World leather congress 2017

AUGUST, 29th 2017 • SHANGHAI • CHINA

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THE CHALLENGE OF VALUE IN A WORLD WITH LIMITED RESOURCES Looking at the next two decades is a difficult challenge that will be addressed at the third World Leather Congress, to be held in Shanghai this year (August 29th). Predictions, as you know, are made to be disproved, but the context in which the leather industry moves is clear enough to be able to delineate the strategies which international players will follow to give a successful future to their companies, labor force and generally to the industry.

First, the world continues to grow at a spectacular pace, driven by population dynamics which are both a resource and a threat. It took 187 years (1800-1987) to climb from 1 to 5 billion inhabitants on the planet, only 30 years to get to 7.5 billion. In 2050 according to estimates made by the UN, the world population will reach 9.7 billion.

It becomes automatic to think that men and women of the future will have to live in a world in which they will have limited resources. Waste will no longer be contemplated and the main challenge will consist of the optimization of raw materials, based on increasingly large investments in technology and business organization. This is also true for the leather industry, whose role is the valorization of a food by-product, and an industry that must use what slaughterhouses will be able to provide to tanneries.

The growth of the animal population will be less than the growth in the demand for leather for garments, footwear and accessories, which are natural destinations of this material; the dynamics of demand for leather are proportional to the development of the population and average income. Since leather is a limited resource, the increasing demand for shoes and other products means that the use of alternative materials will continue to grow.

For this same reason, luxury holdings have decided to invest directly in the tanning business, where their goal is the control of the upstream operations in the supply chain in order, in the future, to secure the quality of raw material required to continue to generate their enormous profits, that are unknown in other industries.

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editorial The challenge of the next twenty years, under the circumstances, is to achieve value.

Leather will be increasingly synonymous with high quality. This will be an issue for personal goods as well as for home interior items and for aircraft, car, train and other public vehicle industries. We can only imagine how things will work out in twenty years, but for sure we know that one of the most stimulating areas of scientific research will be connected to transportation.

Leather will be a prestige material, and will have to protect its top quality image, in order to maintain its position. Technology will have to develop powerful solutions in terms of sustainability, ethics, and respect for the environment, in order to enable the industries to defend themselves from the many enemies that threaten them.

The use of natural resources must be implemented according to the principles of the circular economy which, we emphasize, fully identify the nature of the tanning industry, that is, the use, and not exploitation, of a living, reproducible animal destined to be transformed into a valuable raw material.

The attention from the ecological point of view will focus not only on the raw hides and skins but also on the re-usage of tannery water, energy self-sufficiency and the use of environmentally friendly chemicals.

These are all technologies already being used in Europe and in some of the most developed non-EU areas. And the “natural� approach of tanning in the places of origin of the animal raw materials, which today can be identified in Africa and Latin America, will no longer be acceptable if production is irresponsible or non-ethical, without recourse to water purification and without a real respect for workers’ rights.

The future of the oldest human industrial activity is therefore linked to its ability to prepare for a better future and to the ambition to be the spearhead of the world industry.

A. Guolo

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contents

1st SPECIAL EDITION AUGUST, 29th 2017 • SHANGHAI • CHINA

Official Event

Organisers

Founding Sponsor

Gold Sponsor

Media Partner

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Editorial Interview - ICT President, Mr. Richard Pai

Focus on the key players in the leather Industry

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Brazil China France India Italia Mexico Portugal Turkey USA Brazilian leather Programme Location - Why Shanghai Venue - “The Leather Revolution” Useful information

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The third edition of the World Leather Congress will be held in the key country and in the key city of the new world. “What is happening in China now, is a vision of the future for the rest of the world” says ICT’s President Richard Pai

interview

WLC Shanghai, the right place at the right time

Third edition, third different continent. After Latin America (Brazil, 2011)

permanent shifts in the market. Looking forward, the key questions are:

and Europe (Italy, 2015), now it’s the turn of Asia and China in particular,

what and where next?

to host the 2017 World Leather Congress, organized jointly by the

Why Asia, and particularly Shanghai, is the right place to

tannery associations of China (CLIA) and Taiwan (TILA), which have thus

discuss changes for the next 20 years?

launched a strong signal in the Asian continent. As per tradition, the

Asia, with Shanghai as a centre, is a crucial element of any discussion of

choice of the location focused on the continent of the ICT (International

the next 20 years for the leather industry. If one looks at the trends, over

Council of Tanners) president, elected in 2016, the Taiwanese Richard

the last two decades, Asia is the area – and especially China – that has

Pai, TILA’s chairman and Tehchang Leather Products Co Ltd CEO. Pai

contributed virtually to all of the growth in the world leather industry. The key

is convinced that Asia is the right place to deal with the theme ‘the

point now is that this is changing – the industry in China is slowing down,

Leather Revolution’, around which speeches and conference activities

at the same time as a significant amount of relocation to other parts of

will revolve.

South East Asia – and to Africa – with investments from China and Taiwan playing an important role. In addition to this, there is a strong belief that it is

Mr. Pai, what’s the state of the art for world leather economy?

important to have an insight into the new (in their 30s) Chinese consumers.

