Leather and leather products – Industry Overview
James E. Byron
The leather and leather products group is made up of seven industries: nonrubber footwear (SIC 314), leather tanning and finishing (SIC 3111), gloves and mittens (SIC 3151), luggage (SIC 3161), handbags (SIC 3171), small personal leather goods (SIC 3172), and leather wearing apparel (SIC 2386). The distribution of 1991 current-dollar industry shipments is shown in Table 1.
Table 1: Distribution of Leather and Leather
(in millions of dollars)
Industry Shipments(*) Percent of Total
Nonrubber footwear 3,942 43.5
Leather tanning and finishing 2,900 32.0
Luggage 1,066 11.8
Handbags 507 5.6
Small personal leather goods 371 4.1
Leather wearing apparel 138 1.5
Gloves and mittens 133 1.5
Total 9,057 100.0
SOURCE: U.S. Department of Commerce, International Trade Administration.
Before reading this chapter, please see “How to Get the Most Out of This Book” on page 1. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapters 9 (Textiles), 13 (Plastics and Rubber), and 33 (Apparel).
Measured in constant dollars, industry shipments are expected to decline less than I percent in 1992, despite increases for leather tanning (4 percent), nonrubber footwear, NEC (2 percent), and small personal leather goods (1 percent). Shipments each of the remaining 4-digit industries are expected a decline. Total employment in these seven industries was 94,300 in 1991, down 8.4 percent from 1990.
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U.S. imports of the industry’s products declined about 5 percent in 1991 to an estimated $12 billion. The developing countries, including China, and the newly industrialized countries, including South Korea and Taiwan, accounted for 83 percent of the total. China had a 24-percent share of the total. With the exception of leather tanning and finishing, all of these industries are extremely labor intensive. Suppliers in most developing countries maintain a substantial cost advantage over U.S. producers because they pay lower wages. U.S. exports of leather, nonrubber footwear, and other leather products were about $1.18 billion, down 2 percent from 1990. Imports of leather and leather products exceeded exports by about $10.9 billion, of which $8.1 billion was in nonrubber footwear. By value, the ratio of imports to apparent consumption averaged about 62 percent for all leather and leather products. The leather wearing apparel industry had the highest ratio, 93 percent, followed by 72 percent for footwear, 68 percent for handbags, 64 percent for gloves, and 52 percent for luggage. Leather tanning ranked the lowest at 19 percent.
LEATHER TANNING AND FINISHING
Leather tanning and finishing industry shipments declined about 2.4 percent in 1991 to an estimated $2.9 billion in constant dollars. Product shipments also declined, from $2.93 billion to $2.93 billion. Measured in constant dollars, both industry and product shipments rose about 1 percent as leather prices declined. The quantity of leather shipped by U.S. tanners increased about 1.5 percent, to the equivalent of 15.3 million cattlehides. Included in these totals are leathers produced from hides and skins of cattle, calves, goats, sheep, lambs, cabretta, horses, and other animals and reptiles. Shipments of cattlehide leather accounted for 13.5 million units, or 88 percent of the total.
The industry includes establishments primarily engaged in tanning, currying, and finishing raw or cured hides and skins into leather. Also included are converters and dealers who buy hides and skins or leather and contract with tanners or finishers to process these products. Between 1982 and 1987, the tanning industry experienced considerable contraction and consolidation. The number of companies declined from 342 to 308, and the number of establishments or plants declined from 384 to 338. The largest number of establishments are in New York, Massachusetts, California, Wisconsin, Pennsylvania, New Jersey, and Texas. In 1991, only about 115 establishments of significant size were wet- processing tanners directly tanning raw hides and skins into leather. Industry employment in 1991 was estimated at 1 1,400, down 6 percent from 1990. Production employment also declined, from 10,300 in 1990 to 9,600. Average hourly earnings for production workers were about $10.76, up 5 percent from 1990.
The footwear industry is the tanning industry’s largest market, consuming an estimated 52 percent of leather shipments in 1991. An estimated 53 percent of all nonrubber footwear produced in the United States was made with leather uppers in 1991, when high leather prices led footwear stylists and manufacturers to substitute other materials for shoe uppers. Consequently, the proportion of domestic and imported footwear with leather uppers declined sharply in 1991. Production of sole leather dropped about 15 percent from 1990, continuing a slide brought about by the trend toward cheaper synthetic materials. These synthetics have been made even more competitive by new equipment and technology that reduces labor costs in shoe bottoming operations. Cattlehide garment leather production increased slightly in 1991 over 1990. Production of leather for the handbag, luggage, and personal leather goods industries remained unchanged.
By far the fastest-growing and potentially largest markets in the United States are for automotive and furniture upholstery leather. In 1982, upholstery leather represented only 7 percent of all leather product shipments by value. Industry estimates indicate that the proportion has since grown to about 35 percent. About 19 percent of all furniture manufactured in the United States is covered with leather. Leather also is now being offered as an option in most medium-priced automobiles and is a standard interior in higher-priced foreign and domestic models. Japanese models made in the United States also feature domestically made upholstery leather. U.S. upholstery leather tanning capacity was increased significantly during 1991. Production of wet-blue (partially-processed, chrome-tanned) cattlehide leather also increased sharply when the nation’s largest meat packer opened another tanning facility.
Hide Supply Down
For the fifth consecutive year, the quantity of cattlehides derived from total commercial slaughter in the United States declined in 1991, to an estimated 33.1 million hides, a drop of less than 1 percent. Slaughter reached a high of 43 million head in 1976 and has been declining ever since. The supply of cattlehides depends solely on the demand for meat. Cattlehides are only a by-product of the meat-packing industry. A long-term decline in consumption of red meat has discouraged growers from rebuilding cattle herds, despite favorable feed-grain prices throughout most of the 1980’s.
