Leather: Price Deflation?

During today’s conference call, Coach CEO Lew Frankfort commented that “leather is a little cheaper to us this year than last year” . We set out to try and quantify what “a little cheaper” means in dollars. We think it was a bit more of a benefit than Mr Frankfort suggested.

Securing accurate data for Leather prices can be tricky –we extrapolated the price data on the attached chart from US government figures covering exports of raw (un-tanned) cattle hides to China (the world’s largest importer). We calculate only a modest raw cost increase -roughly 25% since 2002. While the cost of transport and processing have increased dramatically due to rising oil costs and increasing environmental controls for tanners, we’re still looking at around a 10% decline from 2007 peaks.

The US primarily exports hides raw due to the onerous environmental issues attached to operating a tannery. There are so few leather producers operating in the US today that Redwing, the last major domestic manufacturer of leather footwear, owns dedicated tanning facilities to meet internal demand. Interestingly, press reports from China have indicated increased regulation of tanning operations there has led several firms to invest in tanning operations in Africa –notably Kenya.

One note: Much of the finer leather used by producers for brands like Coach are actually of different, higher grades of hide (“wet blue” etc.) than the one charted here. We used the most common grade as our base for calculating the % change since it afforded us the greatest amount of price and volume data depth by far.

Andrew Barber
Director



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