Looming Leather Price Hikes?

While the U.S. has so far avoided an outbreak of foot and mouth disease among its livestock, the epidemic in the U.K. and continental Europe could cause the price of leather goods to soar. For catalogers that sell leather apparel, footwear, accessories, and saddles, price hikes could eat away at the all-important fourth-quarter profits.

An airborne disease that affects cloven-hoofed animals such as sheep, pigs, and cows, foot and mouth has devastated European farms. As of early April, more than 700,000 animals in the U.K. alone had been earmarked for slaughter, says Richard N. C. Grylls, former chairman of the British Equestrian Trade Association in Walsall, U.K. Grylls adds that the U.K.’s Ministry of Agriculture scientists and veterinarians don’t expect the epidemic to peak until June.

As a result of the number of cattle being destroyed, “leather prices are bound to increase,” Grylls says, “but it is too early to quantify.”

Local crisis, global effects

The U.S. and U.S.-based tanneries aren’t suffering a shortage of hides. “Most U.S. producers use U.S. hides from U.S. cattle, and the disease is not currently affecting U.S. cattle,” says Nick Cory, Ph.D., lab director for the Washington-based association Leather Industries of America (LIA). “But there is panic buying of U.S. hides among European tanneries, which used to buy large amounts of hides from Europe.”

For example, tanneries in Italy, which is not a large producer of cattle for hides but is a large producer of leather, are snapping up more American hides than in years past. “One of our vendors from Italy called and said that he went to his supplier of hides and there were none available,” says Stephen Day, president of Dover Saddlery, a Holliston, MA-based cataloger of saddle and bridle products.

Joan Litle, president of Chelmsford, MA-based consultancy The Catalog Connection, says that the current turmoil among suppliers could have holiday-season ramifications. “While it’s still early and the vendors probably aren’t saying much, catalogers could run into the problem of not being able to get the deliveries they planned for.”

Yet in terms of global availability, Cory says, there’s no real shortage: “The number of cattle being destroyed is relatively small on a global basis.” But the perception of a shortage and the temporary decrease in the number of worldwide suppliers is already boosting the price of hides. Between January and March, Cory says, prices for hides in Europe jumped 60%.

Some manufacturers, in turn, are already raising the prices of their leather products. “A U.S-based footwear vendor called and said he would have to increase prices approximately 3% as the result of a shortage from his supplier,” Day says.

And overseas suppliers have told equestrian-themed apparel and accessories cataloger Back in the Saddle to expect a “measurable” increase in pricing in about 30 days, due to a scarcity of hides, says Geoff Wolf, president of the Durango, CO-based company. Imports account for approximately 70% of Back in the Saddle’s merchandise, including purses and other accessories. To avoid further cost increases, Wolf plans to buy merchandise now for the remainder of the year.

Cory suggests that in order to avoid pricing surprises, catalogers should contact their tanneries or vendors to discuss any possible price increases. “That increase can only be agreed upon between the tanner and the customer,” he says.

Planning ahead

Even though Wolf hopes to lock in his leather orders now, he says his company might have to temporarily stop selling some products rather than raise prices to cover the increased costs.

“There is only so much that someone will pay for certain items,” Wolf says. “We’ll raise the prices on merchandise, if we have to, but if raising the price means exceeding the value of the product, it’s not worth it.”

While Wolf is looking ahead, few other catalogers of leather goods are. “So far, I haven’t heard many catalogers voicing concerns about how the disease might affect business,” says Andrea Lawson-Gray, president of San Francisco-based consultancy Aesthetics Marketing. “And we should anticipate an effect. But we’re a country that is fairly short-sighted about problems that are not happening on our shores.”

Dallas-based upscale apparel cataloger/retailer Neiman Marcus, for one, doesn’t have a plan in place to combat leather price hikes. “The speculation is that next year leather might be more expensive,” says spokesperson Ginger Reader. “But while pricing might be an issue next year, so far we have no strategic changes planned because of it.”

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