Leather Goods. Centre for the Promotion of Imports from developing countries

Leather Goods A SURVEY OF THE NETHERLANDS AND OTHER SELECTED MARKETS IN THE EUROPEAN UNION Centre for the Promotion of Imports from developing countries

PUTS YOU IN TOUCH WITH THE MARKETS OF EUROPE CBI is the Centre for the Promotion of Imports from developing countries, operating since 1971 within the policy framework set by the Netherlands Minister of Foreign Affairs and the Minister for Development Co-operation. CBI supports small and medium-sized enterprises (SMEs) and trade promotion organizations (TPOs) in developing countries, in their promotion of exports to the European Union. CBI offers export marketing services CBI export marketing services are based on up-to-date market information and training and are organized in the form of Integrated Export Promotion Programmes for SME exporters and Bilateral Co-operation Programmes with TPOs. Those seeking CBI marketing services should fill in CBI s exporter s company profile form and provide all relevant information, such as prices, terms and product information. CBI market information includes - CBI News Bulletin (11 times annually), containing market news and publication of offers; - CBI guide Exporting to the EU, The Netherlands as the gateway to Europe ; - Product market surveys for 80 product groups; - Quick scans on environmental, social and health issues, for 20 product groups; - Trade Documentation Centre; - Manuals on subjects such as technical and environmental regulations; packaging; trade fair participation, etc. - Greenbuss database on European trade-related environmental policy and technology. CBI training includes - Orientation seminars on export planning / management, trade promotion / marketing, and trade fair participation; - Management seminars for TPO staff on the organization of collective trade fair participation; - Workshops in developing countries. CBI Integrated Export Promotion Programmes For five product groups/year consist of: - Product market testing (Special Promotions) in the CBI Product Display Centre in Rotterdam; - Product adaptation advice at the exporter s factory; - Export marketing seminar; - International trade fair participation in the EU. Market entry services - International trade fair participation in the EU (for selected fairs other than those which are part of Integrated Export Promotion Programmes); - Consultancy for incoming missions; - Support to outgoing buying missions; - Individual assistance to visitors; - Assistance to Trade and Marketing Centres. CBI Bilateral Trade Co-operation includes Trade co-operation agreements with TPOs in developing countries on: - integrated export promotion; - trade promotion; - business information and communication; - training; - market entry services. CBI Multilateral Co-operation CBI co-operates with multilateral organizations (ITC/WTO) and European import promoting organizations (FORUM) to globalize trade promotion. Please write to us in English, the working language of the CBI.

LEATHER GOODS A SURVEY OF THE NETHERLANDS AND OTHER SELECTED MARKETS IN THE EUROPEAN UNION Compiled for CBI by: Searce In collaboration with B.E. Taggenbrock August 1999

DISCLAIMER The information provided in this survey is believed to be accurate at the time of writing. It is, however, passed on to the reader without any responsibility on the part of CBI or the authors and it does not release the reader from the obligation to comply with all applicable legislation. Neither CBI not the authors of this publication make any warranty, expressed or implied, concerning the accuracy of the information presented, and will not be liable for injury or claims pertaining to the use of this publication or the information contained therein. No obligation is assumed for updating or amending this publication for any reason, be it new or contrary information or changes in legislation, regulations or jurisdiction. Update of CBI market survey Leather goods (November 1996)

CONTENTS REPORT SUMMARY 5 1 INTRODUCTION 9 2 PRODUCT CHARACTERISTICS 11 2.1 Product groups 11 2.2 Customs/statistical product classification 11 3 THE NETHERLANDS MARKET 13 3.1 Consumption 13 3.1.1 Market size 13 3.1.2 Market segmentation 14 3.1.3 Consumption patterns and trends 18 3.2 Production 20 3.3 Imports 21 3.3.1 Total imports 22 3.3.2 Imports by product 23 3.3.3 The role of developing countries 28 3.4 Exports 29 3.5 Trade structure 30 3.6 Prices and margins 34 3.6.1 Prices 34 3.6.2 Margins 34 3.6.3 Sources of price information 35 4 THE EUROPEAN UNION MARKET 36 4.1 The European market summary 36 4.2 Profile of the major EU markets 42 4.2.1 Germany 42 4.2.2 France 45 4.2.3 Italy 47 4.2.4 United Kingdom 50 4.2.5 Belgium 53 4.2.6 Spain 54 3

5 ACCESS TO THE EUROPEAN UNION MARKET 56 5.1 Quality and grading standards 56 5.2 Packaging, marking and labelling 57 5.3 Trade-related environmental measures 58 5.4 Child labour and leather goods 62 5.5 Tariffs and quotas 62 5.6 Terms of the trade 64 5.6.1 The contract 64 5.6.2 Payment methods and delivery terms 64 5.6.3 Business practice 66 5.7 Promotion 68 5.7.1 Trade fairs 68 5.7.2 Trade press 69 5.7.3 Assistance with market entry 70 5.8 Checklist 71 APPENDICES 1 Detailed import/export statistics 72 2 Standards organisations 84 3 Sources of price information 86 4 Trade associations 87 5 Trade fair organisers 90 6 Trade press 92 7 Trade promotion organisations 94 8 Other useful addresses 96 9 List of developing countries 99 10 List of Netherlands importers 101 11 Useful links 115 4

