A new term turned up in Rio de Janeiro this month: TPRG! It came up as a question in the World Leather Congress and was supposed to be a humorous way of saying tanners were feeling squeezed. So out came Tanners Profitability Rescue Group (TPRG). It was not clear who was to blame but the consistent implication is that the big brands and retailers at one end and meat packers at the others squeeze the profit out of the tanners’ pockets.
For the tanners a look in the mirror would be the best suggestion since long term lack of profitability usually means a business is wrongly positioned for the market. Our raw material is not universally available to expand with demand so how and to whom tanners sell it is up to the tanners. We had two sessions at the conference which covered footwear and upholstery, and the latter was led by University of Northampton Alumnus (he studied in Leathersellers days) Mike Tomkin who works for Stahl watching over the auto sector.
The long term trend has been for less and less of the 20 billion square feet of leather we make year to go into footwear and more to go into the automobile and furniture trade, although furniture has rather nose dived since the housing crash of 2008. Mike Tomkin highlighted that this change has not made tanners any richer. Indeed in recent years margins in the automobile leather sector have been severely squeezed in some areas. He explained how leather fell out of favour in the middle of the 20th century but came back in the 80s after the oil crisis made cars look alike on the outside so needed leather inside as a differentiator. Now leather is so widely available that the car companies play with all sorts of plastic-like leathers or even plastic itself.
So the questions have to be asked how and why did tanners allowed footwear to move from using 15 billion square feet down to 10.5 billion square feet and other sectors, especially automobile to grow. Big investments were involved and the world now has some outstanding large new tanneries for both footwear and upholstery leather. So someone expected reasonable profits.
Another question comes along side this which is why so much leather ends up in what we call fast fashion and products like very cheap childrens shoes – which Stephen Tierney of World Leather described to us recently as pocket money footwear? Can tanners ever make a decent profit in such sectors? Remember what a profit really means. Robert Hein of National Beef put it neatly at the Leather International upholstery conference in Shanghai when he said that every craftsman in the supply chain should be able to earn a decent living. Add to that proper income to pay for environmental matters and you get a better feel for where leather needs to be.
One good measure is to go into a retail store and work the retail price back to the manufacturing costs. We do this readily these days with iPads and Kindle Fire and have the knowledge to do it with gloves and footwear, but never seem to. Time and again when looking at footwear, furniture or gloves it is hard to see how anyone can get a wage or a profit from the implied leather price. It is no wonder then than that influential authors like Lucy Siegler is pushed to write books like “to die for: is fashion wearing out the world”. Her study of tanneries took her to Bangladesh and to some of the poorer tanning areas of Kanpur. As tanners we cannot complain too much about her comments as we know these tanneries exist along with many others elsewhere in the world. Normally it comes alongside local or national governments that feel unable to enforce their own environmental legislation but this whole approach of making cheap leather for low priced market segments is doing much more harm than we imagine to the overall image of leather. It also provides huge amounts of ammunition for those who like to oppose the leather industry for whatever reason.
This brings us to the point of what we should be doing with leather if we only have twenty billion feet to sell each year and a growing middle class in the world wanting to buy it. There is an increasing requirement for elegant, quality products and a big demand for increasingly luxurious yarns so why do we need to sell leather in these lower sectors in the market. Tanners often blame the “low end” and enthusiastically condemn every hide or skin with a scratch to a life looking like a piece of plastic. In most sectors we have quite good evidence that the final user understands that certain defects are not signs of diminished quality and in carefully considered and presented articles can actually be an enhancement. The barrier has always been the people between us and the consumers – buyers, engineers and the like who want to cut a clean piece of leather with no wastage. It is rather an indictment of our industry that after so many thousands of years we have not found a way to teach the people who cut it up or make shoes, gloves and seating how to value it and to use it properly. But that is the point – it is up to us as tanners to do the teaching. It is up to us to decide how to segment the market and who to sell it to. And getting the final consumer to remind the retailer or the brand that they like real leather, not leather indistinguishable from plastic, is basic ingredient branding.
So many people confuse marketing with selling. From Ron Sauer who objects to any campaigns as they just sell more leather (or see he seems to think) and therefore wants a meat campaign to Mr Pratini the JBS director and ex Minister of Agriculture in Brazil who wants Brazil to have sales campaign for leather like the Italians. Mr Pratini’s speech was excellent and he is absolutely correct that Brazil needs a better world image for its leather. With great style, fabulous designers and superb expertise in fashion from people such as Lilian Pacce Brazil should be changing the position of the nation and of leather in the consumer mind. But this should not be about selling more, but about selling better to the correct sectors in the market. Not selling into the low end, the fast fashion, or the permanent discounters. Why over-distribute a material whose supply is limited? Every major brand knows it is an error to be over-distributed. Why should leather be different?
The leather industry margin problems are not those created by the brands and retailers. Our problems are created by us, the tanners. Just look in the mirror.
28th November 2011