Assopellettieri - (Italian Leather Industry Association) (Z1439) 21.09.2020

The Italian leather goods sector
First half of 2020
Economic note drawn up by the
“Confindustria Moda Research Centre”


Sector performance in the first 6 months of 2020


Leather goods: first semester black. The restrictions imposed by the health emergency and the setback in demand, both domestic and foreign, caused turnover to fall (-43.2%). Exports (-31% in value) returned below the levels of three years ago, breaking the recent growth trend. The trade balance surplus fell by 35%.

Restart with the brake pulled after the lockdown: in the two-month period May/June exports -35% in value, retail sales -24%, and production rhythms still strongly slowed down (-44%). Orders cancelled and high percentage of outstanding orders; liquidity crisis risk.

9 out of 10 companies forced to resort to social shock absorbers and to revise their investment plan due to the pandemic.

The leather goods sector tried to restart after a markedly negative first half of the year, which saw the Fashion Textile sector, one of the Italian accessories sectors, among the most exposed to the effects of the crisis induced by Covid-19.

The data processed by the Confindustria Moda Research Centre for Assopellettieri show strongly penalising trends for all the main variables, which are putting a strain on a sector that in recent years has distinguished itself for double-digit growth rates in exports (+58% in value over the three-year period 2016-2019) and assets in the trade balance.

The entrepreneurs surveyed indicated a drastic reduction in turnover in the second quarter (-49.2%, with decreases of more than 50% for 6 out of 10 companies in the sample), which followed -37.1% in the first part of the year.

Overall, therefore, it is estimated, with reference to the first 6 months, a contraction of -43.2%, with a loss of sector turnover of around 1.9 billion Euros in January-June 2019.

Orders also fell sharply, falling by -54.2% on April-June last year: a dynamic that casts many shadows on the production rhythms of the following months.

ISTAT's survey of industrial production confirms the sample figures relating to turnover: after the understandable collapse in the two-month period March-April due to the interruption, or at least the severe limitation, of work activities, in May, with the reopening of factories, the index for travel and leather goods recorded a further sharp decline (-50.7%), followed by -37.3% in June. The decline was close to -45% if the entire half-year is considered.

The health emergency has profoundly affected the levels of demand, both international and domestic. On the foreign front, restrictive measures and different ways/times of spreading the coronavirus in the main reference markets make the current scenario very complex and varied, impacting on world trade; on the domestic side, purchases, even after the reopening of shops, are held back by uncertainty and loss of purchasing power of many families.

Exports in the first six months of the year fell sharply, both in value (-30.6% on the same period in 2019) and in KG (-24.8%), abruptly ending the expansionary trend of recent years: leather goods were exported for 3.6 billion Euros (5.1 billion in the first half of 2019), corresponding to 23.7 million KG. The average price at KG fell by 7.6%, an unequivocal sign that the setback affected not only the mid-range but also luxury sales, which are generally more resilient to economic fluctuations.

In terms of value, exports returned below the levels of the first 6 months of 2017, abruptly "burning" the considerable growth of the last three years. In KG, the current result is only higher than the heavily penalizing quantities of the first half of 2009.

After a not particularly rewarding start to the year but nevertheless on positive ground (up 1.6% in value in the first two months of the year), in the March-April two-months lockdown period there was a decline in foreign sales of -57.6% in value and -45.4% in quantities (expressed in KG) compared to the same period in 2019.

But the unfavourable trend also continued with the reopening of the factories, both in May (-49.7% in value) and June (-20%), making hopes of a rapid return to normality fade thanks to an immediate "rebound". Overall, in the two-month period following the forced closure, outflows were significantly reduced: -35%, both in value and in KG.

The emergency situation still in progress in all the main outlet markets (in some cases worsening with new outbreaks) certainly does not facilitate the restart of international trade.

All the main product types show significant decreases. Handbags (by far the most exported item, accounting for 65% of foreign sales) show decreases of -26% in value; suitcases around -30%; even more unsatisfactory trends in belts (-42%) and small leather goods (-40%), i.e. wallets, purses, key rings and pocket or handbag items. Equally unfavourable trends (double-digit declines) were also recorded in terms of quantity.

Looking at the items by material, on the whole, leather products - typical of Made in Italy production, which represent almost 3/4 of the total in value - show heavier contractions (in the order of -33%, both in KG and value) compared to those in substitutes, whose exports fell by about -20%.

The analysis by destination also shows decreases in quantity and value for almost all markets. There are very few exceptions: in the ranking by value, only South Korea (+1.1%) and Poland (+6.8%) among the top 25 outlet countries show an increase compared to January-June 2019 (accompanied, however, by significant decreases in KG). Thanks to this result, South Korea (which grew by 77% in value over the last three years) rose to third place in the ranking, surpassing the USA (which, on the other hand, recorded decreases of -38% in value and -36% in volume in the first 6 months of 2020).