REPORT SUMMARY This market survey covers leather and travel goods sold by specialist retailers, department stores and other outlets, most of which also sell some garments like belts and gloves. Because the leather branch not only deals exclusively with leather, but also encompasses all sorts of products made from textiles, "artificials" - (plastic, nylon, vulcanised fibre) and paperboard, in increasingly larger proportions, these products are also included in this survey. The leather goods covered in this survey are: Product groups Products Handbags È Handbags with and without shoulder strap. Small leather goods È Wallets, purses, billfolds, key/tobacco pouches, cigarette cases. Briefcases È Briefcases, attaché cases, portfolios, school bags. Gloves È Protective, fashionable and special sports gloves. Belts È Waist belts, shoulder belts. Travel goods È Travel bags, rucksacks, sports bags, toilet and body-bags* Suitcases È Suitcases, trunks, vanity or beauty cases. Other bags/cases/boxes È Shopping bags, tool bags, jewellery boxes, cases for maps, cutlery, binoculars, cameras, computers, instruments, phone holsters. * Rucksack/cross-over bags with a wide strap/belt, worn on the back, stomach or side, which are known in Dutch trade as "body-bags", not to be confused with the body bags that are used to transport corpses. Consumption The European Union ranks among the leading markets for leather goods in the world. In 1997, EU demand for leather goods was roughly estimated to be around US$ 7,000 million. The EU leather goods market is dominated by 4 countries, which in 1997 together accounted for 62 per cent of the total EU retail sales: Germany (20%), France (16%), Italy (16%) and United Kingdom (10%). The EU leather industry fared badly in the recession in the mid-1990s, when the majority of goods manufactured of leather were regarded as nonessential luxury items. A healthier economy combined with increased fashion consciousness and more variety in the design both of goods manufactured of leather and non-leather materials (nylon, fibre, and textiles) has given a strong impulse to this mature market. To keep up with the latest fashion trends, consumers often replace leather goods even when this is not strictly necessary. Demand for travellers requisites (suitcases, travel bags, rucksacks and computer cases) has increased vigorously as more people travel on holiday or business. More women in business has meant an increased demand for brief and document cases and other office-related cases. The overall demand for bags/cases/holders for computers, mobile phones and other kinds of office accessories has increased. 5

In 1997, Dutch consumers spent US$ 482 million, or around US$ 32 per head on leather goods and luggage. This is an increase of 20 per cent in value compared to US$ 410 million in 1991. Between 1991 and 1997, the market share of women s handbags in leather decreased from 31 to 25 per cent of total leather goods sales. During that period, independent retailers broadened their range of products by selling more travel goods and by 1997 these occupied 33 per cent of the Dutch market for leather goods. In 1997, independent retailers and department stores each held one third of the Dutch market, while the remainder was shared by a growing number of other outlets (drug stores, fashion stores, supermarkets and shoe shops). Production In 1997, the total value of EU production, at factory prices, amounted to US$ 4,676 million. Italy accounted for more than 50 per cent of this total, of which handbags are the main items produced. Other large EU producers of leather goods are Germany, France and the United Kingdom. Since the late 1980s, there has been a continuous decrease in the EU s total output of leather goods. Particularly for high volume items (bags, travel goods, small leather goods), the production of leather goods has often been shifted to East European countries and Asia. It is well known that some products, carrying the world s leading European brands or private brands of large retailers, are now produced (though not designed) under franchise or licence in developing countries because of low labour costs. The EU leather goods industry has been threatened by enormous price competition from large supplying countries like China, India and Pakistan. As a consequence, the EU industry now concentrates on the production and marketing of high quality leather goods, which need excellent technological control, good design and an ability to set trends (in Italy and France) and to anticipate the needs of consumers. In 1997, the total sales value of Dutch production amounted to US$ 40 million, consisting mainly of women s handbags, small leather goods and a few fashion items like belts. Imports In 1997, the EU imported more than 25 per cent of the total world imports of leather goods, or 529 thousand tonnes with a value of US$ 5,094 million. Germany, which imports almost one quarter of this total, is the largest EU market for leather goods: 120,115 tonnes, with a value of US$ 1,222 million in 1997. Germany is followed by France (18% of EU imports in 1997), the United Kingdom (17%), Italy (9%), The Netherlands (6%), Belgium (7%) and Spain (5%). Almost all EU countries increased their imports of travel goods, especially in 1997, when there was strong demand for travel goods and other bags/cases/boxes made of textiles and plastic, which together account for the majority of EU imports. Between 1995 and 1997, most EU countries imported an increasing amount of briefcases, small leather goods, gloves and belts. A note has to be made with respect to the use and interpretation of the figures of gloves in this market survey. A large percentage (volume 91 per cent and value 62 per cent in 1997) of the gloves imported by the EU are protective gloves. China is the major supplier to the EU with a total of US$ 2,164 million in 1997 or almost half of the EU imports of all leather goods. Next to China, India, other EU countries, Hong Kong, Vietnam and the USA are important suppliers of leather goods. More than half of the leather goods imported by The Netherlands is re-exported, mainly to 6

