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Buying and selling companies for billions of dollars has become commonplace, often creating massive concentration and oligopoly in markets. When LVMH spends over US$3 billion for a train and hotel business, first established with the visionary purchase of a loss-making hotel and a couple of old train carriages, even the leather industry needs to look up.
It is not so much that there was always a lot of leather on the famous Orient Express trains included in this purchase, although there were soft nappa leather armchairs and some embossed leathers to be found. What the leather industry needs to register is that the US$3.2 billion acquisition of Belmond Group is similar to the recent multi-billion acquisitions in the technology sector where price is less relevant than strategy. It is clearly as defensive as it is progressive, since the future of the regular luxury business has again become uncertain. The Chinese economy has become weaker and Xi Jinping’s removal of term limits on his Presidency is likely to reduce the creativity and entrepreneurship in the country as he heightens central control. Coincidentally, Donald Trump’s world approach of brinkmanship and unpredictability guarantees only volatility or worse. Luxury experiences, especially travel, offer one area of certain growth amid all this.
The experience economy written large
This is the arrival of the experience economy written large. We have heard a lot about it in the last few years and some tanneries have noted the impact with increased sales of leather to interior designers and certain areas of public transport. For the mainstream leather industry, it has not yet gone beyond a topic of conversation. Perhaps this will be the wake-up call.
We know leather works well in this market. Well-chosen leathers offer a luxury look, touch and smell to consumers that reinforces the image and atmosphere they are paying for. It offers the durability, low maintenance and “evolving with age” needed to be value for money for the provider. What is more, being of natural and organic origins it offers a counter to the world of technology and a rare level of sustainability amongst modern materials. Yes, leather is really a cool material for contemporary usage.
Yet to succeed in all this, the leather industry needs to become proactive. We have to tell our sustainable story in a simple, easy way. We have to promote our leathers and make them cool for modern consumers of all types and ages, not just for ourselves. We need to be ahead with offering the correct performance and aesthetics to support all this and to be seeking out and developing relationships with the companies and designers involved.
I have noticed the slogan “nothing replaces leather” starting to be used again in the leather industry after 90 years. It was a famous phrase in the 1920s USA, but it did not stop the decline in heavy leather consumption as intended. The Harvard Business Review explained a few years later that tanners and shoemakers should have added “nothing replaces leather at 17 cents a pound”. Alternates existed to sole leather which shoemakers and consumers found cheaper and better. With alternates to leather now available in all sectors, the consumer value equation has always to be kept top of mind.
Tanners have always been rather too product-oriented, but in a world of competition such as we have today, we need to have a culture change in this regard. We need consumers who understand and appreciate leather; who will tell brands, retailers and other suppliers such as LVMH that they expect it and will pay for it. We cannot afford to have leather being banned from a hotel or train merely because one vegan asks for a leather-free experience. The slogan is useless if we do not make our leathers with the end use and the consumer expectation in mind.
Dr Mike Redwood
January 2, 2019.
Follow Dr Mike Redwood on twitter: @michaelredwood
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