When I read in my ILM e-newsletter, that Hermes was quoted as making 32.4% operating profit in the previous period I realised why my considered opinion was wrong. Business is not flat (at least in some sectors) and the businesses buying our leather are not only booming but are also making a mint. Having “networked” at Hong Kong the buoyancy of our customers was strong and I realised that business for 2014 is going to be good in volume terms i.e there is plenty of volume out there that leather buyers need to fill. Hence – I was wrong in my prediction that 2014 would be like 2013.
Tannery inventories are low and sourcing raw material at the current ridiculously high prices is extremely difficult. Hides and splits are in short supply and likely to remain so during 2014 (and expensive). The major challenge in 2014 will not be getting orders nor enticing customers with new product, it will be meeting this demand in the absence of hides.
Economics is not my strong point but I recall the law of supply and demand goes like this, when the demand goes up – so does supply or when the demand goes up and there is no potential to increase supply, then the price goes up (which is our scenario and the likelihood is it will remain for this year). So, the time is right to up prices. When we are struggling for raw material, demand is strong and our customers are making good and sometimes-obscene profits, it is time for us to up prices and target a more sustainable profit margin than we normally achieve in high hide price periods.
The Toggler