The world leather industry is currently going through a period of

This is not only because they are themselves an important market sector,

considerable uncertainty, which, to a significant extent, is a reflection of the

but more important, there is the theory that what is happening in China

uncertainty of the global economic situation. Looking globally, there has

now – with the new generation of young, non-traditional, mobile and urban

been a substantial slowdown in the Chinese leather industry, which has

consumers - is a vision of the future for the rest of the world.

been a driving force behind the growth of the worldwide industry; there is uncertainty in Europe – not helped by the BREXIT vote in the UK – and

What kind of indications can WLC give to the world leather

also uncertainty over future industry and trade developments following

economy? Why should people involved in this business

the US Presidential election. At the same time, there are some significant

participate to this important meeting?

currency fluctuations that have added further uncertainty. Following the

The WLC will not only bring together all the different parts of the leather

global financial crisis in 2008/9, economies in general and also the leather

marketing chain to allow an important opportunity to exchange information,

sector enjoyed something of a recovery up to 2012/13, but since then the

views and visions. It will also provide key insights into how the market

markets have slowed.

and the industry are likely to develop going

Any consequence of this slow-down?

the sector, and the global economy

The main impact has come from China, especially in the very important

in general, it is more than ever vital

footwear sector. More recent signs have been that even the dynamic

for industry decision makers to plan

automotive sector has been slowing down. Some specialised sectors of

and position their businesses to give

the leather industry have held up reasonably well – the high-quality sectors

them the best chance to be

and parts of the fashion/leathergoods sectors –, but even here the situation

in the right place at the

is patchy. There is some concern that the rapid increase in raw material

right time.

Mr. Richard Pai

forward. At a period of uncertainty in

and leather prices from 2009 to 2012/’13 might have resulted in some 5

brazil

RAW MATERIALS GIANT IS READY TO RUN

The hide’s global giant will meet the challenge of the free market.

After a decade of spectacular growth, sustained initially by foreign investment and subsequently by JBS meat holding’s entrance into the tanning market, Brazilian leather appears today as a massive economic reality, made up of 310 tanneries with a total annual production of 43 million hides, and providing jobs to over 40 thousand employees.

Brazil is an imposing tanning reality, but with a precarious balance, as a natural consequence of a dominant position by the big global player, JBS Couros, which belongs to the Batista family, closely related to the two previous Brazilian governments. The challenge of the free market thus comes to successful completion of this double dependence, by a greater freedom of action granted to domestic and foreign investors and, ultimately, the ability to exploit the raw material, which is the key factor in the country’s development of activities of the sector.

The internal production dynamics followed market logic. The attempt to increase the export quota of crust and finished, after initial difficulties, is succeeding thanks to the demand for automotive leather for the North American market.

The United States is now the third target market for Brazilian leather, behind China and Italy; in the meantime, the export share of finished leathers has reached 60.7% in value and 56.3% in volume. Rio Grande do Sul, Goias and Sao Paulo are the three main centers for exports, with 57% of the value in the first 11 months of 2016. Turnover has been declining for two consecutive years, mainly due to the decrease in raw material prices in the 2015/16 biennium, which has been worst for medium/low-end raw hides and for drop splits.

Brazil therefore suffered a stronger setback compared with European competitors, with turnover reducing by more than 30% in two years, despite the ongoing enhancement of its raw material.

It’s natural that the predominance of the availability of raw hides, not exportable as fresh or salted, leaves the country’s tanning economy subject to fluctuations.

But this is not a problem; the main risk for those who process hides is working without hides, and Brazil does not run this risk, having a turnover potential of three billion dollars from exports that will again be reached, if not exceeded, when international prices rise again. Meanwhile, investments by the main tanning groups are set to increase not only the level of technology and automation, but also the image of the Brazilian leather.

The certification of sustainability (CSCB) initiated in 2015 has been adopted by some of the leading tanning groups in the country,

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including JBS Couros, Vitapelli, Couros Escape and many more.

Promotional support to Brazilian leather in major world exhibitions is part of the communication programme directed mainly in the B2B channel by the Centre for the Brazilian Tanning Industry (CICB) in partnership with the agency Apex, with an intense programme of participation in major world sector events. The Brazilian leather project has been launched to achieve six major targets: 1) increasing the number of exporting tanneries; 2) increasing the percentage of internationalized companies in the supply chain; 3) pointing to an ever increasingly qualified and skilled tanning sector, able to compete internationally; 4) promoting the image of Brazilian leather, in line with the vision of its customers; 5) increasing the added value of exported leathers; 6) contributing to strategies and key markets’ definition.

The path is long, but Brazil runs with the favorable wind of raw materials.

END OF GROWTH, VALUE’S BEGINNING China remains the world’s leading factory, including for leather, but it no longer has the monopoly of production that it had ten years ago.

“China has undergone a double-digit growth in its economy over the last 20 years, but it is impossible to maintain such high-speed growth in the future, as internal and external elements have changed a lot,” recognizes CLIA, the association of the leading tanneries in the most populous country in the world.

China has burst into the tanning industry in the late nineties, building an indisputable global leadership in tanning with spectacular rapidity, at least in quantitative terms. “The situation inside and outside the country, has changed dramatically” emphasizes the Chinese tanners’ association. Since 2010, production costs have begun to rise, driven by the shortage of manpower and strikes that have hit major industrial areas, with particular stress in the years between 2012 and 2015, or in what will go down as the first period of Chinese relocation.

This started with footwear and leather goods (more labor-intensive productions) and it was followed by tanneries, that had already faced the first radical changes since 2008, with the Beijing Olympic Games, when the need to reduce pollution for the country’s image led to a production stop and to the closure of the most impactful facilities in all sectors, including leather.

Since then, much has changed. The Chinese tanning industry has rapidly approached Western standards, maintaining mass production while at the same time installing efficient waste water treatment plants and implementing automation to limit labour costs.

Large companies have become even larger, while some smaller plants have closed. Meanwhile, analyzing leather destinations, part of the production of sneakers has moved to Vietnam, the classic shoe (especially men’s) has been partially diverted to India and leather goods to Southeast Asia (mostly Cambodia, Thailand and Indonesia).

