The past two weeks in the leather pipeline have been marked by increased uncertainty. This uncertainty continues to stem largely from general instability in the political arena. Policies and statements from the White House are having a tangible impact on many economic and business decisions.

This is not the only issue, or even the main issue, currently facing the leather sector. We are presently in a phase that is likely to have a destructive effect. There are too many different factors hindering production and the use of leather. Leather is no longer being used sufficiently as a material in consumer goods production. As a result, the market for leather is shrinking and this is accompanied by falling prices. In theory, lower prices should stimulate demand, eventually leading to renewed growth and rising prices. In practice, reality has looked very different for quite some time.

Leather demand continues to decline, capacity adjustments are slow and delayed, prices are falling, and the ability to adapt costs and capacity appropriately is becoming increasingly exhausted. Otherwise, the development could almost be traced straight from an economics textbook: when prices fall, those with the highest costs and lowest returns are the first to face the most severe consequences.

This topic has been discussed for some time, and we have repeatedly highlighted this issue in relation to the European leather industry. Some observers rightly note that no dramatic consequences have yet occurred. However, looking more closely at Europe, that is only partly true: several adjustments have indeed taken place, even if they were not directly the result of corporate decisions or market forces.

Consider, for example, the reduction of production capacity caused by the fire at Ecco’s tannery in the Netherlands in May, the voluntary closure of Vitelco’s leather factory in the same country in April, and the reduced capacity utilisation at a major contract tannery. Together, these already represent a significant decline in available capacity in Europe in 2025.

Additionally, there have been voluntary production cuts throughout the European leather industry. Although no precise figures are available, it is clear that substantial unused capacity exists in Europe’s major tanning centres, either because there is no market for certain products or because production has become uneconomical.

Looking at industrial history in the western world, there are many parallels with past overcapacities. Time and again, decision-makers failed to recognise the signs early enough. For outsiders, such analysis is easy, but the reality is that businesses must confront their situation clearly and rationally, not guided by hope, but by a serious assessment of their individual circumstances.

Those who can demonstrate sound reasoning and clear strategies to respond successfully to these conditions will ultimately see better times again. Anyone familiar with the history of the European leather industry knows that similar situations have occurred multiple times over the past decades, for example in the 1960s, 1970s and 1980s.

However, the industry’s adjustments in the decades following World War II occurred in much shorter cycles than they do today. We have now experienced more than 30 years without major structural crises in the European leather industry. The opening of eastern European markets and rising prosperity created new demand faster than local competitors could emerge. This was reinforced by the growing popularity of European quality brands in consumer goods. Finally, a boom in automotive and luxury leathers and leathergoods marked the end of a long period of strong profitability in Europe.

No one can pinpoint the exact date of the turning point, but it likely occurred between 2015 and 2019. The rapid success of plastic-based sneakers and the effects of the covid-19 pandemic, followed by subsequent short-lived recoveries may have masked the underlying trend but did not reverse it. Since the end of the pandemic, negative developments have accelerated, exacerbated by the war in Ukraine, sanctions, rising energy costs and, more recently, US trade policies.

Labour shortages, sharply increasing wages, a temporary social trend away from animal products, self-inflicted certifications and audit charges and an industry-stifling EU regulatory approach have all undermined the economic foundation of large parts of the European leather supply chain.

Critics may say we have been painting too dark a picture for some time, as no major disruptions have yet materialised. After all, all factories reopened after the summer break, the Milan trade fair saw nearly the same number of exhibitors, and no one has publicly discussed plant closures. From this perspective, one could argue that a negative outlook is counter-productive.

However, that might be part of Europe’s broader problem: a general unwillingness to face reality and a preference to promote the ‘think positive’ mindset as a guiding principle. The line between negativity and realism, however, is very thin. Even now, many still claim that 2026 will mark a turnaround. So far, this is not supported by growing order volumes.

What is clear, however, is that capacity utilisation and overall business conditions in the European leather industry remain weak. Some of the missing volume in Europe has undoubtedly shifted to south and south-east Asia for cost reasons. China, however, is not the solution either. Its market also faces difficulties, although for different reasons.

