Macroeconomics

In the economy, the further development of interest rates and the presidential election in the US took centre stage. On the one hand, inflation has fallen significantly, but on the other, it is becoming clear, certainly in Europe, that we cannot be sure that it has been successfully brought under control. This also clearly shows that the interest-rate cuts that so many are calling for cannot be implemented as reliably as expected.

The overall picture in the US is similar, as the labour market there is very stable and consumer behaviour could also prevent the Federal Reserve from cutting interest rates to the extent or as quickly as almost everyone expects.

In China, there were the first positive signs from the economy with a slight increase in factory production last month. It is too early to judge whether this is directly related to the government’s recent measures. Interest rates have been cut again in China and further government measures are expected to be announced soon to provide additional stimulus for the economy.

The stock markets remained very stable until the last few days of last week, either reaching further record highs or not moving far from them. This sentiment changed relatively quickly at the end of this period, which certainly had something to do not only with interest rates, but also with the election in the US. Taking profits and playing it safe for the time being seemed to be the best option for many investors.

The gold price has not yet been able to clear the hurdle of $2,800 per ounce, although most experts believe that this could happen soon and even that the magic figure of $3,000 could be reached in the foreseeable future. The general global environment favours investment in the precious metal in many ways.

The oil price fell significantly after greater escalation of the war in the Middle East seemed to have been avoided. Most analysts expect an oversupply in the coming months with a corresponding effect on prices.

The international data on inflation and the expectations derived from it initially put an end to the soaring US dollar. It recovered from values below $1.08 to levels of closer to $1.09 against the euro.

Market Intelligence

The phase of universally welcomed, peaceful globalisation has come to an end. Nationalism, with shifting alliances and possible military aggression, is definitely not good news for the leather pipeline.

Whatever this means and whatever political consequences it may have, the main problem is that it makes it almost impossible to make reasonable forecasts about the leather industry and consumption. The only thing that remains certain is the fact that we have over 8 billion people on the planet who have to try to satisfy their needs and desires in one way or another. This means that leather, in theory, has the same opportunities and conditions as every other product. If leather regains popularity, demand and prospects for the industry will increase. If this does not happen, the problems that we are already experiencing today will remain. 

We have a major structural problem in Europe, which is made up of many different components. We have lost the markets in Eastern Europe for the middle price segments and at the same time consumer sentiment in Europe is also poor. In Europe, tanners have maintained the largest market share in the mid- and upper-price segments. The mass market is price-sensitive and therefore of little or no importance for European leather production.

For various reasons, the luxury sector has lost its momentum for many brands but the belief that this sector could have a linear upward trend was never really justified. There are and always will be individual success stories. Overall, however, we are at least in a ‘pause’ phase.

In the automotive sector, European premium brands are currently losing market share rapidly and their competitors are nowhere near focused enough on the quality of the interior for leather to benefit.

The fact remains that leather as a material simply has to become more popular again and we can see how easily and quickly this can happen with the much-cited history of retro sneaker models. Nobody really cared about the suede uppers at first, but marketing and fashion have  played the decisive role. In the new round of marketing, consumers are experiencing the superior properties of leather and can incorporate this into their purchasing decisions. A new and exclusive adidas Samba model made from vegetable-tanned calfskin with an additional leather lining has met with an extremely positive response. It would come as no surprise if the model sold out quickly, even at a price of $350 per pair.

One must therefore assume that even without an explicit focus on leather, using the material in these models has had no negative impact on the success. Competitor brands have also taken note of this development and model after model is coming onto the market that also focuses on “the good old days” and leather as a material.

Coming to a bold way of looking at things, we should perhaps take a closer look at the current global zeitgeist. Social groups that have dominated public opinion particularly loudly in the western, democratic world in recent years, have triggered a counter-movement. This discussion should not become political, but it cannot be denied that we are now seeing a shift towards opposing positions in many countries. It is possible that we are beginning to see a new social trend that has no problem at all with leather as a material, and the number of potential customers is very large.

In many Asian countries, these issues did not play much of a role anyway and you can be more than sure that the marketing strategists of global corporations have also realised this by now. At the end of the day, what counts is business, and with the currently very low prices for leather, this constellation currently offers a very attractive market potential. You can even make the story much simpler. Just take a map of the world and count the consumers for whom the choice of material plays a rather subordinate role and compare them with those who base their purchasing decisions on a supposedly environmentally friendly choice of material. The result speaks for itself and this realisation is slowly gaining ground in the major global consumer goods companies.