Cattle inventory on July 1, 1991 was up 2 percent over the same month of 1990. For the third consecutive year, year-end inventory was expected to rise to 100.9 million head. A larger calf crop in 1991, withholding by growers of more heifers for breeding stock, and higher cattle prices were all expected to contribute to an increase in cattle inventory again in 1992. As a result, cattle slaughter is expected to rise about 1.2 percent to 33.5 million head, making larger supplies of cattlehides available.
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Hide and Leather Prices Decline
Prices for cattle hides declined sharply in 1991, after reaching record highs in 1988. According to an industry publication, the composite average monthly price of three types of hides was 71 cents in the first half of 1991, down 23 percent from the same period in 1990. By contrast, the Producer Price Index (PPI) declined about 18 percent. Between January and July 1991, the PPI for all leather declined about 4 percent from the same period in 1990. Hide prices continued to weaken in the third quarter of 1991, particularly for lower grades, and were expected to finish the year with the largest annual decline since 1980, when they dropped about 38 percent. Increased supplies of cattlehides are expected to restrain hide and leather prices during 1992.
Pretreatment of liquid wastes that tanners discharge indirectly into publicly owned treatment works is controlled by Environmental Protection Administration (EPA) standards established in 1985. These standards do not require biological treatment, but do require control of sulfides, chromium, and acidity. New equipment and technology have enabled tanners to cope successfully with the Federal standards. In some areas, however, local restrictions and higher state standards have forced tanneries to close altogether or confine production to the processing of wet-blue whole or crust (unfinished) leathers.
All tanners that discharge directly into a waterway of any kind must operate with EPA-approved National Pollution Disharge Elimination System permits. EPA standards for this group require control of conventional pollutants, such as suspended solids and biological oxygen demand, among others, in addition to sulfides, chromium, and acidity. Control of these wastes requires both primary and secondary (biological) treatment facilities. If the EPA tightens the standards or broadens them to include other pollutants, such as ammonia, biocides, chlorides, and surfactants, compliance could require expensive tertiary treatment. However, control of these waste products can most likely be achieved through less costly process modificaon.
The EPA has classified chrome-containing leather and leather scrap as nonhazardous solid waste because the principal tanning agent, trivalent chromium, has not been proven toxic. The industry is concerned that the EPA may revoke its decision because trivalent chromium can be converted into toxic hexavalent chromium if it leaches into groundwater. If the EPA designates all types of chromium hazardous, it will make disposal of tanners’ solid wastes in state-approved landfills more difficult and costly. More stringent limits on chromium in municipal sludge will require even more efficient chrome removal by indirect-discharging tanners. The industry has developed and adopted several new tanning systems that will use other nontoxic metal salts, resins, or combinations thereof to replace some or all of the chromium currently used.
Tanners are also concerned about the effect the Clean Air Act will have on leather finishing operations. The law subjects a large number of chemicals and chemical compounds, including toxic volatile organic compounds, or solvents, to stringent emission controls. Although tanners have reduced such emissions in recent years by installing new anti-pollution technologies, most companies are switching to lower solvent-based, or non-toxic, water-based finishing compounds. Control standards for the leather industry probably will be published in 1994, by which time the Clean Air Act requires a 90-percent reduction in all volatile organic compounds from the industry baseline recorded in the 1987 Toxic Release Inventory.
Exports of raw and wet-blue cattlehides totaled an estimated 23.8 million in 1991, down about 11 percent from 1990. As a percentage of total commercial slaughter, these exports declined in 1991 to 72 percent from 80 percent in 1990. Raw cattlehide exports declined about 5 percent from 1990 to an estimated 20.5 million; wet-blue cattlehide exports declined about 36 percent to and estimated 3.3 million. The largest importers of U.S. raw cattlehides during the first half of 1991 were South Korea, (51 percent), Japan (20 percent), Mexico (13 percent), and Taiwan (10 percent). Together, these four countries took 94 percent of U.S. cattlehide exports.
The United States is the world’s largest hide exporter. Many of the developing countries that produce large amounts of hides and skins, including Argentina, Brazil, and India, restrict exports as a way of encouraging growth of their own tanning and leather products industries. The restrictions depress the prices tanners and leather products manufacturers pay for raw materials, and indirectly subsidize production and exports of leather and leather products. Large quantities of these products are exported to the United States.
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The United States produces about 4.5 million calfskins annually and exports almost all of them, primarily to South Korea and Italy. Because of limited supplies of imported raw materials, joat and kid leathers are no longer tanned in significant quantities in the United-States. In 1991, about 5.5 million domestic sheepskins, supplemented by about 2 million net imports of pickled sheep and lambskins, were tanned into grain and suede gannent leathers and shearling leather. Much of this leather was exported for manufacture into finished goods in other countries.
Leather Exports Decline
U.S. leather exports declined about 10 percent in 1991, to an estimated $676 million, in response to the rising U.S. dollar and weak economies in developed countries. Falling leather prices lowered the value of exports without a corresponding drop in quantity.
The United States exports leather to almost 70 countries. During the first six months of 1991, the largest importer, Japan, accounted for 27 percent. Of this, automotive upholstery leather, which is exempt from the global tariff-rate quota Japan imposes on other leather imports, made up more than 86 percent. South Korea, a leading exporter of leather footwear and garments to the United States, captured a 14-percent share in the first half of 1991, followed by Taiwan (9 percent), Italy (8 percent), Canada (7 percent), the Dominican Republic (7 percent), and Hong Kong (5 percent). The European Community (EC) accounted for 17 percent.