A marked reduction (about -40%) in direct flows to Switzerland, the first export destination and longstanding logistics-distribution platform for major international luxury brands.

The European Union (now considered to be 27 countries, post Brexit) shows an overall decrease of -18% in value and -20.5% in KG: France lost 9% in value, another traditional destination for third-party production for brands; reductions of around -13% for Belgium and Holland (the latter stable in volume) and -23% for Germany, which is still the leading market in terms of quantity for Italian operators (with 3.5 million KG, down 14.8%); losses were even more marked in Spain (-38% in value) and Austria (-43.3%).

Among the non-EU countries - which overall show heavier contractions than the EU markets, -34% in value and -30% in KG - there was a significant decline in the Far East (-27.4% in value and -31% in KG as a whole), with significant falls in all major clients, excluding South Korea: China (-30% in value), Hong Kong (-47%), Japan (-30%), Taiwan (-20%), Thailand (-41%), Macao (-36%) and Singapore (exports almost halved, -48%).

Russia and the United Arab Emirates (-30.5% and -39% respectively in terms of value), as well as Canada (-29%). The United Kingdom, finally, contains a decrease in value of -13.4% (but with -25.4% in KG).

Imports of leather goods, which amounted to 1.3 billion Euros in the first 6 months of 2020, declined by 20% both in value and KG (average prices -0.2%). China, the leading supplier in terms of volumes with a share of just under 55% of the total, showed a fall of -29.3% in value (-31.2% in KGs). Less signs in value for all top 10 suppliers; France, Germany and the UK are growing in KGs.

Although the trade balance remained largely in surplus (for 2.3 billion Euros), it decreased by -35.5% compared to the first half of 2019. In the first half of the year, chapter "42" of leather goods was in sixth place for the positive balance among the 99 product chapters of which the customs nomenclature is composed; it therefore lost a position compared to 2019, overtaken by the item relating to pharmaceutical products, which jumped to third place, the balance of which increased by 51%.

The health emergency has had, and still has, profound repercussions on the confidence and spending decisions of families, first and foremost curbing those for the purchase of luxury goods (and in particular luxury goods). It has also changed habits/modality, favouring in the months of lockdown an obvious and often obligatory recourse to e-commerce, which has thus conquered new users.

Domestic demand is very weak. In Italy, retail sales of "Leather goods and footwear" - after a setback in the two-months period March-April due to the closure of shops imposed by the restrictive measures contained in the Prime Minister's Decree - showed that physical sales were still very unsatisfactory when physical sales resumed: -35.1% in May and -12.8% in June, according to the index published by Istat. The cumulative figure for the first 6 months showed a decline of -32.7%.

The impact on the sales trend in Italy, especially for high-end products, is compounded by the collapse in tourism, given the not insignificant percentage of foreigners who also visit our country for shopping.

There is a strong concern for the tightness of the production fabric: that network of companies, mostly small in size (70% of them have no more than 5 employees) that constitutes the backbone of Made in Italy leather goods.

The extensive use of wage integration tools, combined with the block on redundancies, has so far mitigated the impact of the crisis on the workforce.

The survey carried out by Confindustria Moda highlighted how, in July, 15% of the companies surveyed still had staff in smart working and how more than 88% of leather goods manufacturers have made use of the CIG, or similar instruments, since the beginning of the pandemic (with an average percentage of employees involved, among those who benefited from it, around 72%).

The data released by INPS relating to the hours of temporary lay-off fund authorised in the first 6 months (referring to the entire leather sector) confirm an unprecedented increase, starting in April (+2871% on the same month in 2019). May and June showed equally exceptional increases (+1633 and +651% respectively).

In the first 6 months of 2020, 39 million hours were authorised (4 million in the first half of last year), equal to +878%: almost 5 times the hours (8.3 million) granted in 2019.

Never had such a number of hours been authorised, not even in 2009 (23.1 million) or 2010 (29.7 million) at the height of the global economic crisis.

All the main district areas of the leather supply chain show considerable increases: Tuscany is the first region for authorised hours (about 10 million, +3080% on the first half of 2019, of which 5.1 million for the province of Florence, +3607%), followed by Veneto (8 million, +1085%) and Marche (6.1 million, +413%).

The figures for business birth-mortality in the first half of the year still obviously do not reflect the consequences of the fall in activity levels: Infocamere Movimprese's figures at the end of June recorded a balance of -69 units in the number of active leather goods companies compared to the end of December, between industry and crafts (-1.5%).
Breakdown by region, Tuscany lost 25 companies in the first 6 months; 18 in Veneto; 17 in Lombardy; 14 in Abruzzo. The negative balances of Marche (-6) and Emilia Romagna (-5) were smaller. Campania bucked the trend (15 units more than at the end of 2019). The remaining regions show 1 more company overall.

