A YEAR FILLED WITH NEWS, INNOVATION, AND CHALLENGES. 2017 HAS BROUGHT AN INTERMITTENT OPTIMISM.
Years were spent evaluating the weight of financial operations, then came 2017, and the acquisition phenomenon came back, putting the tanning segment under the spotlight. Fine, Richemont annexed Milan-based leather goods company Serapian in the last few weeks, but that doesn’t change the focus of the matter, and in some cases, the amount of new aspects that this matter brings. The operation that brought Pasubio under the CVC Capital Partners’ umbrella for example, which is an investment fund with a (very) differentiated portfolio measuring over 590 billion USD in value. Or the more traditional acquisition of Scamosceria del Brenta by Isa TanTec, which is a group known in the tanning industry and that operates, for the most part, in Asia, with German capital. On the other hand, the acquisition of a Solofra–based (near Naples) tannery by an Asian buyer did not close, but the buyer remains interested in other businesses. Bellivio (holding), based out of the Netherlands, and that already owns meat operator Sopraco, integrated its activities by acquiring Rompa Leather. Moreover, Hanan Prosper (China), acquired New Zealand-based G L Bowron&Co, while Wallace Group bought the Nichols tannery. Important moves, that might not be over just yet.
Renewals, paradoxes, bureaucratic mistakes. 2017 was a year that saw 51% of material, raw and semi-finished, being removed from the free-trade portion of trade. “It is a matter of survival for us, – say protectionists – we must give work to our tanneries and our manufacturing industry”. Yet, In Tanzania, the immense duty, causes material to rot in the warehouses, because tanneries don’t have the equipment to tan the material. In Zimbabwe, the government is first protectionist, then gives tax breaks to companies that export the materials, that are unable to sell the product, and then LMAC (national agro-business and livestock association), calls for the removal of the duty, “because the national leather segment is structured so that it can work large pieces of leather (Ex. Bovine), while the small and medium-sized ones are not in demand”, and they too, end up rotting in warehouses. Russia renewed the block to foreign sales of Wet-Blue, ‘temporarily’ put in 2014, and prolonged to April 5th 2018. Turkey closes the circle, because it imposed a block on bovine Wet Blue exports last August (500 Euros per ton), but was then forced to a partial reversing, due to pressure coming from the country’s tanners. The duty regulation was ‘poorly written’, since it also included splits. Now the latter are ‘free’ once more.
New materials, new brand, new markets. Old problems. This past year was lived ‘dangerously’, regarding the language and communication tactics used. For example, the problems cause by certain ‘eco-chic’ initiatives that, in reality, misled consumers by using words that were falsely reassuring. The first one is the curious term “Wineleather”, which is a type of fabric created by an Italian startup and sold as “leather from marc”. A cease and desist letter sent by UNIC persuaded the start-up to stop using the word ‘leather’ and even to stop the advertising campaigns that described the real leather industry as polluting as a nuclear disaster. Simply put, a lie. Of course, it is convenient for companies that choose to use alternative materials, to badmouth the leather industry, so that they may profit on the market. The market is the one pushing luxury car-manufacturers to use synthetic fabrics. Tesla justifies its choice by quoting the brand’s ethic, but Bentley more openly says that they do it to “capture a new piece of market share”. Additionally, there is the matter of FlyLeather, material being used by Nike, that reminds us of the problem with fibers leather board, which they sell for “bonded leather”.
“Milan has everything. This last fashion week seems to be more cheerful than usual, more eventful”. Said Stefano Gabbana, answering to the heavily provoking statement by the New York Times, which described the Italian metropolis as a “peripheral land”. Contrary to what the article says, Milan was able to put together the worlds of fashion, business, and media in 2017. The large event (Milano XL), in September, with the fashion shows, and city center full of different installations celebrating Italian luxury and fashion brands, had a fantastic result. And these events managed to close a positive circle that began at the start of the year, when the first trade-shows were taken place, for example theMicam and Mipel. Additionally, we may not forget the relationship that Milan has with Lineapelle, fair that with its 2017 editions in Fieramilano (trade center), further consolidated its role as the reference commercial and stylistic event for the leather industry around the world. The fair, in fact, had more exhibitors and more visitors than ever before. And proving itself the ideal and unique place in which to discuss, plan, and share ideas for the present and the future.