Cattlehide leather made up 86 percent of all U.S. exports in the first half of 1991. Wet-blue cattlehide leather, including splits, (the layer closet to the flesh of hides cut horizontally in half) accounted for 20 percent. South Korea, Italy, and Taiwan were the largest markets. The largest meat packer has expanded production capacity to more than 4 million hides annually to meet greater domestic and foreign demand.
U.S.-produced upholstery leather continued to record substantial export growth in 1991. By value, upholstery leather exports increased 22 percent in the first half over the same period in 1990, and accounted for 25 percent of all U.S. leather exports. Japan, the largest market, took in 91 percent of the total.
First-half 1991 U.S. leather exports to so-called beneficiary developing countries, which receive U.S. tariff concessions under the Generalized System of Preferences (GSP) section of the Trade Act of 1974, made up 20 percent of total U.S. leather exports. This was down from 24 percent for the same period in 1990. Large declines were recorded for the Dominican Republic, Mexico, and the Philippines.
Leather Imports Also Decline
U.S. leather imports declined about 22 percent in 1991 to an estimated $533 million, from $683 million in 1990. Part of the reason was a decline in U.S. demand for shoe upper leather. Unfavorable foreign exchange rates and higher U.S. duties on leather imports from Argentina also added to the decline.
The United States imports leather from about 70 countries, During the first six months of 1991, the largest supplier was Argentina with 19 percent of the total, down from a 24-percent share in 1990. First-half U.S. imports of leather from Argentina declined 43 percent from the same period in 1990, largely because of higher U.S. duties imposed on Argentine leathers in September 1990. Italy ranked second with a 13-percent share, followed by the United Kingdom (9 percent), Brazil (6 percent), Thailand and Uruguay (5 percent each), and Germany and Mexico (4 percent each).
Cattlehide leather accounts for about 78 percent of all U.S. leather imports. In the first half of 1991, the largest supplier was Argentina. Sheep leather, the bulk of it from Italy, accounted for 5 percent of the total. Goat and kid leather made up another 5 percent, of which India and Pakistan were the largest suppliers. Pigskin leather accounted for 4 percent, with Taiwan the largest supplier.
Leather imports from EC countries accounted for 32 percent of total U.S. imports by value in the first half of 1991, unchanged from 1990. For the 6-month period, the beneficiary developing countries’ share of total imports was 52 percent, up from 50 percent for the same period in 1990. Most developing countries have converted more of their domestic raw material supplies to leather and leather products for export markets. Because tanning capacity in these countries often exceeds domestic supply, many also import hides and skins from the United States and other developed countries.
U.S.-Japan Trade Agreement
In January 1986, the United States and Japan reached an agreement to settle a long-standing dispute over Japan’s import quotas on leather and leather footwear, which were found illegal under the General Agreement of Tariffs and Trade (GATT). Japan replaced these import quotas with tariff-rate quotas. The existing tariffs of 15-20 percent on leather and 27 percent on leather footwear now apply to quantities subject to quota, and a 60-percent rate applies to imports in excess of quota ammounts.
In the first half of 199 1, U.S. exports to Japan were up 32 percent over the same period in 1990, to $92.3 million. However, 86 percent of these exports, or $79.8 million, were automotive upholstery leather, which is not subject to the tariff-rate quotas because it is returned to the United States in Japanese automobiles. For the same period, U.S. exports to Japan of leather other than upholstery increased only 5.5 percent over 1990, to $12.5 million.
Japan’s bovine leather global quotas were only about 350,000 square meters in 1990, about I percent of Japan’s total bovine leather market. Almost all is produced from imported raw cattlehides. The United States supplied more than 75 percent of these, or an estimated 4.4 million hides in 1991. Both the U.S. Government and the EC have addressed the issue of Japan’s tariff-rate quota system on leather and leather footwear in the Uruguay Round of multilateral trade negotiations.
In September 1990, the Department of Commerce determined that Argentine’s cattlehides were selling in Argentina at artificially low prices because of that country’s export embargo on hides. A group of U.S. tanners had alleged that the embargo indirectly subsidized exports of low-priced Argentine leather to the United States. The Commerce Department directed the U.S. Customs Service to levy countervailing duties averaging 15 percent on almost all types of leather imported from Argentina until further notice. During 1991, these additional duties narrowed the price gap between U.S. and Argentine leathers in the U.S. market. The Commerce Department was expected to conduct a compliance review of the countervailing duty order in September, 1991.
Outlook for 1992
Leather shipments are expected to increase to about 15.9 million cattlehide units, and their constant-dollar value will increase about 4 percent. Increased domestic slaughter will make more hides available for U.S. tanners and make leather prices more competitive with other materials. U.S. leather exports will start growing again at a satisfactory rate. Countervailing duties on leather from Argentina will lead to even higher levels of U.S. production.
The industry’s longer term outlook appears to be good. The U.S. hide supply will continue to increase, reversing a long-term downtrend, and prices should remain at much lower levels than over of the past 5 years. These conditions should increase tanners’ working capital and reduce debt. Producers of wet-blue leather will continue to increase their share of total U.S. leather production. Even though they remain an industry concern, environmental problems will be met and resolved by new technology, equipment, and new wet-blue plants. U.S. Government trade actions and negotiations could give the U.S. tanning industry greater access to international raw material and leather markets, thereby improving its opportunities for solid long-term growth.
