Terms like mergers and acquisitions, consolidation and vertical integration seem very alien in the leather industry but are now being discussed in main stream seminars such as the one at the Shanghai Leather Fair, “Coping with Change”. It is not totally new as the industry has been segmented in different ways for centuries and the last fifteen years has seen huge changes in the leather chemical and leather machinery business. Yet we have in our mind tanneries as small to medium sized family businesses which in the last few decades have preferred to shut than grow, develop or move. As a consequence 90% of the tanneries in the old world have just closed to become building development opportunities with only memories left. In place completely new tanneries have opened under new ownership in Asia and other parts of the world. Attempts to grow internationally were made by Colomer and Prime but for various reasons the timing, the culture, the strategy failed for them.
Yet now we are talking about consolidation. It is a subject long overdue since there has been overcapacity and low profit margins in the leather industry for many decades as small units accepted low returns and marginal costings. Even the chemical industry is now affected as it has to service a global marketplace rather than an essentially European one, deal with compliance and new local competitors in places like China, India and Pakistan. The machinery industry has had a worse time as leather was always a small industry with the number of splitting and fleshing machines needed per annum across the world hardly justifying new development. Drums are a little easier as more are needed per tannery and technology from elsewhere – computer control, chemical dosing, water management, and materials handling – has widened the market opportunities.
We have known that the chemical industry was in play with announcements from BASF and Zimmer & Schwarz buying Munzing in April but the big news has to be what is happening in the tannery sector. It might be said that current moves were led by the announcement earlier this year by Prime Tanning selling its wet blue tanning facility in St. Joseph, MO to an affiliate of National Beef Packing Company. Those of us who have spent a lifetime in the industry remember Prime for an outstanding sequence of invented products such as Jim Dandy, Floater and Crazy Horse and they were being watched in the 1980s and 1990s as they moved towards a new global business model. The story now is not theirs but rather that of the beef packers who throughout the world are moving to wet blue and crust to increase their flexibility and control over raw. The discussion on vertical integration was strong in the seminars at the Shanghai ACLE show, but to be valid there needs to be more to it than the raw producers pushing their weight.
In reality the industry has been changing and the recent publication in Leather International of a list of the world’s most influential tanners makes that point. Bader, Boxmark, Tyche, ECCO, Sadesa, and Mastrotto are examples of tanneries that have made a success of multiple sites around the world and different configurations. One distinguishing factor of these new evolutions is an improved capability to transfer leathers from one location to another. We have always said that differences in drum sizes and speeds, in water quality, in spraying machines and the like make it almost impossible to make identical leather in different tanneries. While still having problems these new groups have shown that it can be down but needs great care in decisions on machinery and process approach, and consistently high levels of investment.
There were also strong views on how large a tannery should be and how complex, which again have been blown away by the adoption of new layouts and approaches. Leather making still relies on touch and feel in its final judgment but if we are pretending it is still more art than science we are living in the past. We know enough about tanning now to be able to apply modern processing and engineering technology and start to manage production in every location and climate.
So it is a moment to look at “consolidation” with new eyes. This means examining core competences (technologies, relationships and the like) and your P&L and Balance Sheet in order to take new decisions of where you sit in the world of tanning and leather. If you do not, then others may do it for you.
Consider the Brazilians who continuously re-examine their role in the world and re-invent themselves.