other EU countries. In 1997, Dutch imports amounted to a total of US$ 330 million, of which 40 per cent came from Hong Kong, 24 per cent from China and 20 per cent from other EU countries (Belgium and Germany). The remainder was supplied by India, USA, Indonesia, Taiwan, Pakistan, Vietnam and Eastern Europe. Exports In 1997, the total value of the EU exports was US$ 4,369 million, of which 42 per cent went to other EU countries. Between 1995 and 1997, the total of EU exports grew by 12 per cent in value. Italy and France are both major producers and are the largest exporters of leather goods in the EU. Other large exporting countries are Belgium, Germany and The Netherlands. Handbags form almost 40 per cent of the EU export value. Other important leather goods exported by the EU were: small leather goods, travel goods, suitcases and belts. Major destinations were other EU countries, Japan, USA and Hong Kong. Being the fourth largest exporting country, The Netherlands exported 21,886 tonnes of leather goods in 1997, valued at US$ 220 million. Other EU countries purchased around 88 per cent of Dutch exports, mainly Germany (34%), Belgium (17%) and France (13%), of which the greatest part was suitcases, travel goods and briefcases. Developing countries The developing countries share of global trade in leather goods has increased enormously in the last two decades. In Asia, leather goods were developed as an extension of the textile industry, which requires the importation of raw materials. Producing finished leather goods, therefore, can be a profitable industry for developing countries, especially for those that already produce hides and skins. Instead of exporting hides and skins as semi-finished materials, these countries make higher profits by producing finished leather goods. In 1997, developing countries supplied 339,315 tonnes, or 64 per cent of the total EU volume of imports, with a total value of US$ 2,767 million. All the leather goods except belts were sourced in developing countries, which supply more than half the gloves (out of which 91 per cent of the EU volume and 88 per cent of the EU value in 1997 for protective gloves), travel goods (especially rucksacks and sports bags), other bags/cases, briefcases and small leather goods to the EU. Travel goods represented 28 per cent of the total imported from developing countries in 1997. Next to China, India and Vietnam, other important suppliers were Pakistan (gloves), Thailand (handbags), South Korea (bags), Indonesia (suitcases), Turkey (belts), Philippines (gloves), Morocco (handbags) and Tunisia (handbags). The Netherlands imported 16,331 tonnes of leather goods from developing countries in 1997, with a total value of US$ 113 million. Between 1995 and 1997, Dutch imports of leather goods from developing countries increased in volume from 33 to 42 per cent. This was due to an increase in imports, mainly of briefcases and travel goods, from China, India, Indonesia, Vietnam, Malaysia and Tunisia. 7

Market prospects A healthier economy and increased optimism both stimulate consumer spending on non-essential items, either for first-time purchases or as replacements. As the countries of the EU become one market and competition increases, EU manufacturers and large importers/wholesalers increasingly look for production or sub-contracting in countries with low labour costs. However, exporters from developing countries should note that there are still large differences in demand between the countries of the EU. Opportunities The largest potential for growth is likely to be in travel goods (rucksacks, body-bags, sports bags), brief/document cases and office related cases/holders (i.e. for computers or mobile phones). More demand is expected for goods made of combinations of leather and synthetic materials. Increased consciousness about fashion will force manufacturers to pay growing attention to style, design and the introduction of more extravagant models of leather goods. In future, consumers in most EU countries are expected to be more conscious of quality and brands, especially in goods made of real leather. Buyers will carefully select the goods they buy, based on the quality of leather, defects, coating, shines and the print possibilities of cheaper kinds of leather. As fashion changes twice a year and fashion items need to be exactly right in design and colour, it is very difficult for exporters to penetrate this market successfully. Exporters should seek the co-operation of EU manufacturers, particularly for the low medium quality/price segment of the market for leather goods. In this way, EU manufacturers can take care of the sales/marketing and stocking side of the business, leaving exporters to concentrate on the production and delivery of the goods. Constraints The main problem to be overcome by developing countries wishing to export to the EU is competition from established EU suppliers. The EU already has experienced producers (Italy, France and Germany) with the specialised skills for fine leather craftsmanship and a comprehensive understanding of fast-changing market needs. Protectionist measures may be brought to bear by industrialised countries when products are imported into the EU, so the quality of the product is extremely important and products should meet the safety standard Directive 92/59/EC. Consumers in some EU countries such as Germany, France and Italy prefer products made in their own country to those which are imported. Products from developing countries are likely to be affected by a growing consumer consciousness of environmentally friendly production methods for leather goods and their antipathy towards the use of child labour. Nevertheless there definitely are possibilities for exporters from developing countries to penetrate the EU market. The chances are particularly high if exporters take a step-by-step approach with a view to establishing a long-term business relationship with their partners in the EU. Hopefully this report can be of help to exporters from developing countries in deciding whether or not it is worthwhile to export to The Netherlands or to other EU countries, and that the information provided may assist them in taking the first concrete steps. 8

1 INTRODUCTION This survey deals with the Netherlands and European Union (EU) markets for leather goods. Its main purpose is to provide exporters in developing countries with a better insight into this competitive market. It should assist them to find the right market opportunities and to become familiar with the most suitable market segments for their leather goods. The main product groups, which are covered in this survey, are explained in chapter 2, along with their classification for Customs and statistical purposes. Chapter 3 starts with a brief general review of market size, trends, segments, influences on consumer behaviour, giving an idea of the demand in the Dutch market for leather goods. The following section in this chapter reviews production and significant trade and includes import and export statistics. Detailed information is also given on the role of developing countries in Dutch imports of leather goods. The remainder of this chapter profiles the trade structure of the main Dutch importers, wholesalers and retailers, including recent developments, and gives an overview of prices and margins at different distribution levels. Chapter 4 reviews the EU market as a whole and highlights the similarities and differences between the national markets for leather goods. It also reviews production, imports and exports and the role of developing countries in EU imports is explained in more detail. The main part of this chapter outlines the larger individual markets for leather goods: Germany, France, United Kingdom, Italy, Spain and Belgium. Chapter 5 covers some more practical issues of access to the Netherlands and EU markets for exporters from developing countries. Information is given on regulations and quality standards for imported leather goods and suggestions are made for environmentally sound products for the Dutch market. This chapter concludes with a series of practical tips concerning the business practices and promotional tools often used in the leather industry. A list of names and addresses of relevant trade fairs and magazines is included, along with a checklist showing the most important topics for exporters in developing countries. It is important to note that since the establishment of the single EU market on January 1, 1993, the collection of data regarding trade flows has become more difficult. Prior to that date, trade was registered through compulsory Customs procedures at border crossings. Due to the removal of the intra-eu borders, this is no longer the case, so statistical bodies like Eurostat can no longer depend on the automatic generation of trade figures. In the case of intra-eu trade, statistical reporting is only compulsory for exporting and importing firms whose trade exceeds a certain annual value. This threshold varies considerably from country to country, but it is typically about US$ 113,000 (ECU 100,000). Statistical information on trade within the EU is consequently underestimated and must be carefully interpreted. 9