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SHOES AND SLIPPERS
The nonrubber footwear industry (SIC 314) produces all types of footwear except rubber protective and rubber-soled fabric-upper footwear, both of which are classified in SIC 3021. In 1991, industry shipments declined about 6 percent to an estimated $3.9 billion, from $4.2 billion in 1990. In constant dollars the decline was 9 percent. Unit shipments dropped about 7 percent to 187.6 million pairs from 201.7 million pairs in 1990. The rate of change varied among the industry’s four major sectors; house slippers (SIC 3142) were down 15 percent; men’s footwear, except athletic (SIC 3143) and women’s footwear, except athletic (SIC 3144) were each down about 11 percent; but footwear, except rubber, NEC (SIC 3149) was up about 9 percent.
Production of nonrubber footwear declined about 6 percent to an estimated 186.1 million pairs, from 198.4 million pairs in 1990. Domestic production, which peaked at 642 million pairs in 1968, has declined steadily since then at a compound annual rate of more than 5 percent. In 1991, production declines were largest for house slippers, which were down 15 percent to 35.4 million pairs. Men’s and women’s footwear production declined about 11.5 percent each to 40 million pairs and 55.8 million pairs, respectively. Production of footwear, NEC, increased about 9.5 percent to an estimated 54.9 million pairs, largely because production of misses’ footwear rose 10 percent and that of athletic footwear gained a substantial 150 percent.
Shipments of house slippers declined about 25 percent to an estimated 34 million pairs, from 45.6 million pairs in 1990. Their product value dropped to an estimated $158.3 million. Slippers accounted for 18 percent of the quantity but only 4.4 percent of the value of total nonrubber footwear product shipments, primarily because most slippers are produced from lower- cost materials such as vinyl and textiles. The ratio of imports to domestic consumption for slippers was about 32 percent by quantity, the lowest of the four sectors.
Men’s Footwear, Except Athletic
Men’s nonathletic footwear includes dress and casual shoes, work shoes, and boots. Shipments of men’s footwear declined about 5.4 percent to 43.5 million pairs, from 46 million pairs in 1990. Their value declined about 8 percent to an estimated $1.75 billion. Men’s footwear accounted for 23 percent by quantity and 48 percent by value. More than 90 percent of men’s footwear was made with leather uppers. By quantity, import penetration (imports as a percentage of total domestic consumption) was 72 percent.
Women’s Footwear, Except Athletic
Shipments of women’s footwear declined about 8 percent to an estimated 61.7 million pairs in 1991. Their value declined almost 9 percent to an estimated $1.19 billion. Women’s footwear accounted for about 33 percent by quantity and 33 percent by value. Import penetration for women’s footwear was an estimated 86 percent.
Footwear, Except Rubber, NEC
Shipments of footwear for youths and boys, misses, children, infants and babies, and athletic and other miscellaneous types of footwear increased about 13 percent to an estimated 48.4 million pairs in 1991. Their value increased about 12 percent to $544.2 million. Shipments of footwear in this group accounted for 26 percent by quantity and 15 percent by value of all nonrubber footwear shipments. Between January and June 1991, strong growth in production of youths’ and boys’ footwear, up 46 percent, athletic footwear, up 24 percent, and misses’ footwear, up 17 percent, more than offset declines of 7 percent for children’s and 23 percent for infants’ and babies’ footwear.
Consumption of athletic footwear reached about 535 million pairs in 1990, including imports and domestic production of rubber/fabric footwear (sneakers). This represented almost 40 percent of combined nonrubber and rubber/fabric footwear consumption of about 1.4 billion pairs in 1990.
Imports of all juvenile footwear were down about 3 percent in the first half of 1991 from the same period in 1990, and imports of athletic nonrubber footwear were up about 1 percent. The ratio of imports to apparent consumption for juvenile footwear was 85 percent and for athletic footwear 89 percent.
Footwear Consumption Declines
Apparent consumption of nonrubber footwear declined about 2 percent in 1991 to 1.062 billion pairs, from 1.082 billion pairs in 1990. Per capita consumption also declined, to about 4.2 pairs from 4.3 pairs in 1990. Per capita consumption increased from a low of 3.3 pairs in 1980 to a high of 4.8 pairs in 1986 before turning down again. This rise in demand during the early 1980’s was filled by increased imports, mostly of nonrubber athletic footwear. A corresponding decline in rubber/fabric footwear consumption occurred during the same period. After 1986, this trend was reversed; per capita consumption of nonrubber footwear dropped and rubber/fabric footwear consumption increased. However, in 1991 rubber/fabric footwear consumption also declined by about 8 percent to an estimated 205 million pairs, or 0.8 pairs per capita.
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Membership Bulletin Leather Industry Statistics, 1991 Edition, Leather Industries of America, Inc., 1000 Thomas Jefferson St., NW, Suite 515, Washington, DC 20007. Telephone: (202) 342-8086. Leather, International Journal of the Industry (monthly), and International Leather Guide, 1992, Benn Publications Ltd., Sovereign Way, Tonbridge, Kent TN 91 RW, England. Telephone: 073-236-4422. Journal of the American Leather Chemists Association, Leather Industries of America Research Laboratory, Campus Station, Cincinnati, OH 45221. Telephone: (513) 556-1200. Leather Manufacturer (monthly) and World Leather (bimonthly), Shoe Trades Publishing Co. Inc., 61 Massachusetts Ave., Arlington, MA 02174. Telephone: (617) 648-8160.
Personal consumption expenditures (PCE) on both rubber and nonrubber footwear were up about 4 percent in 1991 to an estimated $32.2 billion. However, PCE on footwear in constant (1982) dollars were down about 1 percent, reflecting the decline in apparent consumption.
