*(Economic note prepared by the Centro Studi Confindustria Moda, March 2021)
There were backward steps in both exports – which estimated to have lost € 2.7 billion over 12 months, cancelling out the strong expansion of the previous two years – and retail sales in Italy (-24.4%), which were hit hard by the lockdowns. Despite the understandable increase in online purchases, household consumption fell significantly and tourist shopping collapsed. Overall, the sector’s trade balance fell by -28.6%.
For the Italian leather goods sector, therefore, there was no significant rebound after the lockdowns, with a decidedly underwhelming year-end and an unfavourable start to 2021: after the Christmas shopping season, the new pandemic wave also hit the sales season hard, putting off the restart. The selection among companies continued (almost 200 fewer than in 2019, between industry and crafts) and employment tensions emerged: 8 out of 10 companies surveyed resorted to shock absorbers in the fourth quarter (+900% on 2019). All the main sectoral variables showed noticeably negative trends in 2020, with little improvement in the third and fourth quarters. The resurgence of infections led to a new slowdown in activity in the autumn, further delaying the expected rebound, which will have to wait for the widespread introduction of vaccination campaigns.
The ISTAT index of industrial production recorded a final drop of -33.9% for January-December 2019. After the collapse in the March-April lockdown period, and very reduced rates in May-June, the third quarter recorded falls of around -30%. In the last part of the year, after an encouraging -3.3% in October, production activity suffered a new sharp downturn: -25% in November and -23% in December. Similar indications came from the survey conducted by the Centro Studi di Confindustria Moda on a sample of companies associated with Assopellettieri, according to which only 8% of those surveyed reached or exceeded in 2020 the quantities produced in the previous year, while more than half of the panel recorded decreases exceeding -35%. The same survey looked at how the turnover of companies developed in 2020. The distribution of responses is eloquent: half of panel (52%) experienced a decrease of between -20% and -50%; and a further 24% experienced decreases in turnover of more than -50%. Overall, the panel recorded an average decline in turnover of -36.9% in 2019, which – if applied to the entire sector – would lead to an annual loss of € 3.3 billion. This would fall from € 9 billion (estimated taking into account only companies based in Italy) to € 5.7 billion.
On the domestic front, the ISTAT index of the value of retail sales of “Leather goods and footwear” shows, with reference to the whole of 2020, a drop of -24.4% on 2019, which was obviously affected by the two spring months of suspension of physical sales, as well as fewer opportunities to use goods caused by preventive measures, but also the climate of mistrust among consumers, in an economic phase characterised by great uncertainty for the future. Despite the understandable growth of e-commerce, therefore, the purchases of Italian households in 2020 fell considerably.
After a “promising” August (-0.7% compared to the same month in 2019), domestic demand in September and October lost strength again (-8.7%), and then collapsed in November (-45.5%), when further restrictive measures were introduced to cope with the new emergency wave. Heavy repercussions were also felt in December, a crucial month for Christmas shopping for clothes and accessories (-14.4%). The picture was made even worse by the collapse in tourist purchases, which particularly affected high-end products.
Generalised and almost always double-digit falls were recorded on the main markets, with some positive signs (rare and weak) only in the Far East, where (despite a decline in volume) South Korea grew in the first 11 months (+2.6%), becoming the third destination in terms of value, and China limited its losses (-1.4%), thanks to a decisive recovery in the last few months of the year. As far as foreign demand is concerned, in the first 11 months of 2020 (latest available data), exports showed a significant setback, both in value (-26.2% compared to the same period in 2019) and in KG (-23.1%), abruptly putting an end to the expansionary trend of the last few years: leather goods worth € 7.08 billion were exported, corresponding to 46.4 million KG. The average price per KG dropped by -4.1%.
As for the other variables, the trend for exports in the last two quarters of the year was still much lower than expected (-18% in value in the third quarter and -21% in October-November), with no significant improvements compared to the first half of the year, which was heavily penalised by the -61% recorded in the March-April lockdown period.
All the main types of goods declined significantly. Bags (by far the most exported item, accounting for 65% of foreign turnover) decreased by -21.5% in value; luggage by around -25%; the trend for small leather goods was even more unsatisfactory (i.e. wallets, purses, key rings and small accessories, which fell by -34%) and belts (a decrease of more than -40%, in both value and in KG). Looking at the items by material, on the whole, leather products – typical of Made In Italy production, which accounts for more than 70% of the total in value terms – showed sharper declines (about -30%, in both value and in KG) than those of substitute goods, whose exports fell by -15.4% in value and -17% in KG.
An analysis by destination also showed decreases in quantity and value for almost all markets. There are very few exceptions: in the ranking by value, among the top 25 outlet countries, only South Korea (+2.6%), Poland (+2.3%) and Taiwan (+0.3%) showed a positive sign compared to January-November 2019 (accompanied, however, by decreases in KG). Thanks to this result, South Korea (which had grown by 77% in value over the previous three years) moved up to third place in the ranking, overtaking the USA (which, on the other hand, recorded declines of more than 30% in both value and volume in the first 11 months of 2020). China lost only -1.4% in value, thanks to the recovery recorded in the two month period of October-November (+40.5%). No country in the top 25, on the other hand, recorded increases in KG. There was a significant reduction (close to -38% in value) in direct flows to Switzerland, the leading export destination in value terms, and for some time now the logistics-distribution platform for the major international luxury brands.
The European Union (as of this year, considered to have 27 members post-Brexit) saw an overall decrease of -20% in value and -22% in KG. Among the non-EU countries, which on the whole showed a stronger decline than the EU markets, equal to -28%, the Far East fell by a total of -13% in value and -19% in KG, with significant drops in several countries (Japan -15.5% in value, Hong Kong -31%, Macao -20%, Singapore -46%). Russia and the United Arab Emirates also suffered (-19% and -28% respectively in value), as did Canada (-21%) and the United Kingdom (-23.5%, which signed a trade and cooperation agreement, TCA, with the EU at the end of December with immediate provisional application).
The delicate economic phase is likely to have a serious impact on the production fabric of the sector, which has always been based on a network of small and very small enterprises. Although it is too early to assess the effects that the current economic crisis will have on the demographics of enterprises, Infocamere data at the end of 2020 showed a balance of -199 units in the number of active leather goods companies compared to December 2019 (-4.4%) between industrial companies and small manufacturing businesses, with a significant worsening in the fourth quarter (-87 units).
There is strong concern about the resilience in the coming months. The indications of entrepreneurs, collected at the end of January, interviewed about the turnover expected in the first quarter of 2021 seem to replicate those expressed in the last 3 months of the year: the average decrease within the sample is equal to -23.6%. Only 3% of those interviewed expect to see the start of a recovery in the first half of the current year, 52% expect to see a recovery in the second half of 2021, while the remaining 45% expect the entire year to be characterised by an unfavourable trend. The timeframe for a real recovery – conditioned by an efficient vaccination plan and a gradual return to normality – still seems full of uncertainty and expectation.