leather again.

We expect the next two weeks to be another period of calm and observation. Spring is not a time to expect much activity along the leather pipeline. It is actually a difficult time for the raw material suppliers, who have to maintain their material flow somehow. At the moment, the signs are pointing more towards the usual seasonal calm and as the production of cattle hides has not been covered by the demand for leather for some time, a more difficult phase is to be expected until the middle of the summer.

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