Today those who produce in China do not have any benefit in terms of costs; the average salary in the Shanghai area has grown from 1,120 yuan in 2010 to 2,190 in 2016.

China is the ideal solution for the volumes required, for product specialization and, increasingly, for market-seeking strategies, because it’s a strong growth consumption market. “The economy – as reported from CLIA – is shifting from export leadership and investment oriented growth to innovation and consumption-driven growth which has already brought new challenges and opportunities to China’s leather industry. In order to meet stricter requirements for pollution control, more cleaner technologies and much more upgraded equipment are needed.

As labour costs are going up quickly, there is big pressure on tanneries and footwear producers; automated, digital machinery is

china

much needed by enterprises to replace the human labour force and improve production efficiency.

Finally, the Chinese younger generation has moved its purchasing behaviour to on-line consumption, which forces manufacturers to develop new sales and promotional channels quickly.

Today’s China is the most representative image of a world that changes quickly and where the long-term forecasts seem made to be disproved.

Looking at the short-term, CLIA estimates, for 2017, a stable number of tanneries and production volumes with a total of 510 million square metres of finished leathers produced only by medium and large tanneries.

The boom in car sales (+6% in 2016) is expected to continue. In the opposite direction is the export of footwear, which fell 12% in the first six months in 2016 to a value of $21.8 billion, and this is a sign that the Chinese producers should today be targetting the domestic market.

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france

THE BRAND’S STRENGTH IN A VERTICAL SUPPLY CHAIN

French people would appreciate more serenity, after a terrible year in terms of internal security. The terrorist attacks during 2016 have weighed on the country not only psychologically, but also economically and tourist shopping related to the leather industry is among the most affected sectors.

Paris awaits the possibility to express all the commercial potential of a country that has a strong industry background, focused on luxury, with holding companies able to make important plans and develop long-term strategies focusing on supply chain control. LVMH, Kering, Hermes and Chanel all invested significant resources in recent years to ensure control of footwear factories, leather goods facilities and tanneries, from France to Italy, aiming to play a role directly in the supply of a key raw material and helping to increase not only the industry’s prestige, but also the price levels.

The latest figures communicated by the Conseil National du Cuir for the first nine months of 2016 indicate +2.3% in terms of value in the production of bovine leathers and + 10.9% respectively for sheepskins, mainly due to exports which grew by 13 % and 8%. Data on footwear exports were +7%; leather goods export registered a +10% increase, a positive growth that confirms leather handbags as being the main attractive finished product in the French scene with two billion euro revenues in the first four destination markets: Hong Kong (574.2 million), the United States (563.7), Singapore (524.7, with an annual increase of 80%) and Italy (411.2 million). Boehly Frank, President of the Conseil National du Cuir, commented: “On the French market we see an increased demand from consumers for better quality products and a clear trend for higher-end imported products. As for the production of French-made leather articles, our country has since long been appreciated for its expertise on the

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worldwide luxury market and it continues to hold the 4th place for exports with a turnover of 9.3 billion euro for 2015, an amount that will probably be even higher in 2016.” The importance of the French positioning is confirmed by the average export price for leather goods: 388 euro for each bag.

Looking ahead, two challenges await the French tanning industry.

The first one is linked to the investments to update facilities, currently largely outdated, and in this context the direct intervention by luxury holdings will represent a security element for the resources available to these giants, with enormous margins compared with their European and International competitors.

The second one is linked to the control and gradual improvement of domestic raw material. The difficulties in the supply of best grades of calf skins, necessary for luxury leather goods and footwear production, require an agreement – which in part is already done – between tanneries, slaughterhouses, and the livestock world, to obtain “perfect” raw hides and skins, and to reduce – and if possible eliminate – the share of lower grades. At the moment, a direct involvement of the French “griffes” in the activities of the farmers, as in the case for the crocodile skins, is a little bit unlikely, but in the future, nothing could be impossible.

Certainly, there will be an increasing battle between French buyers and high-end competitors, especially Italians, over gaining control of the hide and skins of animals bred in France. The battle is made even more complex by the French farming crisis and the progressive fall in beef meat consumption in Europe, which resulted in the first nine months of 2016 in a decline in production (-5%) of the precious calf skins. All these elements, make us think that French finished leather will become increasingly rare, and more and more expensive, with the result that to operate in the luxury business a very strong market presence is needed. he free market is turning into an oligarchy, following the basic principle of economics: the winner will be the one with the highest economic power and the most successful brand identity.

THE GIANT WITH FRAGILE FEET A powerful machine, which is supported by a centuries-old tradition in leather processing, but needs to evolve, be upgraded and tested to fully express its potential. India, the eternal promise of the tanning industry, struggling to become a reality.

Each year there’s a new mishap and the latest, in chronological order, is the demonetization for raw hides payments, a government manoeuver that aims to move from cash to banking transactions between tanneries and slaughterhouses, but that would have meant - according to state representatives of the tanneries of four of the country’s main clusters (Agra, Chennai, Kanpur and Kolkata) - a substantial block of assets in the latter part of 2016. This is a further evidence of fragility, in addition to the already delicate balance linked to internal logistics and hide supply difficulties for socio-cultural reasons. There are many steps to take in terms of investments for water purification and improvement of working conditions. The declining trend in recent years, mainly due to lower exports, does not help companies to invest.

