Tom Hogarth

Deputy Editor

International Leather Maker

While many leather-using sectors have been through the wringer over the past few years, thanks to the cost-of-living crisis hitting consumers, rising energy and transport costs and ever shrinking margins, the luxury end of these industries appeared to have kept its head above water.

Looking at the odd financial report, you may even be convinced that this status quo will continue. But as we receive Q1 2024 reports from the leading fashion houses, concern is growing for the second quarter of the year and beyond. It’s easy to look at the recently released Prada results and be buoyed by the 11% growth and lack of declines across regions.

However, the company’s largest region saw the second lowest growth at 10%; the Asia-Pacific. Notably, this excludes Japan, which is seeing a luxury boom across brands, partially due to increased tourism from China as well as price increases to compensate for yen weakness. The country was up 25% for Hermès in its first quarter, though the group has also reported softer store traffic in Greater China.

Looking at the largest entities in this sector, problems begin to reveal themselves. French luxury giant Kering had a revenue decline of 11% in Q1, driven by massive drops at Gucci, an overall 21% fall which prompted the company to warn investors in advance. The brand’s decline was notably driven by a loss of sales in the Asia-Pacific region. Meanwhile, LVMH had a fall of 2% in the quarter, which it attempted to hide with “organic revenue growth” of 3%, calculated on a constant consolidation scope and currency basis, and the Fashion & Leather Goods business group was down 2% year-on-year (up 2% organic).

Chinese consumer spending

Despite the two major players reported declines and expecting continuing issues in 2024, the majority of the smaller leading fashion brands are reporting growth. The problem is that reduced growth and margins have a much larger impact on leather suppliers down the line, and we are already seeing this reflected in reports from manufacturers.

Last week, ILM reported that leather makers in Tuscany are struggling with reduced orders from major fashion houses. With finished leather demand a key issue for the sector at the moment, and non-luxury sectors already suffering, these suppliers are feeling the squeeze.

In particular, the problem has come as a result of houses increasing demand following a return to spending from Chinese and other consumers as they re-entered the market when pandemic restrictions were lifted. Now this demand has fallen away as fashion houses reassess priorities and look to manage costs and margins with reduced growth and, in the case of the largest groups, tackle outright declines.

Sapaf Atelier, based in Scandicci in Florence, reported that it has moved away from working with these bigger groups in favour of smaller fashion houses where the demand is more consistent and results have been on the more positive side. However, the issues that larger groups such as LVMH and Kering are facing could be an indicator of troubles to come for the wider luxury fashion industry.

Some analysts are estimating that luxury industry growth as a whole will dip through the second quarter of 2024 before increasing again in the third and fourth quarters. While LVMH and Kering are more than capable of weathering that storm, can the same be said for their leather suppliers? As always, there is little that the leather industry can do except batten the hatches, watch and wait.