The Week at a Glance:
- Currency Market: $1.111/Euro on 05/06
- Raw Stock Week 22. More bids, but bookings are few
- Italy – Armani over 2.5 billion euro
- Europe – Guess returns to profit
- Italy – Paciotti close to the rescue
- UK – Jimmy Choo collaborates with Moon Boot
- Italy – Assocalzaturifici and MPS bank will support footwear
- UK – New CEO for Harrys of London
- Norway – Ekornes’ revenues up after acquiring Img
- Looking ahead: Price still steady, but tanners gaining contro
- Andrea Guolo video summing up market conditions
- Reflections of the Week
More bids, but few bookings
Holidays in Europe never fail. After the celebration of Pentecost, which covered the last two weeks in a large part in northern Europe, it was turn Italy’s turn, which closed for Republic Day, cutting in half the first week of June. However, something has changed: not so much the pace of orders, which remained as low as in the end of Ma. Additionally the availability of raw material and the number of bids received by European tanneries were different.
The larger number of offers in the last week was the direct result of a decline in interest from Asia, which is also suffering from the appreciation of the euro against the dollar, returning over the threshold of 1.10. At these prices, European sellers fear a reduction of the absorption capacity of the Chinese, which could lead to the non-delivery and subsequent stops in the ports. The uncertainty for the next months complicates the plans of export and pushes slaughterhouses to now favor European tanneries more than in the recent past, especially so for the cow sector.
Bovine slaughter, however, remains low and therefore sellers try to resist lower bids, convinced that the need to buy will maintain steady prices.
Tanner price levels are reduced due to the difficulty in selling drop splits, which reduces their operating margin. In the few working days, in Arzignano this week, there were negotiations but so far without concrete results (excluding large groups, which keep their programs in force). In general, we see a slight increase in the activity, but less than initial forecasts. Few changes have been recorded, with few selections earning three or five cents and others, especially calf, losing the same value.
Right now, discussions are already done for deliveries in late summer and this is a fact that drives tanneries to wait for clearer signals on the front of final demand. We are on the eve of the first summer fairs, from Riva del Garda to Pitti Uomo, and the outcomes of these events may give a shock to the market, if they were positive, but it is still too early to speculate results.
Italy – Armani over 2.5 billion euro
The Armani Group announced consolidated revenues in 2014 of more than 2.5 billion Euros, an increase of 16% compared to 2013. EBITDA grew by 5.7% to 507 million euro, equal to 20% of revenues. It is one of the most significant growth recorded in the past year by a luxury brand.
According to Pambianco research, Armani was the only large group in Italy, with Valentino, to close with an increase of over 15 percent. Compared to most foreign groups, the comparison loses only against Hennes & Mauritz, the giant of low cost, rising by + 17.8%. “The growth – announced the company – focused on organically in terms of revenues and margins all the brands and distribution channels of the Group, in particular Armani/Casa (+ 20%) and Armani Privé (+ 30%)”. Geographically, growth was highly satisfactory in all markets, particularly in Asia and Middle East. Wholesale revenues, including licenses, amounted to 3.7 billion. However, Armani has reduced employment in the footwear district of the Riviera del Brenta, not renewing some of the temporary contracts.
Europe – Guess returns to profit
Guess Inc returned to profit in the first quarter through a rationalization process which resulted in a drop in sales, 8%, to $ 479 million from the previous 525 million. In North America the decline was 6%, while Europe recorded a 13.7% but results in a + 7.5% in the comparison at constant exchange rates. Asia suffered a -8.7% (-6% at constant currencies).
The containment of operating costs and higher margins in sales pushed in the positive EBIT of 4.4 million against the previous negative $ 2 million. According to forecasts of the management of the Californian fashion group, the second quarter is expected to confirm the drop in sales, while in the second half of 2015 Guess will start growing again and should close the fiscal year (31 January 2016) with an increase of 0.5 % at constant exchange rates. Meanwhile the company has initiated the closure of the Italian facility of Crevalcore (Bologna), where the production of clothing line Guess Marciano was managed, to centralize the activities on Florence.