On 1 January 1999, the euro ( ) became the legal currency within eleven EU member states participating in the euro area: Austria, Belgium, Finland, France, Germany, Italy, Ireland, Luxembourg, The Netherlands, Spain, and Portugal. Their national currencies have become subdivisions of the euro, but will continue to circulate as legal tender until 2002. Circulation of euro coins and banknotes begins 1 January 2002 replacing gradually national currency notes and coins, which must be withdrawn by 1 July 2002 at the latest. Currently, banking is possible both in euro and national currency. The most recent Eurostat trade statistics described in this survey date from 1998. In that year, the European Currency Unit (ECU) was still used as a monetary instrument by financial institutions to simplify financial procedures. On 1 January 1999, statistical and contractual values in ECU were converted into euro on a 1:1 exchange rate. The / US$ exchange rate currently (June 1999) stands at US$ 1.07 for one euro. In this market survey, the US$ is the basic currency used to indicate values. Values dating after 1 January 1999 are also expressed in euro. Exchange rates of EU currencies in US$ Country Currency 1994 1995 1996 1997 1998 June 1999 European Union ECU 1.18 1.29 1.25 1.13 1.12 Euro ( ) 1.07 Austria Ash 0.0876 0.0988 0.0943 0.0820 0.0809 0.0779 Belgium Bfr 0.0309 0.0339 0.0322 0.0279 0.0276 0.0265 Denmark Dkr 0.157 0.178 0.172 0.151 0.149 0.144 France Ffr 0.180 0.200 0.195 0.171 0.170 0.164 Finland FM 0.192 0.228 0.217 0.193 0.187 0.180 Germany DM 0.616 0.696 0.663 0.577 0.569 0.548 Greece GRD 0.00412 0.00429 0.00414 0.00364 0.003383 0.00329 Ireland I 1.49 1.60 1.60 1.52 1.42 1.36 Italy L 0.000620 0.000613 0.000647 0.000588 0.000577 0.000554 Netherlands NLG 0.549 0.621 0.592 0.513 0.505 0.487 Portugal Esc 0.00604 0.00665 0.00645 0.00569 0.00556 0.00535 Spain Ptas 0.00747 0.00801 0.00787 0.00682 0.00672 0.00645 Sweden Skr 0.130 0.140 0.149 0.131 0.126 0.121 United Kingdom GB 1.53 1.57 1.56 1.64 1.66 1.61 Source: CBS Statline (July 1999) 10

2 PRODUCT CHARACTERISTICS 2.1 Product groups The products covered in this report are those made of tanned, coloured and/or finished leather of hides (bovine or equine animals) and of skins (sheep, goat, pigs, reptiles etc.). The main focus will be on leather and travel goods sold by specialist retailers, department stores and other outlets, most of which also sell some garments like belts and gloves. Other leather garments, footwear or upholstery leathers are not covered here. Information on related products can be found in the following CBI market surveys: Leather garments Hides and skins The leather branch not only deals exclusively with leather, but encompasses all sorts of products made of textiles, artificial materials (plastic, nylon, vulcanised fibre) and paper board. In some product groups these materials account for large proportions and are, therefore, included in this survey. However, in trade statistics, products made of leather will be more emphasized and product groups are basically ranged in the sequence below: Product groups Products Leather* Handbags È Handbags with and without shoulder strap. 27% Small leather goods È Wallets, purses, billfolds, key pouches, 30% cigarette cases, tobacco pouches. Briefcases È Briefcases, attaché cases, portfolios, school bags. 20% Gloves È Fashionable and special sports gloves. 100% Belts È Waist belts, shoulder belts. 100% Travel goods È Travel bags, rucksacks, sports bags, 2% toilet and body-bags** Suitcases È Suitcases, trunks, vanity or beauty cases. 4% Other bags/cases/boxes È Shopping bags, tool bags, jewellery or cutlery boxes, 6% map cases, cutlery cases, cases for binoculars, computers cameras, musical instruments, phone holsters. * Made of leather or imitation leather as per cent of EU import volume in 1997. ** Rucksack/cross-over bags with a wide strap/belt, worn on the back, stomach or side, which are known in Dutch trade as "body-bags", not to be confused with the body bags that are used to transport corpses. 2.2 Customs/statistical product classification The classification system used for both Customs and statistical purposes in The Netherlands and the EU member countries is the Harmonised Commodity Description and Coding system (HS). 11