For our product, leather, the situation is even much more comfortable and simpler. The wind is slowly beginning to change in the assessment of the environmental compatibility of leather. This can also be seen in the re-evaluation of the impact score for bovine leather in the Higg Materials Sustainability Index. We have never had to hide the attributes of leather as a product, nor do we have to today. The facts have always been clear and still are today. 

Leather is first and foremost upcycling. A by-product is refined into a valuable and usable material. If there were no meat, there would be no leather. If there is meat, it is possible to have leather. Nothing changes in these simple parameters.

The next stage is about refining the product in a responsible way, making the material durable, maintaining and possibly expanding its functions and, together with the consumer, coming to the conclusion that products made from leather are more durable and are a counter to ‘fast fashion’ or other consumer goods with a short lifespan. Experience has shown that an injection-moulded plastic sole on a shoe almost never lasts as long as the leather upper. That is all there is to it.

If you then take a look at the function of leather compared to its alternatives, the discussion is already at an end. Some people may not like the fact that, in the western world, leather has increasingly been lumped together with ‘conservatism’ in recent years. Leather, ‘the eternal yesterday’ and in many respects often used to symbolise the past and the outdated.

But it has never been true, nor is it true today. If the material is available as the result of the refinement of a by-product, then there is hardly anything more progressive, modern and in keeping with the spirit of the times than leather. As such, it covers almost 100% of the possible ideological trends and therefore it is or would be in no way surprising if marketing departments were to rediscover its potential.

However, it is also worth noting that the anti-leather organisations have, at least to date, not dealt with this clear renaissance of the material at all. There are even quite a few of their so-called supporters who can now be seen in public wearing the very shoes made from the material they have so aggressively demonised for years.

It took a few years before leather was actually successfully put on the defensive, which is why it will probably take a little patience to develop a real turn-around. Of course, the difficult situation in the consumer goods markets does not support rapid momentum either. Nevertheless, despite the many structural problems in the industry, it should not be overlooked that the situation for leather as a material has improved, perhaps even significantly.

For the European leather industry, which is currently suffering from the greatest difficulties, long-lasting use and function must now take centre stage. It should not be concealed that there is a great deal that can go wrong in the production and in the finished versions of leather, which would counteract all the good intentions and properties of the product. Of course, many large industrial users with their economic and technical demands also bear a large share of the blame for this. Not only do they have to utilise the marketing potential, but they also have to allow the product to be used in ways that reflect the original properties of the material.

We can save ourselves the trouble of assessing the situation in the split markets at the moment. Nothing has changed and it does not appear that much will change in the short term. If split leather continues to grow in the shoe industry, it may not be too long before there is no longer a sufficient supply. It would only be dramatic to a limited extent because there are currently more than sufficient resources of very cheap, full-substance raw materials. Growth and increasing use would then also take the pressure off the market for collagen and gelatine, which has gained popularity as an alternative use in recent years, but the market for their finished products is not growing as quickly either as production has expanded.

Boring as it may be, there is no news of note in the area of sheepskins either. The niches and specialities continue to enjoy stable demand and lamb and goat nappa do not play a noticeable role in mass production today. As a result, many raw materials are no longer being sourced and there is great potential for new and growing uses for leather here too. The fact remains that we cannot really explain why an available raw material is not being utilised.

In our next issue, we will reflect on how the election in the US turns out. In many sectors of the global economy, this can have a significant impact. Tariffs and trade restrictions are never good news overall. In China, further announcements to stimulate national demand and the economy are imminent. This too will certainly have an impact on sentiment and therefore on consumer demand. Wars and the resulting political decisions will always remain an important factor. For the moment, the world can be satisfied that the prices for energy and food have not yet been as affected as they might have been by the conflicts. Nevertheless, we should not close our eyes to the fact that surprises are possible almost every day. 

In the absence of negative surprises, we believe that globally the low point in the negative trend for leather as a product has probably already been reached or is not far away. There are many reasons to believe that an improvement will occur within a time frame of 12-24 months. However, this will probably be too long to provide a lifeline for everyone.

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