Italy – Paciotti close to the rescue
Italian footwear group Cesare Paciotti, who has called for the implementation of the agreed procedure for bankruptcy, seems close to the rescue. The decision to grant the continuity agreement will be taken by the Court of Macerata; however, the company has received the favorable opinion of creditors providing coverage of 42% of the accumulated debts, compared with 35% initially assumed, and showing, in the recent management, comforting signs of operations.
The Court pronunciation should have been done by the end of last year, but the terms are repeatedly shifted to the need to acquire additional documentation. Among the main asset of the footwear group appear trademarks Cesare Paciotti, Heroes, Cesare P and Paciotti 4US, whose estimated value is 22 million euro, higher than debt exposure to banks and suppliers (estimated at 20 million euro).
UK – Jimmy Choo collaborates with Moon Boot
The English luxury group Jimmy Choo has collaborated with Moon Boot brand, owned by the Italian Tecnica group, for a capsule collection that will be unveiled on July 7 in Paris with his cruise collection and will be available in stores from October. The capsule consists of 8 models of boots in different colors and materials, including an option in shearling and fox fur. Moon Boot is a historic brand in the world of sneakers, which was inspired by the Zanatta family (owners of Tecnica) from the first moon walk in 1969.
Italy – Assocalzaturifici and MPS bank will support footwear
Assocalzaturifici accords with Banca Monte dei Paschi di Siena, the Italian third bank player, for a credit line of EUR 100 million to support the footwear industry. The term loan will be granted to cover the financial needs arising from the management company of the Italian shoe manufacturers. The agreement, valid until 30 June 2016, was signed by Sergio Vicinanza, manager of MPS corporate and investment banking, and the president of Assocalzaturifici Cleto Sagripanti, who will conclude its mandate in the assembly of Milan (June 9th). “This agreement represents an important opportunity for entrepreneurs and a positive example of cooperation between business and finance,” says Sagripanti. “We hope that the agreement will help the companies in such a delicate moment, which is important to support the Italian manufacturing excellence through concrete and effective tools to help investments in the most promising international markets”.
UK – New CEO for Harrys of London
Steven Newey is the new CEO of Harrys of London, the British brand of men’s shoes and high-end accessories. The company announced that the former commercial director of Mulberry replace the leadership of Marty Wilkstrom brand, which will retain the position of member of the board and which remains the reference shareholder.
Norway – Ekornes’ revenues up after acquiring Img
After the acquisition of IMG, ended in November, Norwegian furniture manufacturer Ekornes said first-quarter revenues rose more than 33% and profits were up 24%. The turnover of the first quarter grew 33%, to 898 million Norwegian krone, approximately 102 million euro. The profits amounted to 72.8 million krone, they have increased in the same period by 24%. “We are satisfied with the growth in revenues during the quarter. The increase derives from important markets for Stressless and from IMG.” said CEO Olav Holst-Dyrnes. He said the biggest increases were seen U.S. and Norwegian markets. Revenues in the U.S., Canada and Mexico totaled 223.4 million krone, or about $29.5 million. That was up from 135.9 million krone, or about $17.9 million, in last year’s first quarter.
Raw Hide Markets Across Europe
Slaughtering is a question mark
This week prices remain unchanged and the negotiations were substantially reduced. Between supply and demand there is a gap of at least five pennies: Buyers are convinced they should prevail with their price targets, while among sellers, there is a question mark about the real prospects of getting Asian interest. Sellers have a good ally in the trading between farmers and slaughterers: the number of animals on grass is less than the demand for red meat and prices move accordingly, even considering the difficulties in sourcing by UK meat distribution in Irish cattle. Indeed, Irish slaughtering houses have a situation quite similar to Britain, with demand far exceeding reduced supply, and prices move accordingly.
We repeat what was stated last week: at this level of slaughter, a fall in prices is unlikely in the absence of a strengthening euro against the pound. European tanners will have difficulty in getting required discounts and could orient themselves even more to the origins of US and Australia, which can partially replace heavy British hides.