According to the Council for Leather Exports, revenues from footwear exports in the first half of 2016/17 for the April-September period (in India the fiscal year ends in March) would mark a fall of 1.8% in comparison with the same period in 2015/16 for a total turnover of 1,262.59 million US dollars. India in 2015 was the world’s second largest footwear producer with 2.2 billion pairs and a global share of 9.6%, according to the data of the World Footwear Yearbook, but also the third footwear consumer with a number of pairs in line with what is produced. Import is mainly limited to Asian sources and exports still represent a minority of the footwear business, about 10% of the total production. India is therefore a closed system, which must meet the huge domestic demand and which will rapidly grow following population growth projections: the number of inhabitants is expected to exceed that of China by 2022, and to surpass 1.5 billion by 2030.

Footwear represents the main end market related to Indian leather with a 2015 share close to 43% of the total, ahead of leather goods (22.9%) and tanning (21.8%). But if the shoe market is not at its best, for other sectors the situation is even worse.

The total export of leather products, which in 2014/15 was about $6.5 billion, is in decline; after having dropped to 5.85 billion in 2015/16, during the first half 2016/17 it shows a further overall decrease of 6.55% to 2.94 billion, with a very bad performance for finished leather ( -20.84%). According to the most negative projections, the reduction for the full year ending on March 2017 could reach -9.8%.

The situation that has arisen with the demonetization certainly has

india not helped the industry to recover; the fall in exports, due to the negative performance of Europe which is the main destination of ‘made in India’ leather products with 57% of turnover, has not been compensated by a real recovery in the domestic market.

According to the Indian agency ICRA, the outlook for manufacturing companies is negative, and companies, as well as having to deal with a drop in revenues, will suffer a decrease in margins if they want to maintain their share of the volumes commissioned by foreign buyers, who have many available alternatives in Bangladesh and Southeast of Asia.

Compared to Asian competitors, India can have two strengths: production capacity and knowledge of leather as a material.

To capitalize on these strengths, Indians will have to invest in automation, efficiency, and service. Will they act in this way? Even if it does happen, India is unlikely to achieve the objectives set for 2020 by CLE – which amounted to $9 billion for exports and $13 billion for sales in the domestic market. We are still very far from reaching these targets.

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italia

CLUSTER MODEL AND CHORAL COLLABORATION FOR THE EUROPEAN LEADER

Italy is the European leader in the tanning industry, with over 60% of the overall European finished leather production. 2016 has been a difficult year for tanneries and will end with an “expected but not traumatic decline” in turnover, down by 4% in terms of value and production compared to 2015, when the sector gained 5.2 billion euro for more than 75% thanks to exports.

Unic, Italian tanneries association, interprets the negative trend as “a natural consequence of the international economic situation” and doesn’t feel weak thanks to the strengths of the Italian tanning system, based on three main production hubs (Arzignano for adult bovine, Santa Croce sull’Arno for calf leather and vegetable tanning, Solofra for sheep and goat) with the addition of Turbigo micro-district for luxury small skins. Excluding France, all major Italian competitors suffered greater declines; furthermore, Italians have a great advantage from the most important world leather fair which takes place in Milan, Lineapelle, for quality and trends.

Another positive factor is represented by the existing investments in reducing environmental impact and sustainability.

The 14th edition of the Italian Sustainability Report, printed in December 2016, certifies an 18% reduction in water consumption over the past twelve years; this is a significant fact for a high-wateruse intensive sector, which also has a saving of 19% in energy consumption. Among the various strengths of the tanning industry in Italy, Unic focuses on the generation change, which is taking place in many groups who, independently of size, maintained a marked familiar management. The constant generation changes allow the sector to maintain vitality and dynamism in production management, innovation of processes and products, in development of new markets and new trends of doing business in the leather sector.

Furthermore, there is a second issue to take into consideration: the internationalization, expressed in finished leather sales (122 destination countries, for a share of 25% of world exports) and raw hide and skins purchases (17% of global imports, 22% of the wet blue and crust); continuously measuring themselves with a competition

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stimulates new growth strategies. Last but not least there is the “district system”, i.e. local production systems on which more than 90% of the total domestic production depends (54% Veneto, 28% Tuscany, 8% Campania, 5% Lombardy), an exemplary model of collective and integrated collaboration. Are there challenges ahead?

Italy must contend with increasingly stringent, but often unclear, domestic and Community regulations. “The European Union - Unic explains - has the world’s more complex environmental regulatory system, and among all European countries, Italy has the most stringent regulations in this field.

This set of rules is the answer to legitimate needs, in addition to being one of the basic reasons for environmental excellence of Italian leathers, but the proliferation of laws, regulations, directives both at national and local level has also created confused and sometimes even paradoxical situations.

There have been more than 25,000 regulations issued in Italy since 1970!” Then there is the challenge of the raw material, due to the fact that Italian tanneries’ needs are satisfied for less than 10% by the domestic abattoirs and they are forced to buy in Europe, where they collide with international competition, but also outside Europe where sometimes there is no competition due to the fact that local governments impose blockades and other export restrictions.

If a solution to the first two issues does not depend strictly from the tanneries, there is a third issue that should be solved within the system which has to do with the problem of scale: in 2015, only six Italian players exceeded global sales of 100 million euro.

This “small multinational” size brings advantages in terms of flexibility, especially considering the extreme cyclicality situation in the tanning economy, but at the same time there are adverse consequences in trading with customers such as luxury holdings or car manufacturers.

TRUMP’S UNKNOWN FACTOR, BUT CARS ARE RUNNING Mexico has become the tanning branch of the United States. The accelerated decline of the leather industry during the Obama presidency, strengthened the position of the US neighbor country, which achieves 55% of its revenues in terms of sales of its finished leather, from the United States.

