Return to Reality

The Sauer Blog
Published:  23 October, 2015
Ron Sauer

One of our long time correspondents, with multiple decades of experience in the raw trade, comes with an interesting explanation concerning the present state of the trade and the falling prices.

Here is an edited version of his comments:

“Between 2011 and 2014 there was strong and growing demand for leather goods from the new emerging countries. This was amplified by the opening of hundreds of new shops by all the major brands in these new markets all around the world. Production had to be increased to fill up all those shops and meet this new demand. It started the race for raw material to be able to manufacture all the leather needed and it pushed prices higher and higher.

But good and bad things don’t last forever and one day somebody realised that one country was not as good a customer as was expected, that one shop was not selling as successfully as expected, that a currency moved in the wrong direction, that one government took action to stop foreign business people buying expensive gifts for their civil servants in return for favours and so on. 

And then, suddenly and quite unexpected, production dropped 20% and everybody had forgotten that from 5 years back it had grown a tremendous 40%!

During those years of super growth, some big names in the leather trade developed their marketing and design teams to keep up with the rapid changes. Some employed inexperienced managers who had only seen 20% growth per year and believed that would go on forever. But can you imagine 30 years of growth like that? Of course not!

In the meantime, these marketing and design teams started to live their own lives, thrived on their own success and disconnected from reality outside. Purchasing managers bought more material than they should, and were shocked to suddenly receive orders from their finance department to stop buying more. Designers who were dreaming of new colours were told the warehouse was still full of other colours so no more new ones were wanted! Shock and confusion followed one another.

The situation today would not have been bad if this sudden extraordinary growth period had not been there. But now it is time to return to reality, put things in order, and adapt to more realistic roads for the future. And no need to go fast, just step by step.

Remember that the leather business is basically an artisan’s trade, helped by some machines and chemicals, but still an artisan’s job. It takes 70 hours of work to place all the leather inside a Bentley. It is done by hand. And a Hermès’ artisan can only make 3 bags per week. These are two examples of perfect leather products that keep selling well. But if we produce poor quality shoes to lower the price and the consumer does not feel comfortable in them, they won’t sell. Not even if you lower the price further.”

All comments welcome.

Ron Sauer

ronsauer@thesauerreport.com

www.theSauerReport.com

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