European Cows: some increases were requested, negotiations are intense
Female Hides Report
Opposite situation, compared to last week. There are more queries, and this was possible to predict, while the five cents increase on some selections such as slight French or the best cows of southern Germany was not foreseeable.
In some cases, especially for the French top grades or Italian cow (which still needed an upward adjustment), sellers seems to have hit the target, while we have no news of conclusions with the new prices on German origins.
Into the opening by buyers, sellers see a good sign and expect to reach agreement in a few days. Tuscan tanneries would be willing to accept increases in order to procure lighter selections from Northern France (Bretagne), but during the week there were no offers. Scandinavian cows, after resizing the last two weeks, come back to the light, and the latest bookings show a further decline of five cents of certain lots from Finland.
The situation is confused, and the picture in perspective is indecipherable. The premises would lead to hypothesize markdowns on cows, considering the abundance of South American stocks in search of buyers, but the latest quotes from Australia and New Zealand are showing signs of stabilization and also, working on European hides, the final result is far superior. It is possible to widen the gap between quality and economical raw materials.
While the decline from Dutch calves appeared not to have particular effects on Northern Italy, where the agreements are rare and dictated exclusively by the acquisition of orders for finished leather (who doesn’t sell doesn’t buy!), the relevant events of the last week concern the drop of Italian calf, between 5 and 10 cents, and the abnormality of the French situation.
The prices coming from France indicate the record value required by slaughterhouses for the luxury selection to Tuscany, traditional destination of these skins, but a trader told us that no one buys those calves, because a gap of over two Euros per kilo compared to “unselected” appears unsustainable.
The top range is monopolized by French tanneries, controlled by luxury groups, for which of course the quality is priceless. Many are asking: until when this system will hold?
In the absence of a convincing demand for leather goods and footwear, tanners seem oriented to buy wet blue instead of raw material, downloading of the supplier not only the management of the warehouse, but also the risk of treating a raw hide which, once transformed, could not give the expected quality. Moreover, the selection appears too expensive. Calf therefore confirm to be the weaker selection, with less immediate prospects for price recovery.
European Bull Market: Increases in France and Spain
Male Hides Report
We continue to hear rumors in a drop in production for automotive, but they are only rumors: reality goes in another direction as per a demonstration of the latest quotes of French bulls, showing increases of about ten cents which in some cases were obtained. Spanish bulls are firm as well due to less availability.
However, values were confirmed for all German and Italian bull selections. German tanneries, after a pause, seems to be back on the market; as regards the French origins, some negotiations were concluded in Veneto for whole hides and in Tuscany for vegetable tanning, without particular difficulties in the commercialization of the shoulders.
Recent increases could be a simple adaptation of certain origins following the results obtained in May from the benchmark of automotive bulls such as German hides. This does not mean that the seller of the north and south German bulls have decided to give up, but tanners has clearly explained that the decline of drop splits, which also affects bulls, does not grant any chance for negotiation. In this situation, it’s better to keep the customer than risking breakage for a few cents of increase, without any real alternatives for the seller.
Lamb and Sheep Market: where’s the garment?
EU Lamb and Sheep Report
Prices are unchanged in the major European markets. The availability of sheepskin is destined mainly for export, with a few conclusions within their national markets for origins of Spain, France and Britain.
The activity in Solofra is concentrated on imported skins from Nigeria and South Africa. Tanneries in Solofra have satisfactory demand for high-end footwear and leather goods, while clothing is almost gone and there are rare orders from France. Among the big players of the moment, stands out Inditex group, requiring chrome-free skins even in the case of low grades. An operator in Solofra told us that the tanneries have reduced stores, never exceeding stocks over two months of activity planned, and that the few contracts for the purchase of European kskins are limited to Greek lambs, while there is more interest for goats
The timing is particularly complex for suede. Among the target markets, however, Europe dominates the scene and the profile of the final customer is identified in the established brand of luxury.
In the absence of garment, which is the most important business in sheepskins, it’s impossible to prospect an increase in prices. The need to buy top grade skins opens a period of difficult negotiations, with a tightening of the selections by the tanner.