This represents value of approximately $90 million to which revenues from leather goods including shoes, sofas, leather bags and especially car interiors should also be added. The automotive sector, in fact, is one of the primary destinations of the Mexican hides and certainly is the most dynamic one, with a substantial doubled turnover between 2014 and 2016. Official figures report that in the first nine months of last year, the export value for crust and finished leathers destined to the automotive sector was more than $42 million, up by 28% compared with 2015, when the increase was +42% on 2014. Furniture, which in 2016 reduced by 41%, is moving in the opposite direction, while demand for footwear and leather goods has seen a slight increase (+4%).

A confirmation of the preferential relationship between Mexico and the United States comes from the imports of raw materials which are processed by the Mexican tanneries. 81.3% of raw hides imported

by Mexican tanneries come from the United States.

The election of Donald Trump to the White House opens many underlying themes concerning the future of this business partnership, which for the United States represented the real alternative to China.

Everybody knew that Mexico and China were the subject of the heaviest attacks made by Trump in economic matters, with the goal of reducing American dependence on these countries and of strongly increasing the ‘made in the USA’ production.

The way to create a North American leather supply chain appears long and complex, due to the costs of investments and labor force training. In addition, Mexico has a big advantage in terms of specialization acquired in the automotive cluster in Guanajuato,

mexico

which represents almost 77% of all Mexican tanneries (which total approximately 1000) and 82% of all employees (who total around 12,000).

Mexico produces about 4% of the world’s cars and 20% of those made in the NAFTA area, ranking ahead of important competitors such as Brazil and France. There are 26 manufacturing facilities opened by the car manufacturers and 12 of these are controlled

by American companies: General Motors has 5 plants, Ford 4 and Chrysler 3.

The state of Guanajuato, in particular, is growing faster and faster, with a production increase expected by 2020 from 763,000 to 1.2 million cars and with a turnover that is expected to rise from 16 billion to 30 billion dollars. All major automotive tanning groups have opened factories in Mexico, including the German group Bader that has over two thousand employees between Leon and Jalisco; the American company Eagle Ottawa with three facilities and GST, which controls seven facilities.

The solidity of the Mexican supply chain is enhanced by the presence of the leather seats’ manufacturing processes, since the operations of cutting and sewing, involve labor-intensive work and cannot easily return to the US, because to do so would drive an increase in unsustainable costs for car manufacturers and for final customers as well.

While everyone is waiting to see which actions will be taken with the new US deal, Mexican programmes reflect the strong performance of the automotive market and the increase in their share for leather car interiors, an element of prestige and of easier maintenance than the most common economic fabric-seats. The car branch is strong and Mexico’s tanning industry runs accordingly.

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portugal

BEYOND THE “ONE STOP SHOP” LOGIC

Footwear is a blessing and a curse for the Portuguese leather industry. There are 61 tanneries in the country, mainly in the district of Alcanena, employing approximately 2,400 direct employees, to which 300 employees in the related activities including chemical and technology must be added, with a total turnover estimated by APIC, the local tanners association, of 280 million euro.

The export of leather, that in the 80s and 90s was more or less absent, gradually grew and today accounts for 95 million euro, equivalent to 34% of total production. However, if we consider the export of the finished product, with 90% of the shoes produced in Portugal being sold elsewhere, we can deduce that about 80% of Portuguese finished leather is destined to be used abroad, mainly for footwear. The chain link between tanneries and shoe factories was strategic for both.

However, Portugal now plans to get rid of this dependence, promoting exports with some success, but also by starting a product differentiation, with less results. As the leather garment, global situation seems to be harder and harder, tanners decided to focus on the leather goods sector, which is particularly related to footwear, while in the automotive sector there is a single player, Couro Azul.

The situation in 2016 has been quite negative for the sector, in line with what happened in Europe and in the world, although APIC reports that in some cases it will be possible, for some tanneries, to maintain the same results as in 2015. “Regarding relations with customers, there is a need to be cautious and even restrictive about the credit extended to customers to avoid losses that can put the whole year performance at stake,” the association says.

The transformation of the tanning industry from the acquired identity of a “one stop shop” mainly for shoes to a supply source for all destinations will be slow, but it’s still in progress.

At the same time, there is the unwelcome and increasing competition from synthetic products and other materials that directly affect the prices that traditional Portuguese leathers can achieve. The challenge for the fashion-related leather industry, in Apic’s view, is to place innovation at the service of developing products, with at least a reasonable leather content that reach the consumer market at a competitive price, thus influencing the consumer choice for these leather containing products and not for a full synthetic product. However, the leather industry is not 100% made by fashion!

“In the automotive sector, the situation is different and demand is expected to be stable, taking into account recent car sales. The great challenge is to uphold leather as a natural product with all its wonderful features, with a lower environmental impact than what the consumers and the public opinion in general think. This must be an objective for all the leather related operators worldwide, to work 12

into the promotion of leather as noble and environmental friendly product,” Apic says.

Looking ahead, future investments by the Portuguese tanneries will be confirmed, but not without caution. “It is clear that the Credit Insurance Companies know the industry well and it’s not worth to emphasize numbers. It will be a year to hold both feet on the ground, to pay close attention to the international turbulent environment as it may make victims in our industry.

As to the footwear sector, in particular, we must keep monitoring the concerning trend of the increasingly synthetic made shoes, namely from China, and the crisis in the shoe consuming markets that will have an effect on the Portuguese Footwear Industry, which still remains our main customer.”

