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Leatherbiz Market Intelligence executive summary: • • •
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Middle East conflict overshadows APLF, disrupting travel and attendance Hong Kong is still important for networking, but the exhibition was noticeably smaller If the war in the Middle East continues, energy costs will go up, global logistics will become more complex and demand for leather could suffer The Middle East has become an important market for many high-end products that use leather, including luxury cars and furniture as well as bags and shoes.
MARKET INTELLIGENCE
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ut for the recent outbreak of war in the Middle East, our focus would have been exclusively on the APLF exhibition in Hong Kong. However, everything over the past two weeks has been overshadowed by events in the Middle East. Besides the direct consequences, especially all casualties, there are also the indirect effects, included restricted travel possibilities. The Gulf hubs have gained significant importance for many travellers in recent years. This certainly applies also to traveling to Hong Kong, and many have had to seek alternatives to their usual routes via Dubai, Doha or Abu Dhabi. This often meant significantly increased prices as well, leading to a considerable number of visitors deciding against making the trip to APLF this year. At the exhibition itself, aisles were relatively well-filled. The fair has become smaller. What used to spread over three floors is now housed on a single floor, and even this was not completely full. To cut a long story short, Hong Kong continues to exert its attraction on visitors, and the leather industry uses a trip to Hong Kong as an opportunity to exchange ideas with business friends and partners. Normally, a leather fair should serve for the leather industry and its satellites to present their products and, in the best case, showcase a good number of innovations. Particularly for the product leather, this plays a significant role because leather remains a product that must convince through its direct physical presentation. Unfortunately, Hong Kong as a central melting pot for all of Asia is now of less importance. As a sales market for Europeans, the dwindling business in China is noticeable; for Chinese manufacturers, Hong Kong is certainly no longer the place to present themselves. It simply no longer holds the importance as a gateway to and from China that it once possessed. In this respect, very
little can be reported regarding impressions of the fair concerning leather as a material. Conversations at the stands revolved less around business than around the general situation, which automatically leads back to the impacts of war. Perhaps two weeks of war is still too short a time for full analysis of the consequences. Somehow, the idea has also taken root in people’s minds that this war might not last very long and that things will, therefore, quickly return to normal. We believe this is a mistake. Even if the hostilities were to end in the coming weeks, the impacts on the region, energy prices, logistics and global security will continue to be felt for a long time. So, it is probably more sensible to engage with scenarios that take this into account. In detail, this means that a region that has recently also played a significant role as a consumer market for leather products may cease to be such a reliable sales market for an extended period. Besides leathergoods, this of course also applies to other exclusive and expensive products that use leather, such as vehicles and furniture. Many who, for various reasons, have chosen the United Arab Emirates as their new home in recent years see their safety endangered and are leaving the region while they can. How this will affect behaviour remains to be seen. However, what must not be overlooked is the fact that while everyone talks about the restrictions on oil transports through the Strait of Hormuz, hardly anyone today considers that products moving in the other direction are equally affected. This naturally concerns not only luxury goods and the supply of shopping malls catering to tourists, but also the basic necessities of daily life. Shipping logistics are currently disrupted in both directions. The true effects will only become apparent in the coming weeks when it can be seen more clearly whether Iran can decisively block the
sea route to and from the Persian Gulf. The probability of this is relatively high, as mines can be placed in various forms to act as tools of destruction. For the leather industry, the greatest impacts of the conflict in the Middle East are rising energy prices, rising production costs, rising inflation, lower disposable income, a worsened consumer sentiment, a decline in the consumption of leathergoods in one of the most important regions for luxury goods, disruption to international logistics, and the transportation of raw materials. If oil prices remain elevated in the longer term and reduced availability restricts the production of oil-based plastic, then leather’s competitiveness against its alternatives could improve again. There were of course some other things discussed at the gathering in Hong Kong. Without any doubt, the industry in India is currently benefiting from various influences. We have already reported in recent editions about a noticeably increasing trend towards leather shoes. India derives various advantages from this, and these are further supported by access to cheap oil from Russia and a less burdensome tariff agreements with the US. The same would certainly apply if the emerging renaissance of leather garments were to expand on a mass scale. Of course, the fact that India is not as severely affected by transport problems also plays a role. However, one must first wait and see whether Indian ports might be overwhelmed by an increased volume of goods. Even now, the directly reachable connections to and from India are not really sufficient. If we look at China for a moment, it was clearly noticeable that the Chinese industry remained in a waiting position after the Lunar New Year. On one hand, they were certainly waiting for the final results and publications regarding the government’s next Five-Year Plan. On the other hand, developments in the Middle East also play a significant role in China. While energy prices in China are still strongly influenced by the government and it is assumed that the government will subsidise energy prices for the industry accordingly, the uncertainty in export sales markets naturally remains significant. In this respect, the war and its effects in the Middle East come at an inopportune time for the Chinese government. The consequences could no longer be incorporated into the planning for the next five years. That is why local consumption and supporting domestic demand did not play a paramount role in the headlines of the plans. However, it is clear at this point that