Table 2.1 gives a list of the main HS codes for leather goods, most of which can be found in Chapter 42 of the Harmonised System. The relevant HS code groups for leather goods covered in this report are: Table 2.1 HS Codes HS code classification of leather goods Product group 4202 11 10 Briefcases, attaché cases, portfolios, school bags and similar containers of leather or imitation 12 11 Briefcases etc. of plastic sheeting 12 91 Briefcases etc. of plastic, vulcanized fibre or textile 11 90 Suitcases, trunks, vanity cases, similar containers of leather or imitation 12 19 Suitcases etc. of plastic sheeting 12 50 Suitcases etc. of moulded plastic 12 99 Suitcases etc. of plastic or textile 19 10 Suitcases, trunks, vanity cases, briefcases, attaché cases, school bags, bags or similar containers of aluminium 19 90 Suitcases, briefcases etc. of other material 21 00 Handbags, with or without shoulder straps, incl. those with handles of leather or imitation 22 10 Handbags of plastic sheeting 22 90 Handbags of fabric 29 00 Handbags of vulcanised fibre, paper or paperboard 31 00 Small leather goods: wallets, purses, key pouches, tobacco pouches or similar articles carried in the pocket or handbag, of leather or imitation 32 10 Small leather goods: wallets etc. of plastic sheeting 32 90 Small leather goods: wallets etc. of textile 39 00 Small leather goods: wallets etc. of vulcanised fibre, paper or paperboard incl. spectacle cases of moulded plastic 91 10 Travel bags, toilet bags, rucksacks, sports, body-bags of leather or imitation 92 11 Travel bags, toilet bags, rucksacks, sports, body-bags of plastic sheeting 92 91 Travel bags, toilet bags, rucksacks, sports, body-bags of textile 91 80 Other bags: shopping bags, tool bags, jewellery or cutlery boxes, map cases cutlery cases, cases for binoculars, musical instruments, cameras, phone holsters and similar containers of leather or imitation 92 15 Musical instrument cases of plastic sheeting 92 19 Other bags: shopping bags, tool bags etc. of plastic sheeting 92 98 Other bags: shopping bags, tool bags etc. of textile 99 00 Travel bags and other bags/cases/boxes of vulcanised fibre, paperboard or other material 4203 21 00 Gloves, special sports gloves of leather or imitation 29 00 Gloves, mittens and mits of leather or imitation 30 00 Belts, waist belts and shoulder belts of leather or imitation 12

3 THE NETHERLANDS MARKET 3.1 Consumption 3.1.1 Market size The Netherlands is a densely populated country, which had 15.7 million inhabitants and a total GDP of US$ 362 billion in 1997. In the same year, Dutch consumers spent US$ 482 million, or around US$32 per head on leather goods and luggage. This is an increase of 20 per cent in value and 13 per cent in volume compared to 1991 (see figure 3.1). A healthier economy, combined with more variety in designs of leather goods and of non-leather materials (nylon, fibre, and textile) has given a strong impulse to the mature market for leather goods. Because of lower prices and increased sales through department stores, a larger group of consumers has been exposed to leather goods. To keep up with the latest fashion trends, consumers often replace leather goods even when this is not strictly necessary. Demand for travellers requisites (suitcases, travel bags and rucksacks) increased vigorously as more people travelled on holiday or business. More women in business has meant an increased demand for brief cases, document cases, portfolios and small leather goods, while their higher disposable incomes have created an increased demand for high quality leather handbags. The overall demand for bags/cases/boxes/holders for computers, mobile phones and other kinds of office accessories has increased. Figure 3.1 Market for leather goods in The Netherlands 1991-1997, Value in US$ million US $ million 482 410 408 1991 1995 1997 Note: Market values are based on retail prices and include Value Added Tax (VAT) Source: EIM (1998) 13

As their disposable income rises and the price of leather goods has decreased slightly, Dutch people are tending to buy more travel bags, rucksacks (especially the more fashionable types), briefcases, sports bags, body-bags, suitcases and other cases. Although many people still regard real leather goods as a luxury item, demand is expected to increase. This especially applies to rucksacks, small leather goods and, to a lesser extent, to handbags. An increase in the market for handbags manufactured of artificial "leather" is expected, along with an increased demand for handbags containing combinations of leather and other materials in a larger range of designs, styles, brands and colours. 3.1.2 Market segmentation Segmentation by product The market for leather goods can be segmented into product groups (see figure 3.2). The market share allocated to each group is based on sales made by Dutch independent retailers, whose turnover in 1997 amounted to US$ 145 million, or one third of the total Dutch market. Product assortments of department stores are not included in this figure, but their share in the total Dutch market was considerable, being around 30 per cent in 1997. Department stores mainly sell travel bags, rucksacks, sports bags, small leather goods, suitcases and handbags. Sales of the leather goods by other outlets are also excluded in figure 3.2. Figure 3.2 Market shares by product group in The Netherlands in 1991 and 1997 Per cent of market value (1991: US$ 410 million, 1997: US$ 482 million) 1991 1997 Ladies handbags 31% Ladies handbags 25% Briefcases 11% Briefcases 12% Travel goods 32% Small leather goods 11% Travel goods 33% Small leather goods 12% Belts, gloves 7% Accessoiries and repair 8% Belts, gloves 7% Accessoiries and repair 11% Source: EIM (1998) Women s handbags Between 1991 and 1997, the share of women s handbags made of leather decreased from 31 to 25 per cent in total sales of leather goods. The main reason is that independent retailers broadened their range of products by selling more travel goods, briefcases, gloves, umbrellas and handbags in artificials (fabric, plastic sheeting, cardboard or fibre). Apart from functionality, the shape of handbags and belts is largely determined by fashion, but there is a constant demand for sturdy, well-finished, classical items with uncomplicated design. 14