There is a need for more of it, everywhere, in Italy and in Europe. And everyone needs it: the footwear sector, the handbags sector, and the tanning sector. Products need it, to make who creates the designs that the value, characteristics and sustainability of materials are important. There is also a need of it in the managerial section of businesses. 2017 was undoubtedly the year for training. The year in which, more than ever before, training courses were created for professionals in the leather segment. Out of the many, we take three as examples. And all bring the tanning segment into play. The first being, Exploring Italian Leather Sustainability, started by UNIC, in partnership with Gucci, to explain to the new generation of designers what “sustainability in the leather production chain means”. Involved: students of the Accademia Costume & Moda, in Rome. The second one being, Master in Diritto dell’Ambiente e del Territorio (Master’s degree in territorial and environmental rights), with which UNIC is involved in partnership with Venetian University Ca’ Foscari. And last, the Politecnico del Cuoio (leather school), that started its lessons in October, in the Istituto Tecnico Superiore Galileo Galilei in Arzignano. 24 students are studying to become Green Leather Managers, or “managers for the planning, transformation, and innovation of leather”. The initiative was long waited for. It finally came in 2017.
2017 opened the debate on production processes once again. Value chains are getting ‘shorter’, due to the reshoring process caused by geographic reasons. Brands, looking for higher efficiency, but most of all, higher quality of the products, are bringing production back to Europe and Italy, depending on the segment and relations with Asian countries in which production sites were previously stationed. The priority of processes for luxury brands translate into two main types of investments. The first relates to industrial processes: Gucci in the town of Scandicci and Marche region, Hermès in France: all brands are increasing production capacity. The second one is about communication: the production chain of luxury brands looks a lot like an artisanal shop. Opening the atelier to the public is a priority, and so is providing clients with personalization services. But the hands that move the industry are also keeping up with modern times. Industry 4.0 is digital, connected, automated, and it plays a role in Italian tanneries and businesses. Thanks to the 2017 legge di Bilancio (legislations passed by the government), the production chains of Italy has invested in new machinery: “Innovations is a must if one wants to remain competitive”, explains Gabriella Marchioni Bocca, president of ASSOMAC (Italian association for machinery producers).
Let us use Gucci as an example. This war machine closed the first 9 months of 2017 with a a 45.5% increase on yearly base. Where does Marco Bizzarri (Ceo) think this increment comes from? “Half of business comes from Millennials”. And what does Mr. Bizzarri (born in 1962) do, to ensure that his company remains on the same wavelength as the market? He creates a “shadow government”, made of people under “30 years of age”, from which the brand can take inputs, even related to how to best eliminate waste when cutting leather. Millennials are the northern star of the luxury industry. They steer brands’ choices and are the prize to hunt for. The ones born after 1980, by now adults, not only interest for the way they spend money, but also for the way in which they are able to influence the more senior customers (Baby Boomers and Generation X). In addition, they are able to pave the road for the younglings (Generation Z, adolescents that are now forming their identity as consumers in the fashion industry). But, one must be careful that no false paths are followed while chasing Millennials. The very same Mr. Bizzarri of Gucci, told the world that the brand was abandoning fur, and that the choice had been made to “be more modern”. The facts, as we have documented in the past few months, tell a different story. Fur is liked by individuals, regardless of their age.
As long as there are handbags, there is hope. Leather goods are the best product of the year 2017. They make up the segment that most of all caused brands’ balance sheets to be as positive as they are. Data elaborated by AIMPES leaves no room for doubts. Doubts that, for example, were expressed by its president, Riccardo Braccialini, in mid 2016. The leather goods segment in Italy has made 20% more than the previous time-period, in the first 9 months of the year. This increase, of course, means that prices are growing, but also that quantity is increasing, causing the productive lines of brands, along with third-party manufacturers, to produce more. Because by now it is clear even to the most remote rock on the planet: all luxury brands make their products in Italy. Hermès (and others) is also increasing production in France, by planning to build two new sites that, by opening in 2020, will bring the total to 17 factories, with over 4,000 employees. And this wanting to “build more for leather goods – say the French – comes from believing in this segment”, which is showing its strength now, and potential in the future. To the ones concerned for a saturation of the marketplace, sector’s operators say that the antidote is to frenetically diversify the collections, reduce them in volume, but multiplied in number, with no seasonality. It is more challenging to work this way, with no doubt. But once the challenge is accepted, business accelerates.