Video Interview with Andrea Guolo on Current European Market Conditions
Looking ahead: not selling off, but the tannery gains more strength
It may surprise: European raw material, against a general decline in prices, had some substantial increases. The first to be surprised, in fact, are the tanners, who feel absolutely necessary to adjust in the short-term and to limit purchases avoiding the risk to have an overvalued warehouse.
One fact remains: Slaughterhouse do not have interest to speculate, because revenues from hide is the oxygen for the breathing of the whole system, that suffers from the slowdown of slaughtering. Sales managers in slaughterhouses, however, have obtained a very precise mandate: given the (few) quantity, bring home the contracts and, if necessary, grant something, without selling out, but the distance between the parties continues to be excessive.
Each one should understand the reasons of the counterpart. The tanners, and their real job is purchasing (who buys in the right way has already caught a half-victory), can not operate at a loss. They miss a share of revenue in their budget, resulting from the sale of the splits, because the market for casual footwear and leather goods seems to have stuck.
At the base of this block there’s a problem of fashion trends, as always happens, because suede is going through a phase of general suffering (see what is happening to sheep skins, not only to the cow splits); but there is also a discussion of the risk of material that can reveal the presence of some chemicals substances, in a market where the tests abound.
The giant brands are so large and so media exposed, that they can not tolerate an image damage caused by issues related to the welfare of the final customer and if there could be a risk, is better to replace split with synthetic, which is also less expensive.
Another important aspect for the development of the European market, is the strong decrease in purchases from Brazil. In Europe there are many who assume the bursting of a bubble, the Brazilian bubble, but experience leads us to say two things: On the one hand the analysis made thousands of kilometers away appearing imprecise; on the other hand, when the Brazilians will want to sell, they will without too many claims and will reduce their prices.
So far they have not done so, which means there is no immediate need. Moreover, the recent opening of a direct distribution on the market of High Point by the Brazilian leader in the leather business indicates that certainly they need it, but also that the initiative does not lack. Time will tell whether its business model creates profits, as well as any competitive reality must create.
The new fall in US prices reflects the difficulties experienced by the Chinese between financial tensions and environmental restrictions. The consequences are visible also in Europe and are favorable for continental tanners. Compared to a week ago, the European tannery has gained more strength, that does not mean that the evolution of the negotiations from moving in a clear direction. The scenery is open and the barometer is totally variable.
A Reminder to our Readers
All the price charts we print are intended to be used solely for a basis of helping illustrate trends in the market. The actual prices seen in them do not reflect qualitative variation from one origin to another. Hidenet.com recognizes that there is a variety of factors which determines different prices for similarly described merchandise.
Survey of Uk and Irish Ox/Heifers
*UK prices in GBP, Irish Prices in Euros, delivered North Italian tannery, payment terms 30 days
|This Week 6/5/2015||Last Week 5/29/2015|
|36.00 and up||1.60-1.65||1.90||1.60-1.65||1.90|
|31.00 - 35.50||1.68-1.73||2.00-2.05||1.68-1.73||2.00-2.05|
|26.00 - 30.50||1.75-1.78||2.10-2.15||1.75-1.78||2.10-2.15|
|25.50 and down||NA||2.20-2.25||NA||2.20-2.25|
Survey of The European Cow Markets
*All prices quoted in Euros/kg. on 30/32kgs. delivered North Italian tannery, payment 30 days
Survey of Dutch Veal Skin Market
*All prices quoted in Euros/kg. delivered North Italian tannery, payment 30 days
Survey of French Veal Skin Market
*All prices quoted in Euros/kg. delivered North Italian tannery, payment 30 days
Survey of European Bull Markets
*All prices quoted in Euros/kg. delivered North Italian tannery, payment 30 days
Survey of Spanish Lamb/Sheep Markets
*Prices are ranged to reflect the different regions in Spain, from lower end to top end quality.
**Prices quoted basis fob origin on euros per piece basis (5.5-7ft range, 6.5ft avg.)
Survey of United Kingdom Lamb/Sheep Markets
*Prices quoted in GBP.