These data, not particularly alarming so far, are unfortunately destined to worsen considerably in the coming months, when the realities that have not managed to overcome the exceptional difficulties that companies have had to (and still have to) face as a result of the emergency will begin to be counted in the Chamber registers.

The cancellation of orders and non-payment (4 out of 10 participants in the Confindustria Moda survey complain of over 40% of outstanding payments) have significantly reduced the income of most companies, while the number of departures has remained virtually unchanged (for staff, suppliers, tax authorities and banks), causing liquidity crises.
Almost 90% of entrepreneurs had to revise their planned investment plan due to Covid.

Uncertainty about the duration, course and geographical extent of the pandemic obviously makes it difficult to make predictions about the short-term evolution and the time frame for the return to more profitable levels of activity.

The year 2020 is expected to close with markedly negative results. In need of a forecast of annual turnover, 44% of leather entrepreneurs indicated a drop of between 20 and 50%. On average, weighting the responses with the company size, it is estimated that there will be a decrease of around 40%, which would imply only a slight improvement in the sector's economic situation in the second half of 2020. A sample data, provided 5 months after the end of the year and subject to various variables, but still very significant.

The absence of new shocks and a gradual overcoming of the pandemic emergency in the various areas of the planet should favour a progressive recovery in demand in 2021, which could be completed in 2022.

However, we need policies, instruments and support measures that will enable companies to overcome the long and delicate phase of the current emergency to reach that point.

Milan, September 16th 2020

Statistical attachments
Assopellettieri - (Italian Leather Industry Association) (Z1419)

Financial support and digitalization
Assopellettieri solutions to support the Italian leather goods sector

STATI GENERALI DELLA PELLETTERIA ITALIANA


Florence, 23 July 2020
- Aggregation, digitalization, internationalization, sustainability, credit and finance: these are the five pillars on which Assopellettieri focuses on relaunching the business. On Thursday 23rd July was held in Florence the event The States General of Italian Leather Goods Sector, organized by Assopellettieri and co-promoted with the Municipality of Florence with the aim to clarify the Italian leather goods sector situation consequently to Covid-19 emergency. Assopellettieri, since the beginning of this emergency, has fought to hear the alarm voices of the companies in the sector, a 9 billion euro supply chain (2019 data) which 85% consists of exports. The choice of Florence as the venue for this event has an important symbolic value: Tuscany represents one of the most important production districts in the world of leather goods, 60% of the Italian production comes from this region that represents one of the main economic assets.

During the morning attended Cristina Giachi Deputy Mayor of Florence, Franco Gabbrielli Assopellettieri President, Manlio Di Stefano Undersecretary of State for Foreign Affairs and International Cooperation, Carlo Ferro ITA-Italian Trade Agency President, Mauro Alfonso CEO Simest Spa, Eugenio Giani President of Tuscany Regional Council, Andrea Calistri Assopellettieri Vice President and Delegate for the Tuscan District, Paola Castellacci CEO Adiacent Spa, Simona Bonafè MEP.

«I would like to send a positive message, we need to react and we cannot wait: we have to strengthen our Association and work together to overcome the difficulties - said Franco Gabbrielli Assopellettieri president -. Assopellettieri has to do that, today. We invite all companies, from the smallest to the biggest one, to join us, each with its own characteristics and requests.The Association has the opportunity to discuss and interact with the Government; the funds are there and we can be the spokespersons of the companies in this step. Through the synergy with ITA-Agency, Simest and MAECI, the Association aims to offer concrete solutions for leather goods companies relaunch by providing answers to the liquidity, market and product crisis. Especially with Simest through the supply of advantageous loans and with ITA through initiatives designed to ease the internationalization process. Assopellettieri, through the Mipel digitalization and the Miss Bag initiative, is also proposed as a solution to give the opportunity to intercept markets ".

«You have a great task, making choices that will ferry this strategic sector into the future it deserves. We have an incredible patrimony that is in your hands, in your heads, in the work that you know how to inspire with your co-workers - the Deputy Mayor Cristina Giachi said at the opening, bringing greetings from the Municipality of Florence».

"Between Assopellettieri and ITA, the spirit of the system that concretizes the proposals bringing them to the end and guaranteeing their realization is stronger than ever - explained the president of ITA, Carlo Ferro -. ITA and MAECI continue to provide services useful to small and medium-sized enterprises and confirm the new editions of the September/October trade fair events in Italy. The incoming of international buyers from mainly intra-EU countries continues and gets stronger. The Silent Mipel Showroom is a new event, a post Covid version of the traditional Mipel showroom that will take place in an exhibition centre in the commercial heart of Seoul able to connect to the virtual fair and to the online commerce. Last but not least, the B2B platform that will put companies in contact with operators in foreign markets, ensuring remote meetings, autonomous exhibitions and business work ».

