The Market
ECONOMIC SITUATION REPORT, LEATHER GOODS INDUSTRY, 2009
The current recession has been a powerful influence on the industry’s level of trade in the first half of this year, as indeed was only to be expected.
Following full-year figures for 2008 which were moderately encouraging despite the first indications of a crisis, the first part of 2009 has shown clear signs of a decline in production quantities (-15%/20%) and even more seriously (-20.4%) in exports, which have always been the industry’s driving force.
As to consumption, here there has been a sharp fall in household spending on leather goods (-5.7%).
The overall state of the industry, then, reflects developments in the Italian and world economies generally; companies struggling before the summer break face a fog of uncertainties as they return to business this autumn: recourse to the Short-Time Working Fund (ordinary and extraordinary sections) peaked between March and May, and then fell 16% month-on-month in June (1,563,911 hours in total); net new employment (hirings less dismissals) was negative over the six months, falling by some 6,000 jobs in the leather/hide segment alone; orders are much scarcer from all foreign markets and also from the domestic one, though to a lesser extent: the overall mean decline in first half of 2008 is estimated at between 20% and 30%. The figures for the luxury goods segment are poor as well: the struggles of Italian and foreign companies in this segment have had – and continue to have – worrying repercussions on Italy’s fabric of manufacturing subcontractors, a multitude of firms which are having to cope with the fall in orders from the great names, without any alternative markets. Though there are some feeble signs of an improvement in domestic consumption to be glimpsed, there is little likelihood that the second half of 2009 will see the main business statistics restored to health; the industry’s general weakness can be expected to remain a feature of much of 2010 as well.
EXPORTS
The available figures (for the year’s first five months) indicate a considerable fall (-20.4%) in export sales, to €1,093m; big declines were seen especially for all real hide products (down 22%), while for those in synthetic materials the fall was slightly less (-16%).
All production segments were affected, but the decline was particularly significant in the case of women’s handbags, the “core business” of the industry, whose export sales fell by more than 20% by value; the decline in belts was even steeper (-26%), while exports of small leather goods fell 19% and of travel bags fell by 9.5%.
In terms of quantities, also, export sales experienced two-digit falls (-19.5%) goods in synthetic materials (-18.5%) suffering almost as badly as those in real hide (-21%).
Next, the breakdown by destination reveals a very serious situation in exports to all the main customer countries, amounting in some markets to an out-and-out collapse, with falls of 40% and even more.
That was the case in Russia, a market which had been of rising importance for a number of years and had given the industry’s exports a new and hefty boost even when certain traditional markets for Italian leather goods, such as Japan and the United States, had shown cyclical signs of saturation or weakness.
Though the falls were more modest, the story was hardly better for exports to the Arab Emirates, another market which had shown encouraging signs of interest in Italian leather goods over the last two or three years.
In Europe, sales held up only in Greece (+ 6.0%) and Austria (+1.1%), which are hardly major markets in terms of volume; in other countries sales fell, in some at a remarkable rate: the United Kingdom (-20.3%), Spain (-22.4%), France (-13%) and Germany (-15%).
Exports to the United States and Japan fell by 35% and 15% respectively.
Some alleviation in this downward trend may be expected in the course of the year; but 2009 will still end decidedly in the red, even if the decline (in quantity and value terms) becomes less drastic.
All production segments were affected, but the decline was particularly significant in the case of women’s handbags, the “core business” of the industry, whose export sales fell by more than 20% by value; the decline in belts was even steeper (-26%), while exports of small leather goods fell 19% and of travel bags fell by 9.5%.
In terms of quantities, also, export sales experienced two-digit falls (-19.5%) goods in synthetic materials (-18.5%) suffering almost as badly as those in real hide (-21%).
Next, the breakdown by destination reveals a very serious situation in exports to all the main customer countries, amounting in some markets to an out-and-out collapse, with falls of 40% and even more.
That was the case in Russia, a market which had been of rising importance for a number of years and had given the industry’s exports a new and hefty boost even when certain traditional markets for Italian leather goods, such as Japan and the United States, had shown cyclical signs of saturation or weakness.
Though the falls were more modest, the story was hardly better for exports to the Arab Emirates, another market which had shown encouraging signs of interest in Italian leather goods over the last two or three years.
In Europe, sales held up only in Greece (+ 6.0%) and Austria (+1.1%), which are hardly major markets in terms of volume; in other countries sales fell, in some at a remarkable rate: the United Kingdom (-20.3%), Spain (-22.4%), France (-13%) and Germany (-15%).
Exports to the United States and Japan fell by 35% and 15% respectively.
Some alleviation in this downward trend may be expected in the course of the year; but 2009 will still end decidedly in the red, even if the decline (in quantity and value terms) becomes less drastic.
IMPORTS
Imports, too, after years of continuous growth, have fallen in value terms (-3.3%) and even more in terms of quantity (-13.3%).
Imports of synthetic goods rose, nevertheless (+4.8%): these come in at the lower end of the market, and at present account for most of Italian consumption.
Women’s handbags in synthetic materials, sales of which rose 5.6% in value terms, account for some 50% of all imports: a total of over €209m.
The import quantities from some of the most significant exporting countries make it clear that this is a powerful recession: imports from China were markedly down for the first time, perhaps, in fifteen years (-12.4%); Hong Kong, a transit market for many Chinese imports, sent 54% fewer imports, and quantities purchased from India, which sells small leather goods and briefcases to Italy, fell by 36%.
There was also a brusque slowdown in imports from Eastern Europe, where much of the offshoring of Italian firms’ manufacturing has been concentrated: Romania -29%; Bulgaria -42%; Hungary -28%; Slovenia –49%.
CONSUMPTION
Compared with a very poor performance in the first half of last year, the recession in 2009 has been milder for sales of the industry’s products, which rose in quantity by 4.2% although in value terms consumer spending fell by a considerable -5.7% to a total of €716m, over half of which was for women's handbags (€435m).
Italian households’ purchases of these products rose just 1.4% in quantity, and fell by around 5% in numbers of units.
Consumers generally tended to go for the more down-market products, as can be seen by the considerable fall in the mean price (-9.3%), a fall that affected
virtually every segment of the industry.
In the coming months a less gloomy economic situation in the industry will be utterly dependent on a marked upturn in consumption generally, both domestic and international; that will be needed if the conditions are to be in place for a revival to extend to spending on the mid-market and top-end products which are Italy’s strong suit, and where the Italian industry’s firms have greater competitive strength.
There is still, moreover, plenty of room for growth in demand from the emerging countries, where a rising proportion of the well-to-do middle class could
increasingly offer a strong demand for medium/high quality products and what are referred to as “affordable luxury” goods; good intelligence among manufacturers (including “Made in Italy” leather goods firms) about the importance of these potential markets is vital if they are to be able to design their marketing strategies and build or consolidate positions based on these new consumers’ requirements.
Export demand should rise once more, then; and exports have contributed a major component of Italian GDP growth (1.6% in 2006 and 1.3% in 2007). We may
expect some release from the worldwide recessionary straitjacket which has already in the last year trimmed almost a billion euros off sales of affordable luxury products in clothing, footwear, real hide products and furniture, and has led – in the first quarter of 2009 alone – to a 16.8% fall in sales of real hide products in these price brackets.
Here the forecasts from world economics institutions show a certain optimism for 2010; they expect a resumption of growth in world trade powered by faster
development in the emerging countries and by an upturn in the advanced economies which will give Italian exports a new boost; that could be accompanied
by a modest rise in Italian consumption as households’ confidence improves once more.
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