It is a thorn in the side. The picture painted by all factors is one of the worst possible, and in 2017, it was still negative. Because the quality of raw material for the tanning industry is worsening. Many causes are creating this problem. The main one being that the livestock industry has changed. Companies that operate today are only marginally interested in what happens to the leather that comes from animals. These large groups use personnel that is not specialized, has to work intense shifts and is superficial when it comes to the skinning of the animal. There are supply chains (last one being heard of trying: France), that ae looking for solutions, but the problem is very widespread: the origin of the hides doesn’t really matter. The raw hides that come out of slaughterhouses are full of problems. Even more, the price for these raw hides keeps increasing: calf hides above all, (16% more, for example, between January and March), but also bull hides. And to close the circle of problems come brands, with requests that don’t appreciate the naturalness of the hides: opposite, they only see defects when veins and scars are present on raw hides, and want them covered with heavy processes. Some signals (such as the lower rate of fire branded animals in the USA and the removal of razor wire from many farms), are comforting. But the welfare of animals isn’t always an ally of the leather segment: the food given to the animals, for example, often plays against it.
The troubles of the meat industry become the troubles of the leather industry. The Brazilian and Indian chains share the grim destiny to be in the middle of political and judiciary scandals. Let’s start with the Brazilian situation, which has been hit by two blows, one internal (Carne Fraca, in March), and one to its main player (Lava Jato, in May). The circumstances are different, and the effects are as well. In the first instance, there were irregularities in the authorization procedures for the exports of meat; in the second instance, we saw JBS being exposed for its involvement in a corruption scandal that reached local administrations and the national government. Even with these troubles, the country’s indicators remain in the green. The Indian troubles, on the other hand, paint a complex picture. On one side, there is the meat-leather cluster, which operates on the outskirts of the economy and often at a lower capacity compared to international standards. But on the other side are the governments led by the Hinduist party BJP, in New Dehli and other states, that hide behind the term ‘legality’, but that are boycotting, due to religious causes, an entire industry. The situation in India is violent, and not just figuratively speaking. Businesses are closing their doors, workers are running away, and production falls: prospects are pitch black.
Tacchificio Zanzani (footwear producer), has been making its products for 103 years in Savignano sul Rubicone. In December, the company inaugurated the renovated production site, which is now larger than before at 1,200 squared meters. The company enlarged the production site due to an increase in orders. Not only for their historic signature product, heels, but also for its new division, which produces soles for sneakers. Virgil Abloh, on the other hand, is the designer that founded, in Milan, the brand ‘Off-White’. He was called by Nike to ‘revise’ 10 signature models of the large brand, said that for him, “sneakers have broken through the barrier that divides ‘technicality’ and ‘style’, and for this reason, they are just as important as the Monna Lisa or Michelangelo’s David”. Enclosed in these examples is the proof that the rise of what are now called ‘sneakers’, and used to be called ‘gym/exercising shoes’ has been remarkable, structured and unstoppable. A type of shoes with extraordinary power, that has forced every footwear producer to add them to their collection. Even Louboutin makes them, and the designers that resist the urge can be counted on one hand. According to Allied Market Research, the sneakers segment will grow by 2.1%, yearly, on average till 2022, starting from a value (2016) of 49.3 billion Euros. Some are insinuating a potential problem: what if fashion sneakers were to end up cannibalizing the more technical ones, from which they were created?
Danish group ECCO, stole the spotlight by presenting Apparition to the market. What’s that? Leather of bovine origin that is tanned with an innovative method, which allows it to become see-through and useful for industrial processes. The history of the tanning industry is filled with similar tries: if we go back quite a few years, La Conceria (weekly magazine) reported these experiments, such the one conducted in France in 1894 of ‘see-through leather”, as well as that of Eurokimica’s owner, who patented the methodology to produce it, and later rented the patent to Albatros tannery for a 2-year period. The problem with see-through leather is that it never really was applicable to the finished product. ECCO swears to have solved that problem, but (while we wait for the market’s response), this initiative proves the constant call for a new achievement, that we have called the philosopher’s leather. Transparency is a priority for leather, in all senses of the word. Most of all when regarding the clarity of processes and products. Sustainability, environmental impact and social impacts: these are concepts that the production chain in Italy really practices, with continuous efforts towards improvement. The opposite of brands and producers of materials that behave aggressively and unfairly, limiting their efforts to making a good impression on paper or camera: they talk the talk and don’t walk the walk.