AWARE OF THE DIFFICULTIES, READY TO GO Turkey waits for better conditions after the “perfect storm” that has hit the country and its leather business over the past two years. The cancellation in 2016 of Istanbul Deri Fuar fair probably represented at its best the Turkish instability, dictated by the combination of the difficult political situation in the Middle East and the collapse of the leather goods main export market, i.e. Russia, with a share of more than 20% of total exports. The drop in sales, according to estimates by Kiyasettin Temujin, president of Turdev (Turkish Leather Foundation), has exceeded 20% in 2015 and there are no signs of recovery in the year that just ended. The financial mechanism that in the past decade allowed footwear and leather garment manufacturers to buy raw materials, thus supporting the tanneries’ programmes, is basically blocked. Exports of the Turkish leather rose from 1.08 to 1.94 billion dollars in the period 2009-13, the first slight decline was recorded in 2014, at 1.85 billion dollars, before exports fell to 1.47 bn during 2015. The decline in tourist shopping, especially in Istanbul, following the terrorist attacks that struck the city of two continents at New Year’s Day, and the Black Sea resort previously popular with the Russians, contributed to complicate the situation.

But looking ahead, strengths are not lacking. First of all, Turkey has built a world leadership in shearling processing, with a capacity of 80 million skins per year, and is the second largest European producer in the sheep and goat skin business after Italy. Secondly, Turkish facilities have very favorable production costs compared with the European average, thanks to labour costs and to the strong devaluation of the Turkish lira that in January was changed to 3.8 per 1 euro compared with 2.1 at the end of 2012. Third, the country

turkey

has a strategic position, that of an East-West bridge, which will allow, as soon as the international situation calms down, the chance to seize the opportunities offered by the rebirth of neighbouring countries and the commercial opening of Iran, plus, hopefully soon, the recovery of consumption in Europe and in Russia. This applies to footwear, on which in 2015 approximately 46% of Turkish leather products exports depended, as well as garment (24%) and finished leathers (16%).

In addition, it is planned to re-launch the new trade fair in Istanbul, called Alleather-IDF which took place from 1 to 3 February ’17.

Turkey aims to help the sector by supporting the participation of its companies to major international events and by trying to transform the difficulties, identified in the crisis of Russia, by trying to decrease the dependence on Moscow’s imports. The goal for exports set at $5.2 billion for 2023, the year of the centennial of the Turkish Republic’s foundation, will almost certainly be postponed, but the leather supply chain has not lost its identity as a strategic sector for the economy of the country. Figures confirm the importance of the activities. Turkey is eleventh in the world’s ranking of the leather and leather products’ top exporters, thanks to the strong presence of more than 550 tanneries, 18,500 footwear companies, 2,500 leather garment manufacturers and about 1,650 leather goods and saddlery producers, providing a total employment of 415 thousand jobs. Nothing will be easy, in the period that the Turkish Leather Council defines “New normal”, to indicate that after the great crises of 2008 and 2012 nobody will make profits as they did before and business will get more difficult day by day. But awareness is the first step towards the realization of willing.

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usa

THE TRUMP’S ERA RESHORING CHALLENGE

Concerning the US, the question on everyone’s mind after Donald Trump’s election regards the hypothetical return of tanning activity back to the country.

How could you imagine a reboot of investment in a State that moved most of the production beyond the borders, keeping only a few niches of high added value production, while remaining the world’s largest market for luxury goods and for all other leather end markets?

According to Lia (Leather Industries of America) estimates, there are approximately 20 major tanneries (full or partial wet processing) in the US, and another five-ten companies that finish leather from the crust stages. John L. Wittenborn, president of the association based in Washington DC, explains that: “The US Government no longer tracks total sales or production volumes of leather, but does track imports and exports of finished leather and wet blue.

At the end of 2015, there were approximately 3,300 workers engaged in leather tanning and finishing operations in the US. Total value of US exports of leather in 2015 (including finished leather and wet blue) was $ 1.407 billion. We do not expect trade levels for 2016 to be substantially different from 2015 levels.”

The US remains a major producer of quality cattle hides and more and more of these hides are being processed in the US to wet blue either for domestic consumption or for export. “US tanners have generally found niche markets and appear to be holding their own, despite a lackluster overall demand for finished leather,” Wittenborn says.

The American leather tanners are addressing many of the same problems that other tanneries around the world are facing.

These include, first of all, attracting and retaining sufficient qualified

14

leather technicians, in a world that needs to adapt to changes taking place among consumers, who demand a product to be considered modern and fit to meet the users’ needs. Another aspect highlighted by Lia is the establishment of reasonable benchmarks for demonstrating sustainability.

An additional consideration is the strong competition from other materials, including synthetic ones, which necessitates the establishment of sound requirements for labeling leather. “In addition, US companies are dealing with a strong dollar.

That impacts competitiveness abroad,” Mr Wittenborn observes.

One of the strengths of the American leather industry, in addition to the proximity to the manufacturing holding companies (from sports, as Nike, to fashionable, as Coach and Michael Kors, up to the most famous brands of the traditional footwear), is certainly the domestic raw material, with an annual hide production which in 2016 reached around 30 million pieces,– 1.5 million hides more than a year before.

The American tanning groups have retained control of the supply chain, primarily to supply the automotive industry, placing processing plants in Central America (i.e. Mexico) to shorten the delivery times compared with sending their materials to Asia.

In the fashion industry things were different, with a fairly rapid shift in production to Asia and particularly to China. In the Trump era, it seems to be quite difficult imagining a strong return of the ‘made in the USA’ apparel, shoes, or bags, but the results of incentive policies, if not real protectionism, will only be visible in the medium term.

ACLE17 ad_210x297_eng_HR.pdf 1 13/3/17 下午6:20

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CREATIVITY AND SUSTAINABILITY ARE THE KEY WORDS IN THE BRAZILIAN LEATHER PROJECT To answer the demand for a creative and more sustainable leather supply, the Brazilian Leather Industry has focused on investments in quality, innovation and research, offering nowadays limitless choices that before could not be imagined. Leather is a living material, therefore the value of aesthetic and technical characteristics has increasingly become a fundamental object in order to emphasize scents, thicknesses, colors, as well as surfaces that always have a different feel.