Demand continued strong in 1991 for “athleisure” and other casual walking shoes. Walking shoes represented an estimated 8 percent of total footwear sales. These shoes are produced with padded linings, collars, and insoles. But styles have shifted away from the athletic look toward a more traditional look. Sales continued strong for boat shoes and moccasins with water-resistant leather uppers in a wide variety of colors. Boots of all types and for all purposes regained a larger market share than in 1990.
Factory Prices Up, Profits Down
The average factory price for nonrubber footwear increased about 6.5 percent to $21.68 per pair in 1991. This was far lower than the 22 percent increase recorded for 1990, the result of lower leather prices and pressure from imported footwear. The producer price index (PPI) for nonrubber footwear was up 2.1 percent for January-May 1991, compared with the same period in 1990, while the consumer price index (CPI) for all footwear, including imports, increased 2.8 percent over the same period.
According to an analysis of publicly held footwear companies, producers who manufactured athletic footwear overseas earned the most profits in 1990. The entire group of 18 public companies saw average profits decline 7 percent in 1990, despite a sales gain of 17.5 percent. But the five largest athletic shoe firms achieved a combined 15 percent increase in profits on a sales gain of 19 percent. In 1990, profit margins on sales were 8.7 percent for these athletic firms, compared with 5 percent for the entire group. Five major footwear retailers recorded an average earnings decline of 19 percent in 1990 on a 2.3 percent gain in sales. Profit margins for these five firms declined from 3 percent of sales in 1989 to 2.4 percent in 1990.
Factories and Employment Down
The Census of Manufactures for 1987 lists 379 companies operating 471 establishments in the nonrubber footwear industry, down from 558 companies and 751 establishments in 1982. Two decades earlier, some 990 plants were in operation. In 1990, the U.S. Department of Labor certified 15 footwear establishments for trade adjustment assistance and denied certification to 3 others. In the first few months of 1991, certification was granted to 15 additional establishments, indicating that the rate of factory closing is accelerating.
In 1991, total employment declined about 10 percent to an estimated 54,700, from 61,000 in 1990. Production employment declined also, to 46,900 from 52,800 in 1990. The Bureau of Labor Statistics’ index on footwear industry productivity (1982=100) climbed from 97.7 in 1983 to 101.1 in 1988, and increased about 3.3 percent in 1989 to 104.4. The index had been below 100 thoughout the 1970’s.
About 53 percent of nonrubber footwear was produced with leather uppers in 1991, unchanged from 1990. About 95 percent of men’s footwear and 65 percent of women’s footwear is produced with leather uppers. Juvenile types average about 50 percent leather; slippers, only 5 percent. Manufacturers generally can increase profit margins by producing footwear with leather uppers rather than with vinyl or textile materials. However, despite lower prices for cattlehides and leather in 1991, demand for new styles in leather did not increase.
New Technology Introduced
The industry considers new technology essential to improve cost competitiveness. Increased use of computers has already helped to integrate design, management, manufacturing, and marketing functions and to emphasize such non-price factors as quality and quicker delivery in competition with imports. Computer-aided design, computer-aided manufacturing, and computer-integrated manufacturing systems help manufacturers improve their competitive position. Computers also enable manufacturers to combine several operations or machines under fewer operators, reducing handling time and improving quality control. Computerized robots have also been developed for handling and transfer operations within and between these production modules. Much of this new technology is being developed and used Europe. Depending on the availability of capital, it can be readily transferred to Far Eastern producing countries, which partially nullifies any competitive edge achieved by U.S. manufacturers.
Nonrubber footwear imports declined about I percent in 199 1, to an estimated 893 million pairs from 897.5 million pairs in 1990. The customs value – excluding insurance, freight, and duty – remained unchanged at about $8.4 billion. The unit value of nonrubber footwear imports was about $9.41 up from $9.37 per air for 1990.
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Imports Up Again
Imports increased from 175 million pairs in 1968 to 941 million pairs in 1986, a compound annual growth rate of 9.8 percent. Imports stabilized at about 375 million pairs and 50 percent of apparent consumption during the 4-year period of import quotas imposed by the orderly marketing agreements (OMAs) with South Korea and Taiwan that began in June 1977. Following expiration of the OMAs in June 1981, imports increased by more than 100 million pairs annually, reaching a peak of 941 million pairs in 1986. The ratio of imports to apparent consumption peaked at 82 percent in 1987, declined to 80 percent in 1989, but rose again to a new high estimated at 84.1 percent in 1991.
In the first half of 1991, the five largest suppliers of nonrubber footwear to the United States were China (40.4 percent), Taiwan (15.3 percent), South Korea (12.7 percent), Brazil (10.9 percent), and Italy (4.7 percent). These five countries accounted for 84 percent of all U.S. nonrubber footwear imports for the six-month period. Although the United States imported nonrubber footwear from more than 90 countries during this period, only four other countries-Indonesia, Thailand, Spain, and Hong Kong – captured more than 1 percent of U.S. nonrubber footwear imports.
U.S. imports of nonrubber footwear totaled 445.7 million pairs in the first six months of 1991, down 1.7 percent from the same period in 1990 (Table 3). Imports from China rose 59 percent, or about 67 million pairs, as more production from Taiwan was transferred to China because of lower costs. A large measure of technological and financial support for mainland China’s expanding footwear operations comes from Taiwanese manufacturers. Indonesia was the only other major supplier that recorded an increase in exports to the United States, up 48 percent over the first half 1990. All others recorded double-digit percentage losses, with Taiwan’s exports to the United States dropping 29 percent, or 28.4 million pairs, and South Korea’s also dropping 29 percent, or 23.7 million pairs.