For European production, this means that the minimum prices needed by manufacturers to operate profitably are no longer realistically achievable. Furthermore, several downstream leather processors have relocated their operations abroad.

Markets within Russia’s sphere of influence remain largely inaccessible. If costs, logistics and delivery times continue to constrain market potential, the situation will not improve anytime soon.

It now remains to be seen what conclusions individual companies will draw. At present, smaller production batches, flexibility, quality, creativity and a clear definition of market potential and individual price thresholds appear to be the foundation for decision-making in Europe.

These may sound like pessimistic updates but they are, in our view, necessary ones. Every aspect must be considered, as this is a chain, not a single link. The chain is only as strong as its weakest part, and although much of this discussion happens behind closed doors, it is certainly taking place.

Given the continued lack of dynamic market activity along the leather value chain, it is worthwhile to also look at other, equally relevant topics.

One of the most interesting developments at present is the discussion surrounding artificial intelligence (AI) in the leather industry. Of course, everyone talks about it, and the impact on stock markets is visible. From schoolchildren to retired people, nearly everyone now is experimenting with AI tools. Yet, the true potential remains largely unexplored.

In the leather industry, current AI applications focus mainly on visual recognition of defects and characteristics. This may save some labour costs but we are not fully convinced by the current enthusiasm. Unless detecting defects in this way leads to significantly higher sales revenues, which, given current price levels, is not happening, it is not the breakthrough many claim it to be.

When both sellers and buyers deploy their own systems to verify each other’s results, as often happens today, the benefits become questionable. Undoubtedly, however, image-recognition systems combined with robotics will offer substantial potential, especially when implemented from the raw hide stage onward.

If the technology can help tanners determine hide substance and suitability, it could deliver major cost savings and new revenue opportunities. We are only at the very beginning. Only when the entire production process is digitally interconnected will AI’s true potential in the leather value chain emerge. Today’s defect-detection systems are merely a small, first step. This is important, but currently useful to only a few.

Let us end this section on a more positive note. Our colleagues from Leather Naturally recently pointed out a development we have also observed for some time: those who have spent time browsing duty-free shops recently will have noticed a growing number of perfumes featuring leather-inspired scents.

What was once a minor note in a fragrance description now often makes it onto the bottle itself, Ombré Leather by Tom Ford being perhaps the most prominent example. It is just one of many such fragrances launched recently; the aroma of vegetable-tanned leather is clear and dominant in so many new offers.

What does this tell us? Such fragrances would not be marketed in this way unless consumers found them appealing. It also reinforces our earlier view that traditional vegetable-tanned leather, with its natural aroma and unique characteristics, could indeed pave the way for a renaissance of genuine leather.

We have already touched on the subject of splits in earlier issues. Currently, and contrary to the general cattle-hide market, demand in the protein sector and for splits used in suede production exceeds supply.

Experts debate whether this imbalance is solely due to reduced leather-production output or also reflects a real increase in demand. Either way, supply currently does not meet demand and it will be interesting to see what conclusions are drawn for the coming seasons. There are several possible approaches to address this issue, although willingness among manufacturers to deviate from fixed specifications appears limited. 

As for sheepskins, the trend described in previous reports continues: rising wool prices are making the use of wool from sheep and lambskins increasingly attractive again. The main problem remains misaligned price expectations along the value chain, which still prevent a real revival of the sheepskin sector. However, if wool demand remains stable, it is only a matter of time before this window reopens. In the meantime, a large portion of this raw material continues to be destroyed.

In our view, the next two to four weeks will be decisive. The structural problems we have described will not disappear, but the key question now is whether the statements from many major brands, pointing to 2026 as the end of the decline, will actually prove true.

Talk is cheap; what matters are firm orders. We do not expect any significant impulse from the automotive industry in this respect. Time, however, is becoming a critical factor. The leather industry, in Europe and China, urgently needs a secure order situation for the coming months.

If this fails to materialise, supply chain disruptions could occur that would be difficult to repair. A major turnaround, however, remains unlikely. The Christmas holidays and the subsequent Chinese New Year holiday (February 17) will again serve to interrupt any momentum.

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