Large and small "softline" bags are now very popular. These contain compartments closed by a zipper. Stitching should be straight, in vertical lines and not in contrasting colours. Small bags are used mainly by young people. Soft bags usually have a long, adjustable shoulder strap, worn over one shoulder, but are also increasingly carried under the arm on short shoulder straps. The length of shoulder straps varies with the design of the bag. The latest handbag fashion and design can be found in international magazines, such as Arpel, Lederwaren Report and Lederwaren Zeitung (see address, Appendix 6). Dutch women have a habit of filling their handbags, so exporters are advised to make shoulder straps and fasteners which are strong enough to remain closed when the bag is full. It is also important that bags remain securely closed to allay consumer fears of pick pocketing. Decorative closures and strap fittings of brass, silver or platinum with a matt finish have grown in popularity. Handbags with flap-over closing are favourites but fashion handbags with metal frames for closing are gaining appeal. Manufacturers should use high quality fittings and magnetic fasteners. When zips are used, they should be long enough to allow items to be easily removed. It is recommended that nylon zippers in the same colours as the bag are used. Linings in soft quality leather, silk or artificial silk are preferred, although other lining materials are acceptable, if they are the same, or matching, colour as the outside material. Leather bags should have a smooth, shiny surface and not be dull. Exporters are advised to avoid producing sample handbags in fashionable colours, as fashions change so quickly. Small leather goods Between 1991 and 1997, small leather goods slightly increased their share in the leather goods market from 11 to 12 per cent. Small leather goods are designed and purchased for their functionality and do not change much in form. Dutch people handle a lot of coins, so purses must have a compartment to accommodate both the very tiny Dutch 10 cent coin alongside the big, heavy 21/2 and 5 guilder coins; women s purses should have metal frames. There should be at least four compartments: for credit cards, telephone cards, club-member cards, whose size is international, like American Express or VISA. Dutch banknotes measure: 76 x 152 mm. Billfolds (wallets) with compartments for coins and credit cards are the most popular items for men. Classical passport holders are not much in demand. Exporters should avoid using embossed leather and stitching in contrasting colours. Items should be smoothly finished by folding (including the skiving) instead of having cut edges. The most popular colours of small leather goods are: for women s items È black, dark brown, golden brown, navy blue, burgundy. for men s items È black, golden brown, dark brown, burgundy. The introduction of euro ( ) coins and banknotes on January 1, 2002, may be a reason for consumers to change their wallets, which will give a new impulse to this mature market segment. There will be eight coins: of 1, 2, 5, 10, 20 and 50 cents and 1 and 2 euros, with diameters ranging from 16 to 25 mm. As there will be more different sizes of coins, manufacturers have already developed new products, such as key cases with holders for coins; tallones (a purse in the shape of a shoe heel); men s wallets with enlarged coin holders and women s purses with bigger compartments. Euro banknotes, all of different sizes and colours, will be issued in seven values in the following sizes: 15

Sizes of euro banknotes 5 euro = 120 x 62 mm 100 euro = 147 x 82 mm 10 euro = 127 x 67 mm 200 euro = 153 x 82 mm 20 euro = 133 x 72 mm 500 euro = 160 x 82 mm 50 euro = 140 x 77 mm Briefcases (attaché cases, document cases, portfolios) The share of this segment grew from 11 to 12 per cent between 1991 and 1997, with steady and continuing growth in sales in department stores and office centres. Attaché cases are still popular, but document and briefcases are increasingly fashionable. Briefcases should have two solid combination locks and both locks and fittings should be of good quality. Linings in men s items are preferred in fine leather (not too bulky) or artificial silk. Standard writing paper measures 31 x 21 cm (A4). Brief cases should have the possibility of containing two sheets of this paper, packed next to each other. Men s shoulder bags should have a handle on top and a rather long shoulder strap. The wrist straps on men s purses to be held in the hand should be rather wide. However, the demand for both men s shoulder bags, and wrist bags has declined recently. Exporters should supply sample products in this segment in black, golden brown, dark brown and burgundy. Travel goods (suitcases, travel bags, body-bags, rucksacks) Most leather goods sold in The Netherlands between 1991 and 1997 were in this category, its market share increased from 32 to 33 per cent. This is expected to increase in future as Dutch people travel more. Since the mid 1990s, increasing amounts of travel goods have also been sold by department stores, mail order houses or other large retail outlets. The majority of these goods is made, not of leather, but of artificial materials. To prevent pick pocketing, the latest models of rucksacks have a large zipper which is worn next to the owner s back. Body-bags are rucksack-like bags with a wide belt, which are worn cross-over the shoulder along the body for example at the persons back, stomach or side. They are very popular among young people and often the cross-over bags, which are also included here, have a special built-in holder for a mobile phone. The main sizes for classical suitcases are: È 70 and 75 cm (with wheels) È 60 and 65 cm (without wheels) Classical suitcases with 2 or 4 wheels (at the bottom) have lost a large share of the market, because of the growing popularity of the "trolley-case", which has two wheels at the rear and an extendible handle, making it much easier to transport. Trolleys now hold the major share of the suitcase segment. Airline companies use different maximum sizes for suitcases, depending on the aircraft. In general, a size of 115 cm as total for length + height + width are the maximum acceptable size for "cabin luggage". The 115 cm can be divided as 55 + 40 + 20 cm or 55 + 35 + 25 cm respectively. Consumers prefer suitcases with nylon or optilon zippers to metal zippers. Larger travelling bags should have two handles for easy carrying and a rather long (removable) shoulder strap. "Patchwork" is completely unacceptable for heavy travelling items. 16