The tanning sector plays a key role in the economic growth and

Brazilian leather both commercially and institutionally, by deploying

development of Brazil, as confirmed by the data: by producing each

resources to support domestic companies in the following fields: the

year more than 40 million skins, the country can rely on the largest

development of business networks, the upgrading of equipments and

commercial cattle herd in the world and is one of the five largest

facilities, the implementation of innovative, eco-friendly technologies,

leather manufacturers on the planet.

professional qualification, growth in the export rate so as to gain a

Nevertheless, the abundance of raw materials is not the only strength

stronger foothold on the most demanding international markets.

on which Brazil can count in order to keep a leading position on

Such a long-standing commitment is perfectly embodied in the

the global trade scene: as a matter of fact, creativity, sustainability,

Brazilian Leather Project, – sponsored by CICB in partnership with the

craftsmanship and quality design are the other distinctive traits that,

Brazilian Trade and Investment Agency (Apex-Brasil) –, and in other

over the years, have actively contributed in building the successful

initiatives such as the Brazilian Leather Certification of Sustainability

reputation of the Brazilian tanning industry – a success now

(CSCB) and Design na Pele (for design aggregation).

acknowledged all over the world and that has aroused the interest

CICB ensures support and cooperation to all the Brazilian tanneries

of foreign designers, fashion stylists, brands, manufacturers and

(310 based throughout the country), giving them the chance to attend

professionals. Every year, companies and labels coming from more

more than ten world leather trade shows and to showcase their

than 90 nations buy leather made in Brazil.

craftsmanship and talent in front of an international audience.

In this context, the main task undertaken by CICB (the Centre for the Brazilian Tanning Industry) is to effectively promote the image of

16

THIRD EDITION OF DESIGN NA PELE Art and design, leather, shoes and furniture. An extensive and

everyone involved in the project. After all the experience that we’ve

detailed work combining these elements has been stimulated in

had, we now feel ready to embrace other industries with the objective

Brazil throughout the last years thanks to project Design na Pele, one

of making products available in the market”, highlights curator Rafael

of the most celebrated initiatives in the world of leather and creativity.

Andrade.

Tables, chairs and cabinets, besides great shoes, all made with

This time, two major footwear brands and three well known furniture

leather, are part of collections created by great Brazilian designers in

companies will receive special consultancies by a team of Brazilian

partnership with tanneries and national furniture industries.

designers in order to create a collection of new products.

Design na Pele is part of Brazilian Leather – project dedicated to

Unique and exclusive leather are the key elements for these articles.

promote Brazilian leather exports and coordinated by the Centre for the Brazilian Tanning Industry (CICB) in partnership with Apex-Brasil (Brazilian Trade and Investment Promotion Agency).

This year, Design naPele also has the support from the Brazilian Shoe Manufacturers Association (Abicalçados) and the Furniture Industry Association of Bento Gonçalves (Sindmóveis).

Design na Pele had two previous editions (2013 and 2015) promoted in a singular dynamic: unique leather articles were developed by Brazilian designers next to local tanneries.

From that first stage on, surprising products were developed for the fashion and home segments, but for non-commercial purposes.

The articles made up a series of itinerant exhibitions presented in Hong Kong, Milan, São Paulo, among other influential cities.

The third edition now gains new features.

“There’s a quite steep learning curve for

17

WORLD LEATHER CONGRESS 2017 Following the success of the World Leather Congresses in

It is particularly relevant that this third World Leather

2011 (Rio de Janeiro) and 2015 (Milan), Mr Richard Pai –

Congress is being held in China, because China and the

President of the International Council of Tanners (ICT) and

surrounding countries have proved, in recent years, to be

of the Taiwanese International Leather Association (TILA)

the most important and most dynamic region in the World

wishes to invite everyone to the third Congress to be held

for the production of leather and leather products.

in Shanghai on August 29th, 2017, at the Pullman Hotel,

And it is this region that will play an important role in

Shanghai South.

driving future changes in the industry.

The theme of the Congress will be “The Leather Revolution” – recognising the profound changes that will be taking place throughout the leather marketing chain over the next 20 years, and focusing on how the industry should be responding.

The Congress will be organised by the co-hosts – TILA and the China Leather Industry Association (CLIA) – under the broad banner of the ICT, with APLF as Founding Sponsor.

Each Congress represents an opportunity to remind everyone of the important part the leather industry plays in international business, the major changes taking place and the enormous steps that the industry has made in demonstrating its technical expertise, its social and environmental responsibility and its sustainability.

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PROGRAMME August 29th, 2017

The Leather Revolution - How the Industry will respond

programme

08.30-09.00 Registration and Coffee 09.00-09.15 Welcome speeches and formal opening (TILA/CLIA) 09.15-10.30 Opening Session

Keynote - A Vision of the Future for the Leather Industry Forecast on China Economy (China in the 2020) The Industry in China - What Next?

The Global Perspective - The Leather Industry Today

10.30-11.00 COFFEE BREAK 11.00-12.30 The New Consumer

The New Consumer’s in China and Their Perception of Leather E-commerce of Leathergoods Post-Modern Marketing Panel Discussion

12.30-13.30 LUNCH 13.30-1500

The Future for Leather Product Manufacturers

International Trade Rules - Where will Industry be?

The importance of Leather Why Use Leather?

Panel Discussion

15.00-15.30 COFFEE/TEA BREAK 15.30-17.00 The Tanners’ Response - Moderator Mike Redwood

Today’s Modern Tannery The Tannery of the Future Future trends in Raw Materials Panel Discussion

17.00-17.15 Concluding Remarks

19

location Shanghai is a very fitting venue for the 3rd World Leather Congress – following on from such important international venues as Rio de Janeiro and Milan.