South Korea, Brazil, China, Taiwan, and Italy were the largest exporters of leather footwear to the United States in 1991, accounting for about 79 percent of the total. China, Taiwan, and Brazil, were the largest suppliers of men’s leather footwear. Brazil, China, and Italy were the largest suppliers of women’s leather footwear. South Korea and China were the largest suppliers of juvenile leather footwear, and South Korea, China, Taiwan, Indonesia, and Thailand of leather athletic footwear. China was the largest country supplier to the United States in 14 of 19 major gender or material subcategories of nonrubber footwear imports and ranked second in the remaining five.
U.S. leather footwear imports accounted for about 54.2 percent of all nonrubber footwear imports between January and June 1991, down from 59.1 percent during the same period of 1990. This indicated that other materials, particularly vinyl and canvas, were replacing leather in shoe uppers because of a prolonged period of high leather prices. The average unit value for leather footwear imports was $12.60, up 6 percent from $11.91 for the same six-month period in 1990, although still below the unit price for domestic production. This increase came on top of a substantial 13 percent increase in 1990.
By quantity, China accounted for 65.4 percent of U.S. imports of nonrubber footwear with vinyl or plastic uppers in the first half of 1991. Taiwan supplied 22.7 percent. U.S. imports of footwear with vinyl or plastic uppers accounted for 43 percent of total nonrubber footwear imports for the period. The average unit price was $3.99, down from $4.18 in 1990.
Although the proportion of imported footwear with leather uppers climbed steadily during the late 1980’s, reaching a high of 59 percent in 1990, it dropped sharply to 54 percent in the first half of 1991. Over the same period, the proportion imported with vinyl uppers increased to 43 percent from 36 percent in 1990, mainly because of substitution of cheaper vinyl and plastic materials for leather in imported men’s juvenile, athletic, and especially women’s footwear.
In recent years, U.S. manufacturers have exported ever larger quantities of cut footwear parts to developing countries, where they are assembled and re-exported to the United States as finished or partly finished footwear. Under the U.S. Tariff Schedule (Heading No. 9802), duties are assessed only on the value-added content. Moreover, U.S. duties on partially finished but unlasted nonrubber footwear are less than 5 percent, compared with 8.5 percent or more for completed leather footwear. Frequently, final manufacturing operations that require less labor, such as bottoming, finishing, and packing, are performed in the United States. In the first half of 1991, U.S. imports of such partially completed leather footwear totaled about 10.1 million pairs, primarily from the Dominican Republic, Mexico, India, Brazil, and Thailand.
U.S. exports of nonrubber footwear increased about 9 percent in 1991, to an estimated 16.5 million pairs from 15.2 million pairs in 1990. Their value increased about 14 percent to an estimated $290 million. The average unit price was about $17.53, up from $16.77 for 1990. U.S. producers compete effectively in high-cost developed country markets, including all of the European Community. A significant proportion of these exports was partially assembled footwear, particularly slippers, which were shipped to developing countries to be finished and re-exported to the United States.
The United States exported 9.3 million pairs of nonrubber footwear valued at $147.5 million in the first half of 1991. Mexico took 14 percent of the total, by quantity, followed by Canada (13 percent), Japan (9 percent), the United Kingdom (9 percent), Germany (5.7 percent), France (4.7 percent), Poland (3.9 percent), Italy (3.7 percent), and Spain (3.2 percent).
U.S. exports of nonrubber footwear in the first half of 1991 were up 39 percent, largely because of the phased reduction of Canadian duties on imported footwear under the U.S.-Canada Free Trade Agreement that became effective in January 1989. U.S. exports of nonrubber footwear to Mexico were down 6 percent for the same period.
U.S. exports of nonrubber footwear to Japan were down 4.2 percent for the first six months of 1991. About 23 percent of these exports were men’s leather types and 46 percent were athletic types. The latter are exempt from Japan’s stringent global tariff rate quotas. Though now in accordance with General Agreement on Tariffs and Trade (GATT) regulations, these quotas and required licensing procedures restrict Japanese leather footwear imports to about 4.7 million pairs annually and discourage U.S. manufacturers from developing the Japanese market. The U.S. share of this quota is about 6 percent or 280,000 pairs annually. Japan’s leather footwear market is estimated to exceed 120 million pairs. In quantitative terms U.S. nonrubber footwear exports, to Poland, the United Kingdom, Germany, and France recorded large increases in 1991’s first half, indicating that European markets presented the best growth opportunities for U.S. footwear exports.
Several attempts by Congress to pass footwear import quota legislation since 1985 did not survive vetoes by the President, and in late 1991 it appeared unlikely that further attempts would be made. However, legislation extending the Caribbean Basin Initiative passed in late 1990. The initiative provides duty-free status for most products, except footwear, leather products, and several others.
The domestic footwear industry is concerned about increased imports from Mexico that could result from removing duties on footwear in a North American Free Trade Area (NAFTA). Negotiations on such an agreement among Canada, Mexico and the United States were under way by mid-1991. U.S. footwear imports from other Central and South American countries could also increase substantially if accorded duty-free status under the proposed Andean and the Enterprise for the Americas Initiatives.
Outlook for 1992
Shipments of nonrubber footwear are expected to decline about 2 percent to 184 million pairs. Production will also drop, about 2 percent, to an estimated 182.4 million pairs. Shipments will decline in three sectors: slippers by 4 percent to 32.6 million pairs; men’s footwear by 3 percent, to 42.2 million pairs; and women’s footwear by 3 percent, to 59.8 million pairs. Shipments of footwear, except rubber, NEC, will increase 2 percent to 49.4 million pairs, primarily because of anticipated production gains in athletic and children’s nonrubber footwear. Imports of nonrubber footwear are expected to increase by about 3 percent by quantity. Consequently, both apparent consumption and per capita consumption are expected to increase slightly. Imports will reach 85 percent of apparent consumption.