Exporters are advised to offer sets of suitcases and other travelling items in the same styling and colour combination. As garment bags are much in demand in The Netherlands, exporters should add these when presenting their collection to Dutch buyers. The most popular colours of suitcases are: leather items È saddle brown, black, chestnut artificial items È navy blue, green, red, black, grey. Segmentation by user Group Main characteristics Children/Teenagers È They mainly buy school, sports bags and rucksacks. (0-18 years) Rucksacks have now replaced the classical type of schoolbag. Rucksacks should be trendy and carry a large logo of an international brand. For this group, the functionality of rucksacks seems to be of minor importance. Young È They are very conscious about the latest trends and brands. (18-30 years) Materials need to match the latest fashion. Most buy non-leather goods because of lower prices and their trendy colours. They like a logo, but less striking. Collections change 3-4 times per year and "old collections" cannot be sold after the launch of a new one. È Young people with a higher income like to show that they can afford to buy very fashionable products in leather or in other materials. They like to be different by choosing striking designs, colours, and colour combinations. The price of products seems to be of minor importance. Lower income È They prefer low priced, products in artificials, which can be (30-50 years) used over a long period of time; they choose items which are functional and durable rather than fashionable. Logos on the product should be as small as possible. They like classical colours (black, brown and blue). Average income È This group prefers functional products manufactured of real leather. (30-50 years) They strongly prefer fashionable colours to classic colours, but pay reasonable prices varying from US$ 51-77 for a bag. Higher income È They prefer leather goods responding to the latest fashion. (30-50 years) The price of products is of minor importance to them. Designs and colours should not be too extreme. A logo on the product is only accepted when it represents a well-known brand of high quality, fitting well into their lifestyle. Unknown or fancy brands are not accepted. Older people È They are fairly classic in their buying habits and most people (50+ years) do not like logos on the product, unless they are of world famous brands like Gucci. Designs of leather goods should be somewhere between classical and fashionable. 17

Although it is easy to classify people into different segments, it is harder to predict how each group will behave and what they buy. The main reasons for this are the changes in consumer behaviour, lifestyle and trends, which has led to demand in the leather goods sector becoming increasingly fragmented. Although 70 per cent of leather goods is bought by trend followers, new types of leather goods in different designs can be introduced. These appeal to particular lifestyles, such as the youth market. The mass media also exerts a stronger influence on product dynamics and on competition than it did in the past. 3.1.3 Consumption patterns and trends Fashion Fashion sensitive products are the most profitable part of the leather goods business, where quality or technical imperfections seem to be of minor importance. However, as materials, colours, designs and sizes change quickly, short lead times from design to manufacture are required. Since fashion changes every 6 months, it is difficult to give examples or recommendations concerning trends in leather goods. The latest trends in fashion and colours for the coming collection of leather goods can be found in international magazines, of which addresses can be found in Appendix 6. Generally, two categories of leather goods can be distinguished in terms of fashion: Leather goods Characteristics for fashionable leather goods Influenced by fashion: È Handbags Classic fashion È Belts traditional colours È Gloves continuation of existing models with slight variations È Rucksacks È Briefcases Up-to-date fashion È Travel bags mass-bought fashion È Sports, body-bags products in accordance with latest trends in dressing È Shopping bags colour, design are as important as the prices Hardly influenced by fashion: È Small leather goods È Suitcases È Other bags, cases, boxes Highly individualistic fashion young or high income groups try out new products for very young people, price is important difficult for exporters to reach this market segment products in this market indicate future trends for next season s products, up-to-date fashion information about this market segment is necessary. 18

Prices The Dutch market is well-known for the highly developed price consciousness of its consumers, so importers should consider the price of a product in combination with quality, materials, workmanship, finish, styling and so on. Because of the many different types of leather and other elements mentioned above, a general guideline about prices cannot be given. Sources of price information are fairs, catalogues from mail-order houses (for travel and small leather goods), periodicals (for leather goods) and, of course, retail shops and department stores. Here, margins at each distribution level, which are given in chapter 3.6.2, should be taken into account. Materials The material from which leather goods are made influences consumer behaviour. Consumers compare the quality of materials with the prices charged. Expensive leather goods are generally made of calf or good leather from cattle hides. Good imitations of exotic leathers (or exotic combined with smooth leather) are in demand for up-to-date fashion. Cheaper items may be made of lower quality cattle hides or goatskin. Split leather is often used for brightly coloured, low-budget fashion items. Some fashion items might be made of sheep leather. For women s handbags, there is a tendency towards the use of other materials or "artificials", combined with leather. Trendy bags can be offered in the right colours at relatively low prices. These artificials are often not available in developing countries and purchasing them in small quantities is often not possible. Therefore, it is difficult for exporters in developing countries to compete in this growing market segment. Pigskin is normally used for lining in briefcases or attaché cases made of leather. In the case of lower priced items for business purposes, split pigskin is often used. Travel items should be produced in textiles or nylon; leather is only used for the more expensive items. Real exotics like crocodile, lizard, snake, or ostrich leather etc. are not allowed to be imported into The Netherlands, since some animals are protected by the Convention of Washington (CITES), as is explained more in detail in Chapter 5.1. Good imitations of real exotics are in demand for up-to-date fashion. Colours The colours of fashion items generally change twice a year. Information about predicted colours for the new seasons can generally be found in periodicals of international standard like Lederwaren Report and Arpel (see address Appendix 6). Normally, the colour of leather products follows the colours of the clothing and shoe-fashion industry. Exporters, who like to make leather goods in fashionable colours, are advised to place orders at tanneries in good time. In order to prevent discrepancies in desired colours, it is recommended that the precise colours be ordered from tanneries in the EU. This is more expensive, but the risk of a slight difference in colours or in material can be minimised. Discrepancies in colours or materials are quickly recognised by buyers and consumers and eliminating them can be crucial for success. Where there is likely to be a problem in purchasing the correct colours or materials, the exporter can ask the EU manufacturer or importer to obtain the proper leather or other materials, which can then be made in the right colours. 19