"The export agreement, recently signed by Minister Di Maio, is based on six specific pillars mainly declined on two concepts: strengthening Made in Italy on international markets and increasing the internationalization of the entire Italian economic district. These are communication, training, e-commerce, exhibition system, integrated promotion and subsidized finance. The latter is the beating heart of the reform: we have allocated 900 million euros, 300 of which are non-refundable. 70% of the resources are allocated for small and medium-sized enterprises - said Manlio Di Stefano Undersecretary of State for Foreign Affairs and International Cooperation».

"The international scenario is complex but has to be interpreted as an opportunity to restart and cover incremental competitive positions compared to the past - explained Mauro Alfonso CEO Simest Spa -. Our role is to facilitate companies in the process of internationalization both with direct investments abroad and with the management of state funds such as Fund 394. We have made evolutions of this tool which affects 7 fundamental measures. The first relates to the participation in fairs and exhibitions reserved for SMEs, for which the financed amount is up to a maximum of 150 thousand euros; the second proposes insertion programs on non-EU markets by financing the opening of permanent commercial structures, the maximum amount that can be financed for both SMEs and companies of any size has been raised from 2 and a half million to 4 million euro. Feasibility studies are another financeable tool as long as they are linked to foreign investments: the maximum amount is up to € 200,000 for commercial investments and € 350,000 for productive investments. We also have the opportunity to finance technical assistance programs with which we support staff training in foreign investment initiatives, up to a maximum of € 300 thousand.The temporary export manager and the temporary digital export manager are figures that can be financed with the 394 Fund, up to a maximum of 150 thousand euros. We can also contribute to e-commerce by supporting companies through the use of their own market places or platforms up to a maximum of 450 thousand euros. The last tool is the capitalization of exporting SMEs, whose maximum funding ceiling has been raised from 400 to 800 thousand euros. We are able to carry out the assignment procedures quickly and respond within 30 days, bypassing the guarantees of the credit system and being able to access a rate of 0.085%. It is also possible to use a non-repayable loan quota. In addition, we want to offer the leather sector, for participation in exhibitions and fairs and for Mipel, a series of measures including: subsidized financing up to 100% with a duration of 4 years, of which the first one is pre-amortization, at 0.085%; 50% of the costs relating to the equity investment granted without recourse; important news is that it will be possible to finance participation in international fairs that take place in Italy. Participation in fairs is therefore a commitment accessible to all operators ».

«The institutions have to provide the necessary support, because the tannery and leather goods manufacturing system have to be strongly supported. The resources that come from Europe have to be translated into projects to be carried out together; I believe it is necessary to equip a real task force in this direction in the Region. An important synergy between the Association and the Region has to be created, in order to have projects ready when the funds arrive - was the comment of the President of Tuscany Regional Council Eugenio Giani ".

"One of the assets that Assopellettieri has and no one else has is the most important leather fair in the world, Mipel, which celebrates 60 years in 2021 - said Andrea Calistri, Assopellettieri Vice President and delegate for the Tuscan District -. And in September the fair will be there, together with colleagues from Lineapelle and Micam, with a completely new model to go with Italian companies towards a potentially global market.

 We have already started working on a multi-tasking platform with a totally innovative format also from the point of view of the fair's tour: making it 'open' 365 days a year thanks to the digitalization of the fair system. In addition, the Miss Bag initiative will be launched in September: an iconic bag that all leather manufacturers participating in Mipel will be called to interpret according to their own style, thus also allowing companies that do not normally develop a product to create something of their own to exhibit all over the world ».

"With a business digitalization point of view, there are three considerations to think about - said Paola Castellacci CEO Adiacent Spa -. The first is the need to put together digital channels with the offline ones in order to improve a daily dialogue; the second is e-commerce which we have seen growing fast and in this lockdown period with 2 million new customers in sectors and age groups previously absent (+ 55% compared to 2019): we have to therefore evaluate which companies can benefit from these numbers; the third theme is globalization, to be reinterpreted from a digital export perspective all over the world. Digital must truly be central starting from training, also bringing new figures working in the sector to the company».

"Urgent and massive interventions are needed to ensure the economic sustainability of a supply chain that has always been a source of pride for our country - said MEP Simona Bonafè -. We need far-reaching innovative policies and measures; we need a national and European public enormous intervention like never seen before and an extraordinary commitment of citizens and businesses. At European level has been launched the largest recovery plan in the history of the European Union: a 750 billion plan of which 390 billion in direct subsidies. Of these, 208 billion will go into strategic investments in our country: I believe that the two areas in which to invest is sustainability and digital that will affect every part of the economy, society and industry. And this will require the transition from the current linear production to the circular economy. And the leather goods district has understood this for some time. "


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