Industry production will continue to decline, despite substantial increases in assembly operations from cut and sewn uppers produced offshore. Weaker firms will continue to close. Stronger ones will consolidate plants and invest in new technology designed to narrow the gap between foreign and U.S. labor costs. The industry’s capacity to respond quickly and effectively to changes in the market has improved significantly. However, success in this area may also help Asian producers such as Thailand, Indonesia, and China, as these countfies adopt new technology. Intense competition is expected from Mexican and other Central and South American suppliers if these areas receive duty-free treatment for footwear in newly negotiated trade agreements. Faced with all of this lower-cost foreign competition, the industry will have great difficulty achieving real growth.
Footwear, Current Industrial Reports, MQ31A (quarterly, with annual summary), Bureau of the Census, Industry Division, U.S. Department of Commerce, Washington, D-C 20230. Telephone: (301) 763-7807. Nonrubber Footwear Quarterly Statistical Reports, United States International Trade Commission, Washington, DC 20436. Telephone: (202) 252-1000. Footwear Manual, 1991, Footwear Industries of America, Inc., 1420 K St., NW, Washington, D-C 20005. Telephone: (202) 789-1420. Footwear News (weekly), Fairchild Publications, 7 West 34th Street, New York, NY 10001. Telephone; (212) 630-3800. American Shoemaking (monthly), World Footwear (monthly); and American Shoemaking Directory, 199 1; Shoe Trades Publishing Co. Inc., 61 Massachusetts Ave., Arlington, MA 02174. Telephone: (617) 648-8160.
LUGGAGE AND PERSONAL LEATHER
The luggage and personal leather goods industries produce a wide variety of consumer goods, including leather gloves and mittens (SIC 3151); luggage (SIC 3161); women’s handbags (SIC 3171); personal leather goods (SIC 3172) and leather and sheep-lined clothing (SIC 2386).
Combined industry shipments for all U.S. luggage and personal leather goods industries reached an estimated $2.22 billion in 1991, a decline of 3.7 percent. The value of product shipments also declined about 6 percent in 1991 to $2.02 billion, the result of reduced consumer expenditures during the 1990-91 recession. Employment dropped 5.4 percent to 28,200, and combined production employment declined 3.8 percent to 22,500.
Labor costs take up a high proportion of total production costs in the luggage and personal leather goods industries. This contributes to the industry’s high sensitivity to imports, particularly from developing countries where wage rates remain far below those in the United States. The recession caused imports of luggage and personal leather goods imports to decline about 12 percent from 1990, to an estimated $3.1 billion. The value of U.S. exports for luggage and personal leather goods rose about 8 percent to $214 million in 1991, primarily because of a weaker U.S. dollar. Major markets for these items are Japan, Mexico. and Canada, which account for 53 percent of total exports in 1990. The import-to-consumption ratio for this group of five industries declined to 63 percent in 1991 from 65 percent in 1990.
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Leather Gloves and Mittens
The U.S. leather glove and mitten industry is composed of two product segments: work gloves and mittens, which account for almost 90 percent of domestic production; and dress gloves which account for the remainder. These products are made either entirely of leather or from a combination of leather ad textiles, such as cotton, wool, and nylon.
Product shipments of gloves and mittens declined about 5 percent in 1991 to an estimated $105 million. Total employment of 2,100 was down about 5 percent from 1990. Production workers account for 90 percent of the industry’s employment
The 1990-91 recession caused U.S. apparent consumption of leather gloves and mittens to decline about 10 percent, to $250 million in 1991. imports dropped about 12 percent, to $159 million, or 64 percent of apparent consumption. Principal sources of imports by quantity continued to be China (79 percent), Hong Kong (7 percent), and the Philippines (5 percent).
Exports of leather gloves and mittens remained unchanged in 1991 at about $14 million. However, in quantitative terms, 69 percent of U.S. exports were cut parts shipped to Mexico for assembly and eventual reentry into the United States as finished gloves. Under section 9802 (formerly 807) of the Harmonized Tariff Schedule, these items are subject to U.S. duty (currently 14 percent) but only on the value-added content.
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The U.S. luggage industry produces a wide assortment of products, including suitcases, briefcases, hand luggage, tote bags, trunks, occupational cases, and musical instrument cases. Materials range from top-grain leather to metal alloys, and from laminated plastics to jute. About 25 percent of U.S.-produced finished goods are made of leather. Leather usage is highest in attaches and briefcases.
In 1991, the value of luggage product shipments declined about 4 percent to $952 million. The combination of the recession and an uncertain employment outlook caused individuals to restrict their travel in 1991 and to cut back on luggage purchases. Apparent consumption of luggage in 1991 was down about 7.5 percent from 1990, reaching an estimated $1.8 billion. The luggage industry’s total employment and production workforce dropped about 7 percent in 1991 to 11,500 and 8,700, respectively.
Imports of luggage declined about 9 percent to $943 million and represented 52 percent of apparent consumption. By quantity, the largest foreign suppliers were China (51 percent), Taiwan (27 percent), Korea (7 percent), and the Philippines (4 percent).
U.S. luggage exports increased about 7 percent in 1991 to $96 million. Canada, Japan, and Mexico were the largest markets.
The U.S. handbag industry produces women’s handbags and purses of leather and other materials, except precious metals. By quantity, leather’s share of domestic handbag shipments in 1987 was 61 percent.