The classical fashion colours for non-fashion items, mostly are: For women s items È Black, dark brown, golden brown (tan), navy blue. For men s items È Black, dark brown, tan, burgundy. Seasons There are two main seasons for fashion colours: winter and summer. About one year before seasons begin, importers and producers start selecting colours and models. Italian fairs for clothing and shoes are considered good indicators for the future fashion colours in The Netherlands. The Offenbach Fair in Germany is used as a confirmation of choice. In general, production has to begin six months before the season starts. Buyers, particularly those making first time purchases, will place a trial order 4-6 months in advance and followed this with test sales of the product. If the product sells well, substantial orders will be placed, but then the importer will expect delivery within 4-6 weeks! The main seasons for leather goods in the retail trade are shown below. Product groups Handbags Briefcases Travel goods Suitcases Small leather goods Gloves, belts, accessories Period of peak sales May, November, December August, September, December June, August May, June May, December May, December Decisions regarding fashionable products are made as late as possible, while less fashionable items are bought at the beginning of the buying season. Highly fashionable products are traded all the year round, with the exception of January and July, the months in which retailers hold their clearance sales. (Although sales periods are no longer legally enforced, many retailers still hold their sales in the months January and July). Finish Leather finish depends on fashion, but certain general characteristics can be mentioned. The leather must be soft, natural coloured, pleasant to the touch and processing or manufacture should not impair its natural properties. Embossed leather is only acceptable as a very good imitation of exotics. Fancy embossing is not accepted. An important consideration in The Netherlands is the humid climate. The finish must be able to resist rain as well as sunlight. 3.2 Production Of all leather goods and luggage sold in the Dutch market, around three quarters is foreign-made and the rest is locally produced. In 1997 there were around 150 leather goods factories in The Netherlands, 50 of which mainly repaired leather goods. Most factories are located in Waalwijk in the southern part of The Netherlands. In the same year, the total sales of the Dutch leather industry amounted to US$ 40 million. Production concentrates on women s handbags and small leather goods. Fashion items like belts are also produced in The Netherlands. 20

Since the 1970s, the whole Netherlands leather industry has suffered from international competition from Eastern Europe, Asia and other low-cost countries. These countries increasingly started to produce their own finished leather products and to sell them in Asian and European markets. Present indications are that the leather industry will stagnate in The Netherlands and that production will be further shifted to China, Indonesia, Thailand, South Korea, Turkey and Morocco. These countries have few environmental regulations and their tanners are hiring more formerly unemployed European tanners, i.e. people who have the necessary skills and who know the needs of the EU market very well. Since 1996, the core of the Dutch manufacturers, who survived competition and the total restructure of the leather industry, has been stronger than before. In order to make a clear distinction between its own products and those produced by the low cost countries, the Netherlands leather industry has concentrated on high quality leather products, requiring large investments. As in other northern EU countries, the Netherlands leather goods industry will produce and market well-designed high quality leather goods in special colours. Nowadays, production is often contracted out to Asian and, to a larger extent, to East European countries, which manufacture various fast-moving leather goods (small leather goods and travel goods) carrying the private brands of the importers, buying groups or large chain stores. 3.3 Imports All statistics presented in this section are official trade figures provided by Eurostat. After the unification of the EU in 1992, Customs authorities stopped recording the intra-eu trade in leather goods, and since then import and export figures have been based on reports given by the companies themselves. In the case of intra-eu trade, statistical reporting is only compulsory for Dutch exporting and importing firms, whose trade exceeds US$ 113,000 (ECU 100,000). Smaller companies, whose trade is below this level, are not obliged to report and are, therefore, excluded from these statistics. However, the Customs authorities still register imports from non-eu sources so official statistics only give an indication of major trends and of the relative importance of individual importing countries, and do not represent the situation accurately. The above implies that not all trade is included, especially when it concerns product groups (small leather goods, handbags or belts) where there is a large number of small transactions. Here a relatively large share of trade is under-represented. The statistics specify total imports, divided into volumes/values sourced from EU countries (intra-eu) and from non-eu countries (extra-eu) with the values/volumes coming from developing countries (dev.countries). Developing countries, as defined by the OECD, are listed in Appendix 9. Products made of real leather or imitation leather (handbags, small leather goods, briefcases, gloves and belts) are emphasized in the statistics. Therefore, product groups are ranged according to the sequence, as given in Chapter 2.1. Appendix 1 lists detailed import statistics of The Netherlands and the EU, which includes import figures of product groups more in detail, of the most important supplying countries and of each product group separately. 21