There are always phases in which there is little to report along the supply chain in the leather industry, or simply nothing particularly new or exciting happens. We are currently in such a phase, which is not particularly surprising, as the new year is only just starting in the western world and people in Asia are preparing for the Lunar New Year celebrations (January 29) and the long break there.

In times when business is going well and producers are planning for the future with vigour and ambition, these interruptions are not always noticed. For some time now, we have been in a phase in which the leather industry is still looking for a clear strategy for its material. It cannot expect much support from finished product manufacturers and major brands. Leather as a material has lost much of its prestige. For industrial production it offers few advantages, one could even say it presents more disadvantages.

We have covered the topic of what leather has to offer as a material in the various finished products often enough here. In our opinion there are no new arguments. This leaves the question of whether there can be any development at all that could push the material back into the centre of demand.

These topics have already been discussed sufficiently and all aspects from all sides have been scrutinised. An increase in interest can hardly be achieved from the bottom up in the supply chain. The impetus, if any, must come from the top down.

Even though it may be boring, it is worth recalling the recent success for athletic footwear brands of retro models made from suede. This wasn’t about the material at all; it was simply a coincidence. They wanted to produce the original shoe and its features in every respect and offer them to the market. It is indisputably a very positive side effect that if you talk to users and buyers of these shoes today, they often confirm that they are very comfortable to wear, definitely more so than their plastic predecessors.

However, the problem remains that very few people attribute this to the material. If you talk to the most young buyers and users, most of them don’t even realise what material their new shoes are made of. There are also very few people who can show and explain it to them, which means that even with this great success, leather as a material can only benefit very little, if at all.

If you want to look for other possible ambassadors for the material, you can mention the Birkenstock company, for example. Of course there are others, but as an arm of a prominent luxury group (it is majority-owned by L Catterton) it is acceptable to quote their strategy. The model range has been expanded considerably and, fortunately, the company has not focused on plastic. Rather, we are seeing more and more shoes made of leather and it is astonishing that the buyers of these shoes are well aware of the material their shoes are made of and, in their opinion, should continue to be made of.

From the old days and the old standard models that Birkenstock produced, which were so often bought by people who have to stand and walk a lot and for very long periods, people simply expect the footwear to be long-lasting and comfortable. If you ask potential buyers of Birkenstock shoes today, it is rarely only the fashion aspect, but often the certainty that you will get quality and long-wearing properties. Of course, this is not to deny that the growth of the brand also has a lot to do with the fact that it is currently perceived by the public as particularly fashionable.

If you look at today’s high-quality trekking and outdoor footwear, you will notice that although leather is still the dominant material, it is obviously being cut wherever possible for supposed cost reasons. Of course, the customer hardly notices this at first, but in the higher-price categories, the customer still expects to receive the same quality and the same hard-wearing characteristics that used to be so familiar. It is not certain whether this will continue to be the case with the new models. If not, the question naturally arises as to whether the customer will attribute this to the reduced use of high-quality leather. The answer to this will only emerge in the future.

Any discussion that centres on the use of leather always ends with the argument of cost and price. Although often lamented, it is unfortunately still the case that costs and savings are still the dominant factors in the decision-making process of manufacturing companies. With leather, it is not only about the price of the material itself, but also the costs involved in its further processing. To process leather, you still need qualified personnel, both in the assessment and in the tannery. 

Added to this, of course, is the fact that processing is becoming increasingly expensive owing to a lack of labour and rising costs in Europe. We hear almost daily of further production operations being relocated to Asia. There is little news of re-shoring. This also makes the production of high-quality leather with the corresponding technical properties in Europe increasingly difficult because the clients of the leather manufacturers are moving away.

The bottom line is that as long as consumers are not made aware of the material and its properties and functional properties are not a central argument in marketing, it will be extremely difficult to reverse the trend in the use of materials.

The situation is not much better in the other leather processing sectors either. This has also been sufficiently discussed. It remains the case that the manufacturers of furniture and automotive leather are confronted with the fact that the material is only used in special, high-end areas. The specific clientele that does not want to do without leather and is prepared to pay higher premiums for it will continue to be served for as long as there is no other option. The focus that was used to present leather as a superior, exclusive and value-enhancing material is almost non-existent today. Here too, there are many areas in which function should take centre stage, but manufacturers do not seem to expect this to benefit their market position, their sales and therefore their profits.

Human and economic thinking is actually relatively simple. If people expect more benefit and profit from something, they will choose to do it. The really frustrating thing today is that even among those who still see leather as part of their product DNA, the material is seen as a necessary evil and a problem rather than an treasured and promising part of the business model.

As a result, and it is very easy to see in the markets for raw materials and in the prices for leather that the total demand for leather continues to shrink. There are still doubts here and there at producer level, but the facts and figures speak for themselves. Large leather manufacturers, who produce industrially and therefore have certain cost advantages, together with the global brands, can be more successful in resisting the decline than the classic, smaller, traditional leather manufacturers. Unfortunately, the growing market share of industrial and standardised (corrected and finished) leather types is also robbing the material of many of its positive characteristics. At the same time, of course, this also means that European manufacturers are finding it increasingly difficult, and in some cases perhaps even impossible, to maintain production owing to higher production costs and the flight of their customers. 

In Asia, leather production is also being restructured. Even in countries such as China, it is becoming increasingly difficult for smaller manufacturers to maintain sufficient sales. As China is no longer the cheap workshop of the world, it is becoming increasingly difficult for smaller manufacturers, especially when it comes to exports, as they can no longer win customers through price, which was the business principle for so long. Here, too, economies of scale and supplier-to-customer ratios play a decisive role. In addition, global brands are relocating production in order to reduce their dependence on China. Future global policy will therefore play a major role in determining which production locations will be able to hold their own in the coming years. We wrote in our last issue that China will be the key to further development along the supply chain and we are sticking to this view, simply because the size of the consumer market in China alone will play an extremely important role in the use of leather as a material.

The same may also apply to India in the foreseeable future, but from the point of view of the importance of consumption, this will probably take some time. However, it remains essential for leather as a product that manufacturers clearly accept the material in terms of fashion, function and marketing. Without this, the demand for leather will continue to shrink and leather as a material will increasingly be pushed back into the corner of speciality and exclusive materials. The policy of the new Trump administration will have a decisive influence how the use of leather will develop in the US and where it is going to come from.

The use of collagen and gelatine is becoming increasingly important in the area of splits. The more leather production declines and leather prices come under pressure, the more important the alternative utilisation of hides in general and splits in particular becomes. There are reports of major shipments from South America to Europe, which are already intended solely to compensate for the lack of production and availability of split. However, it also shows that even the collagen industry is not currently expecting a short-term and sustainable recovery of leather production in Europe. So as long as their capacities require raw materials, the focus is also on the supply of European or other low-cost raw materials that are suitable for use in the food sector.

The next few weeks will be influenced on the one hand by further political developments and on the other hand, of course, by the Lunar New Year celebrations in Asia. Under these conditions, anything other than a wait-and-see position along the supply chain would be a surprise.

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