Handbag product shipments declined 5.5 percent in 1991 to $431 million. Both the handbag industry’s employment and production workforce dropped about 8 percent, to 6,500 and 5,200, respectively. Apparent consumption of handbags in 1991 declined about 1.5,percent from 1990, to an estimated $1.26 billion.
Handbag imports totaled $851 million, an increase of less than 1 percent over 1990, and accounted for 68 percent of apparent consumption. By quantity, import penetration exceeded 88 percent in 1991. Foreign suppliers with the largest share were China (67 percent), Korea (13 percent), Taiwan (8 percent), and India and Hong Kong (2.5 percent each).
U.S. exports of handbags declined about 8 percent, to an estimated $23 million in 1991. Mexico was the largest market, taking about 51 percent by quantity. However, almost all of these export shipments represented cut parts for handbags that were assembled in Mexico and re-exported to the United States as finished goods. Canada and Japan were other leading markets for U.S. handbags.
Personal Leather Goods (Flatgoods)
Manufacturers in this industry sub-sector produce such items as wallets and bill folds, French purses, and cases for eyeglasses, cigarettes, and keys. These products are often referred to as flatgoods because they are small enough to fit into pockets or handbags. Hatgoods are made, in whole or in part, of either leather, plastics, or textiles.
The value of flatgood product shipments totaled an estimated $397 million in 199 1, up about 4 percent from 1990. Total industry employment and the production workforce remained unchanged, at 6,500 and 5,400, respectively. Apparent consumption of flatgoods declined less than 1 percent from 1990, to about $616 million.
Import penetration of flatgoods reached 39 percent, the lowest for the entire luggage and personal leather goods group. Leading foreign suppliers, by value, were China (33 percent), South Korea (15 percent), Taiwan and Italy (10 percent each), and Hong Kong and Mexico (4 percent).
U.S. exports of personal leather goods totaled an estimated $19.4 million in 199 1, an increase of 9 percent over 1990. Canada, Japan, and Mexico were the leading markets.
Leather and Sheepskin-lined Clothing
Leather wearing apparel manufacturers produce leather coats and jackets for men, women, and children. Shipments also include pants, vests, shirts, and other clothing. Demand for leather and sheepskin-lined clothing is more driven by trends in fashion than is the case for other luggage and personal leather goods products. As a result, consumption patterns for leather wearing apparel can vary widely from year to year. As leather prices rise – absolutely or relative to other materials – U.S. consumers may elect to purchase apparel of other materials or postpone such discretionary spending altogether. Consumers appeared to have made this choice in 1991, following several years of rising leather prices.
Product shipments of U.S. leather wearing apparel declined about 7.6 percent in 1991 to an estimated $133 million. Industry employment and the number of production workers each declined by about 10 percent.
Apparent consumption of leather wearing apparel was $990 million in 1991 a 24 percent decline from 1990, primarily the result of a large decline of U.S. imports.
In 1991, imports of leather wearing apparel fell about 24 percent to $919 million. The ratio of imports to apparent consumption remained unchanged from 1990 at about 93 percent, the highest of all the industries in this group. South Korea continued to be the largest supplier of these items, accounting for 70 percent, by quantity. China was the only other significant foreign supplier, with 12 percent of the import total. Imports from. China increased 50 percent in 1991, while those from South Korea dropped 34 percent.
U.S. exports of leather wearing apparel totaled $62 million ir 1991, an increase of 19 percent over 1990. France, Japan, and Italy were the largest markets.
Outlook for 1992
Consumer demand for U.S. luggage and leather products i, expected to recover only slightly from 1991. Imports should increase and continue to capture a larger share of the U.S. market in most of these leather-related industries. China’s low production costs will help it to gain an ever larger share of U.S. luggage and leather products imports. As a result, U.S. product ship in constant dollars are expected to decline by 1.7 percent. Rates of change in constant-dollar product shipments are expected to show the following variations: gloves and mittens (SIC 3151), -2.3 percent; luggage (SIC 3161), -2.0 percent; handbags and purses (SIC 3171), -3.1 percent; personal leather goods (SIC 3172), 0.9 percent; and leather wearing apparel (SIC 2386), -1.8 percent.
Consumer demand for luggage and leather products will strengthen when the U.S. economy recovers. Increased white-collar employment should lead to increased purchases of leather office products. Growing numbers of professional women should lead to higher sales of business cases and luggage. Larger numbers of senior citizens and retirees with higher disposable incomes should stimulate more travel and corresponding increases in luggage sales.
Relentless competition from abroad will continue, and U.S. manufacturers are unlikely to regain any of the domestic market captured by imports during the past 25 years. Nevertheless, with the help of a favorably valued dollar, innovative and aggressive producers can expect to expand exports and at least share in the future expansion of domestic consumption of luggage and leather products.
Leather Gloves; Luggage; and Miscellaneous Leather Goods, SIC 3151, 3161, 3171, 3172; 1987 Census of Manufacturers, Series MC 87-(I)-31B, Bureau of the Census, U.S. Department of Commerce, Washington, DC 20233. Telephone: (301) 763-2510. Miscellaneous Apparel and Accessories, SIC 2371, 2384, 2385, 2386, 2387, 2389; 1987 Census of Manufactures, Series 87 (I)-23D, Bureau of the Census, U.S. Department of Commerce, Washington, DC 20233. Telephone: (301) 763-2510. Showcase, Luggage and Leather Goods Manufacturers of America Inc., 350 Fifth Ave., New York, NY 10118. Telephone: (212) 695-2340.
COPYRIGHT 1992 U.S. Department of Commerce
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