In addition, the Congress is scheduled to fit, very conveniently, between the CLIA National Conference on August 28th and the ACLE exhibition, August 30th to September 1st.

A key theme of the Congress is Change – what is expected to happen in the industry over the next 10-20 years? It is clear that China has not only played a driving role in change over the last 20 years or so, but further significant changes that are now taking place in China will continue to shape the global leather and leather products industries over the next two decades.

And many of these changes will be in a completely new direction to those that happened before - reducing production, a rapidly growing domestic market and declining exports. The last 20-30 years have seen an enormous growth in the levels of Chinese production and exports of leather and leather related products.

During this time, leather production in China grew to a level approaching one third of total world production, and footwear production grew to approaching two thirds of total world production. Production of other leather products also grew, but not to the same spectacular extent. The other key factor in this context is that these industries were, to a very large extent, serving the global export market.

It is now clear that there are some very major changes taking place in the Chinese industry and the Chinese market and that these changes are impacting not only on the countries around China, but also on the leather and leather product industries in the rest of the World.

First, as labour and other production costs are increasing in China, more and more production is being transferred to other countries in South East Asia, Africa and the Rest of the World.

Apart from rising labour costs in China, there are increased

20

WHY SHANGHAI? costs and pressures on infrastructure, facilities and especially environmental controls.

The second part of this equation is that a good portion of China’s huge population of close to 1.4 billion are benefitting from a significant improvement in living standards, as the country goes through a substantial modernisation phase, and this all adds up to an enormous growth in the domestic Chinese market.

A further effect of this is that China’s share of exports to the World market is progressively reducing.

So – why Shanghai? Shanghai is not just the biggest city in China, it is also – arguably - the most modern city in China and is also close to the commercial centre of these developments. A key phenomenon in China’s domestic market is the generation of new, young, mobile, urban, internet-savvy, modern consumers, and this segment has grown extremely rapidly.

Not only is this market phenomenon perfectly personified in Shanghai, but the situation here can be used as a model for the rest of the World, in terms of the habits and behaviour of this new generation of modern consumers – not just for the present, but for the future.

venue “THE LEATHER REVOLUTION” “The Leather Revolution” is the theme of the 3rd World Leather Congress, organized by ICT International Council of Tanners on the eve of All China Leather Exhibition (30 August – 1 September 2017).

The event, to be held in Pullman Shanghai South hotel, Shanghai, will recognize the profound changes that will be taking place throughout the leather marketing chain over the next 20 years, and focusing on how the industry should be responding.

Pullman Shanghai South is an international upscale business hotel, situated in ZStar Plaza in the new CBD of Shanghai Xuhui District with easy access to Shanghai South Railway Station and Shanghai National Convention & Exhibition Center

ICT, the International Council of Tanners, is headed by Richard Pai from Taiwan. Members are tanneries representing 37 Countries from Europe, America, Asia and Africa.

Contacts: Taiwanese International Leather Association: Mr Kevin Chiou: kevinchiou@foxmail.com China Leather Industry Association: Mr Chen Zhanguang: chzhg@chinaleather.org International Council of Tanners: Mr Paul Pearson: paulpearson@uklf.org For further information: www.WorldLeatherCongress2017.com

29th August 2017 PULLMAN SHANGHAI SOUTH Hotel & Resort

No.1 Pubei Road, Xuhui District - 200235 Shanghai – P.R. China 21

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Leather Fashion Trend Forecast There is no middle ground; eclectic details, strong nuances and the revival of certain, are the distinctive traits of this season. Saturated colors and the comeback of blush. Light effects will provide the right brightness in order to effectively enhance all surfaces and shades.

useful information

ABOUT SHANGHAI

S

hanghai, on China’s central coast, is the country’s biggest city and a global financial hub. Its heart is the Bund, a famed waterfront promenade lined with colonial-era buildings. Across the Huangpu River rises Pudong’s futuristic skyline, including 632m Shanghai Tower and the Oriental Pearl TV Tower, with distinctive pink spheres. Sprawling Yuyuan Garden has traditional pavilions, towers and ponds.

• Area

7,037 km²

• Population

Over 20 million

• Language

The official language in China is Mandarin but distinct dialects are spoken throughout the country.

Shanghainese speak Mandarin or Shanghaihua, however most tourist hotels have staff who are fluent

in foreign languages.

• Currency

Chinese currency is called Renminbi (literally people’s currency), often abbreviated as RMB.

• Voltage

Electricity is supplied at 220 volts, 50 cycles.

• Telecom

The country code of China is 86 and the city code of Shanghai is 021.

General information and registration

WORLD LEATHER CONGRESS 2017 The Leather Revolution: how the Industry will Respond 29 August 2017 (The eve of All China Leather Exhibition 2017) PULLMAN SHANGHAI SOUTH Hotel & Resort, Shanghai, China (上海中星铂尔曼大酒店) 24

Registration Fee: USD300 for International Delegates RMB800 for CLIA and TILA members (fee includes Lunch and Dinner) www.ubmonlinereg.com

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The 3rd World Leather Congress 29 August 2017 (the eve of all China Leather Exhibition)

Pullman Shanghai South, Shanghai

The Leather Revolution: How the Industry will Respond The World Leather Congress represents an opportunity to remind everyone of the important part the leather industry plays in international business and the enormous steps that the industry has made in demonstrating its technical expertise, its social and environmental responsibility and its sustainability.

Official Event of

Organisers

Founding Sponsor

Media Partner

www.worldleathercongress2017.com