It was not all plain sailing. In the late 1980s, Pittards held that dominant position in glove leather and moved to grow by buying in other market areas in the UK, right at the moment of major globalisation when everyone was off to Asia. They should have read their history books from the 1970s when another UK tanning group, Barrow Hepburn, tried the same strategy in footwear leather only to discover that the shoe industry had gone to Korea, Taiwan and Portugal while they were counting the fantasy future profits from their anticipated monopoly position.

In the early 1990s, I joined the American golf business Acushnet, who owned Titieist and FootJoy, and had built up a global branded product market share of around 60% in the categories of gloves, footwear and balls plus a strong position with regular, good golfers in clubs. Their market share dominance had been assisted by the sheer size of the U.S. market, where Florida alone was bigger than the entire UK business. Nevertheless, Acushnet still fouled up when it mis-spent over half a billion dollars on buying Cobra Golf.

Titleist and FootJoy demonstrate the value of having such a strong position as they still hold it today, some thirty years on, despite a totally different landscape. Nike, for example, have both come and gone from the market in that period. One reason for their success is that they stay very close to the final consumer and relentlessly innovate through collaboration with and for the better golfers who play the most golf, and spend the most money.

This is important as often the market leader is reluctant to risk innovation and that is left to their competitors. In many ways this is the thinking behind Clayton Christensen’s “disruptive innovation”, where shareholders and senior management understand the shifting landscape but are not willing to risk their profits and dividends to fully engage.

Disruptive innovation in footwear

The late 1990s was the period in which we were first introduced to the idea of convergence, and technology started to promise big changes, but the dot-com bubble delayed it for a decade. It was around 2005 when we again we began to see telephones, media, photography and a host of other things being turned upside down. So much so that almost everyday we see a new bidder with a different motive fighting for control of Sky. It is why the regulators scratch their foreheads trying to understand what might be going on panicking if someone’s market share starts to go above 25%. But how to define and measure a market is much more complex with such fundamental shifts going on. Industry 4.0 is already changing the footwear industry with leather not so much competing with other materials as with engineered uppers, and tanners having to decide how to compete, with options including whether to cut their own leather or innovate the leather technology to allow seamless sewing, or fast to customer options.

So what of leather? We do have some consolidation already, especially in the sneaker and general footwear market. The leather chemicals area has already changed. The tanning sector has long been dominated by family owned SMEs but there has been steady growth of the biggest units with strong consolidation in the hide supplies and in automotive leather production. The footwear tanning sector does have a small number of dominant players and this was very obvious at the North West Materials Show in Portland two weeks ago. 

Whenever markets get difficult and margins are low companies look for ways to merge or acquire, reducing the competition so they can raise prices. This does seem the likely future in the tanning business, as our more professional majors grow with smaller companies falling by the wayside. But those involved in consolidation should take care, remembering the lesson of Barrow Hepburn, and make sure they move forward with the collaboration of their customers.

Dr Mike Redwood

August 28, 2018

Follow Dr Mike Redwood on twitter: @michaelredwood

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