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As people move out of poverty they start to buy things. This is a basic tenet of Maslow's Hierarchy of Needs that most of us learn at school. Water, sleep and food are our first requirements followed by security and shelter. But then we climb into the need for belonging and along with clothing and drink we join the "Pepsi Generation" and the likes as needs for love and acceptance have to be met. Richer still and we move first to those ‘ego needs’ and then to self actualisation or the more experiential aspects of life.
Leather in more basic areas such as footwear is near the bottom of the pyramid and in luxury goods is near the top. So it is no surprise that China is a big destination for products, which use leather since in China at least 350 million people have been raised into what is now defined as the middle class.
Currently 51% of Chinese live in cities. China has plans to make that over 70% although this will depend on the successful reform of their hukou system. So the emerging Chinese middle class will keep growing and estimates suggest that by 2020 there will be 1.7 billion middle class in Asia and maybe as many as 3.2 billion by 2030. The leather industry has already seen the impact in China via the doubling in footwear consumption to about 3 pairs per capita and with the US at 7 and the EU at 5 there is still room to grow.
Beccaria's theory of luxury
The phenomenon called Beccaria's Theory of Luxury says that while rich people use wealth to show their superior social status middle class consumers will use their growing wealth to emulate the social class above them. On this basis, aided by a custom of gift giving and lots of corrupt wealth, the luxury goods business in China has quickly reached a level alongside that of Japan and the USA. As a result it is easy to believe that future profitability in leather sits with luxury goods rather than full range of leather articles we have been used to.
Research about how consumers acquire luxury products has been done in the US and the EU so it is risky to say that Asians will follow the same pattern of materialism and consumption that has become a western norm. It is more likely we will see a divergence from this pattern, and there is some evidence this is already happening.
Traditional luxury is now more often termed as "absolute luxury" and is all about exclusivity. A true luxury brand will not normally seek out new customers as this dilutes the image of the brand and the integrity of the products. Luxury companies such as Rolex, Hermes and Cartier are more product oriented than market oriented and seek not to satisfy consumer demands but instead quietly continue to produce top quality articles.
Today we also have "new" or "accessible luxury". This sector builds its offer on aesthetics, symbolic meaning, quality and of course price which implies that clever marketers can move mass-market products into luxury goods. This has given the sector the additional name of "masstige luxury".
The timeless value of leather is quality, rather than luxury
But in this sector the timeless, classic beauty associated with luxury products developed on the basis of their exclusivity is lost when managers make their brands more accessible. When the driver becomes growth rather than defence then the brand becomes more important than country of origin, something, which the French luxury trade needs to think through carefully. We should also take note of what Vanessa Friedman said in a recent interview:
“Fashion as an industry, especially one listed on various stock markets, has only really existed since the turn of the millennium. LVMH didn't exist until the end of the last century –Bernard Arnault didn't buy Dior, upon which his empire is built, until 1985. It has become so huge, so fast, it's hard to imagine none of this existed 50 years ago; that fashion was mostly local.”
So this whole landscape has changed enormously since we became overexcited with brands in the late 80s. Today what we call perceived luxury is largely based on context. The consumers’ perception of luxury is different dependent on time and place. For some products such as electricity and soap are luxuries. As their wealth increases they may look only at specific brands of soap as "luxury". Similarly a Starbuck's coffee may be a luxury in parts of the world or a "necessity" in the US (judging by how reluctant western consumers were to give them up during the recent recession). There is a view that luxury brands are those “which are perceived as luxurious by the masses” which means that almost any brand may be seen as a luxury brand depending on the consumer. Typical examples might include Nike, Apple, Gillette and Ford.
So how can tanners extract meaning from all this? Let me have a stab at some conclusions I think the industry needs to consider:
Growth of the Asian middle class over the next fifteen years will be a major driver of hide and leather prices and will continue to provide big opportunities for the leather industry
There is little evidence that the Chinese are as inherently status conscious or materialist as we have been in the west. A market that has evolved rapidly is likely to evolve quickly again.
Pampering, self-reward, individuality and connoisseurship, rather than just status, are already strongly at play in Chinese consumer culture.
A lot of new goods from mobile phones to expensive coffees are stealing a significant proportion of disposable income once spent on footwear, clothing and accessories.
The leather industry would do itself a lot of good by getting its mind-set back to quality and value rather than luxury as its route to long-term success.
Given the rapid urbanisation in China knowledge of agriculture the inherent values of leather are quickly lost. Consumers will buy well-marketed plastics instead of leather, even in luxury automobiles, unless we educate them.
To my mind that just means quality and reliability, which is why leather has been such an enduring and valuable material throughout history. Tanners should continue to focus on long term consumer values whatever sector of the market they serve. Do not get seduced by talk of "luxury". It is as elusive as it is badly defined.
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