Where are we going

Redwood Comment
Published:  22 April, 2020
Dr Mike Redwood

As we look out, there is a growing determination to get the world back to work in order to minimise the already huge social, economic and psychological damage being done. The decisions do not appear to be only based on saving lives, as other factors such as the economy, winning elections and taking tighter political control are being assessed by our world leaders.

Since in the leather industry we have increasingly called for greater transparency and absolute honesty, then the one obvious figure which should be deciding the steps by governments is the R0 figure. This measures how transmissible the infection is. If the average number of new infections an infectious person can generate in an unaffected population is above 1, then the infection will grow, whereas below 1 it is more likely to die out. Earlier in the year we were hearing of an R0 of 3-4 with a few “super-spreaders” infecting up to ten people.

Most of the world - with some big worrying exceptions - is seeing a flattening out, and many countries are starting to look at the data around their R0 with a view to a gradual reopening. Of politicians, Angela Merkel appears to have the tightest handle on it and explains in a short, easily found, video the implications for the German Health Care Service of the R0 moving from below 1 to 1.3. It is not so apparent whether other leaders understand this simple science or even want to know.

The message here is that politics has become a dominant factor, and that tanners and others in the leather industry had better factor in a heavy dose of geopolitics to future thinking. Every fact about Coronavirus that we look at, and every solution, appears to be based on individual nations rather than international cooperation. The only time we seem to be talking across borders is to poach people or kit, present propaganda or proportion blame. It feels more like post First World War, which did not exactly end well, rather than after the Second World or the Financial Crash.

The three most important countries in the leather industry - China, the U.S. and Italy - are all coming out badly. Italy mostly because the EU appears to have forgotten its organisational purpose and is keen to punish what it sees as the weaker members. The U.S., whose whole leather business and associated R&D is about international trade and cooperation, is closing doors and building walls, and China, who appears to want to fill the void the U.S. is leaving, has displayed some really poor judgement in so many ways that friends and the uncommitted must be very nervous about getting too close to such a big power.

One would probably place India and Brazil next in line, which does not add to the comfort, as both have political agendas that are not putting sustainable business very near the top. So what should we do?

Many of those talking about the ‘new normal’ after COVID-19 are laying out agendas that mirror their personal beliefs. This is not too helpful, as in reality, getting people back to work and the global economy working fast will dominate most things. There will be some pulling away from China as a single source, accelerating what was already happening, but with China already such a big consumer market, those with capacity there will not be shutting down any time soon. Right now, as the world’s automotive companies lie idle, factories in Chengdu are busy again as are the stores in almost all cities. In an unexpected boost to the luxury business, Hermès supposedly sold US$2.7 million in sales on the reopening day of its flagship store in Guangzhou alone.

So, while the supply chains might get shorter for security, transparency, environmental and customer service reasons, we may end up seeing multiple chains established to serve different regions of the world. Yet, they will not be fully local in every aspect of the industry as the differences in U.S., EU, Brazilian and other hides are very distinct and are required in all regions, whether they arrive raw, semi-processed as leather or finished articles.

We have already said that SARS created a big long-term push online, and current research confirms this, especially for tier one Chinese cities. Around the rest of the world, we should gear up for something similar.

The implications for consumers are also becoming clearer. Work more, produce more, consume less and save more will become the reality for all but a few. National debts, already huge in most cases, will have to be paid for. Reshoring will come with higher consumer costs, after three decades using Asia and especially China to make almost everything cheaper. It will also likely bring that productivity boost that has been missing, but in doing so replace even more jobs through automation and artificial intelligence. Oil is so cheap that many production facilities will close down permanently: as soon as demand picks up, prices will soon be back at US$100 plus.

Enticing customers up the Maslow triangle towards self-actualisation, esteem and belonging is going to take time, new skills, new communication tools and quite a few different products from the leather trade.

And do keep hiring great youngsters to build your teams and avoid this year’s leavers being left unemployed.

Mike Redwood
April 22, 2020

mike@internationalleathermaker.com

Follow Dr Mike Redwood on twitter: @michaelredwood

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