Leather and leather products - 1991 U.S. Industrial Outlook

James E. Byron

Leather and Leather Products

The leather products group includes seven industries: nonrubber footwear (SIC 314); leather tanning and finishing (SIC 311); gloves and mittens (SIC 3151); luggage (SIC 3161); handbags (SIC 3171); small personal leather goods (SIC 3172); and leather wearing apparel (SIC 2386).

Before reading this chapter, please see "How to Get the Most Out of This Book" one page one. It will clarify questions you may have concerning data collection procedures, factors affecting trade data, forecasting methodology, the use of constant dollars the difference between industry and product data, sources and references, and the Standard Industrial Classification system (SIC). For other topics related to the subject of this chapter, see chapter(s) 9 (Textile Mill Products; 12 (Chemicals and Allied Products); 13 (Industrial and Agricultural Chemicals); 14 (Plastics and Rubber); and 34 (Apparel).

The distribution of 1990 current-dollar industry shipments is shown in Table 1. Table 2 compares constant-dollar rates of change for shipments of leather and leather products in 1990 and 1991. The entire industry is expected to experience an increase of 1.1 percent in 1991, with increases for 3 specific sectors ranging from 9.4 percent for leather tanning to 0.5 percent for small personal leather goods. Constant-dollar shipments for each of the remaining 4-digit industries are expected to decline. [Tabular Data Omitted]

In 1990, total employment in these 7 industries was 111,4000, down 4.9 percent from 1989. With the exception of leather tanning and finishing, all of these industries are extremely labor intensive. In comparison with U.S. producers, manufacturers in many developing countries maintain a substantial cost advantage due to their much lower labor rates.

INTERNATIONAL COMPETITIVENESS

U.S. imports of these products rose about 13 percent in 1990 to an estimated $13.18 billion, with developing and newly industrialized countries, such as Korea and Taiwan, accounting for 82 percent of the total. By comparison, U.S. exports of leather, nonrubber footwear, and leather products were about $1.34 billion, up 39 percent from 1989. Thus, leather and leather products imports exceeded exports by about $11.8 billion, with $8.2 billion of the deficit in nonrubber footwear. The ratio of imports to new supply averaged about 60 percent (by value) for all leather and leather products. The leather wearing apparel industry had the highest ratio, 88 percent, followed by 69 percent for footwear, 64 percent for handbags and 56 percent for luggage. - James E. Byron, Office of Consumer Goods, (202) 377-4034, September 1990.

LEATHER TANNING AND FINISHING

Leather tanning and finishing industry shipments rose about 10 percent in 1990 to $2.76 billion, a 5-percent increase in constant dollars. Products shipments also climbed 10 percent to $2.69 billion, 5-percent in constant dollars.

The quantity of leather shipped in 1990 increased about 5 percent to an estimated 13.9 million cattlehide equivalents. These include equivalent leathers produced from the hides or skins of cattle, calf, kip, goat, sheep, lamb, cabretta, pig, horse, and other animals and reptiles converted to a cattlehide basis. Cattlehide leather accounted for 87 percent of the total or 12.1 million units.

The leather tanning and finishing industry is composed of establishments primarily engaged in tanning, currying, and finishing raw or cured hides and skins into leather. The industry also includes leather converters and dealers who buy hides and skins and contract with tanners or finishers to process these products. In 1987, the value of such contract shipments was $159.5 million, or 7 percent of total product shipments.

The tanning industry has undergone considerable contraction and consolidation in recent years. In 1987, there were 311 companies operating 344 establishment, down from 342 and 384, respectively, in 1982. The states with the largest number of establishments were New York, Massachusetts, California, Wisconsin, Pennsylvania, New Jersey, and Texas. By 1990, only about 125 establishments of significant size were directly tanning raw hides and skins into leather. Industry employment in 1990 was an estimated 16,200, up about 2 percent from 1989. Production employment was 13,500, up about 1.5 percent. Average hourly earnings for production workers in 1990 were $9.66, up 3 percent from 1989.

The shoe industry consumed about 50 percent of domestic leather shipments in 1990. Fifty-five percent of all nonrubber footwear produced domestically is made with leather uppers. Higher leather prices had little effect in reducing the proportion of footwear with leather uppers in both domestic and imported nonrubber footwear. Heavier weight, oiled, or waxy water-resistant leathers for moccasins, boat shoes, and boots were much in demand. In 1990, shipments of sole leather remained unchanged and captured only 7 percent of domestic leather shipments. Domestic shoe manufacturers continue to substitute cheaper synthetic materials for sole leather. These substitutes have been made even more competitive than sole leather by new equipment and technology that reduce labor costs in shoe-bottoming operations. Cattlehide and sheep and lambskin garment leather shipments were steady at 17 percent of domestic leather shipments.

The fastest growing and potentially largest markets for leather in the United States are those for automotive and furniture upholstery leather. In 1987, upholstery leather shipments represented 21 percent, by value, of all leather product shipments, up from 7 percent in 1982. Almost 20 percent of furniture manufactured in the United States is upholstered with leather. Leather is available as an option in most medium-priced automobiles and is a standard interior in high-priced foreign and domestic models. U.S. upholstery leather exports, particularly to Japan, continued to grow substantially in 1990. Japanese models made in the United States also featured domestically made upholstery leather. Production of wet-blue (semiprocessed, chrome-tanned) cattlehide leather by both packers and tanners increased sharply.

Hide Supply and Prices

The quantity of cattlehides derived from total commercial slaughter declined about 1.5 percent in 1990 to an estimated 33.4 million hides. Cattle slaughter reached a high of 43 million head in 1976 and has been in a long-term decline ever since.

Cattlehides are a by-product of the meat-packing industry, and their supply depends solely on demand for meat. A long-term downward shift in demand for red meat has discouraged rebuilding of cattle herds despite favorable prices for feed grains since 1986. As a result, cattle slaughter continued to decline in 1990, although the rate of decline has moderated considerably since 1988.

Cattle inventory increased slightly to 99.3 million head on January 1, 1990, from 99.2 million on January 1, 1989. Higher cattle prices in 1990 gave growers an incentive to withhold breeding stock from the market, thereby reducing the cow kill. This reduction is expected to result in a larger calf crop in 1991 and a small increase in cattle inventory to 101 million head. Cattle slaughter is expected to increase slightly to about 33.8 million head in 1991. Consequently, cattlehide supplies will remain tight, although hide and leather prices could drop slightly.

In 1990, cattlehide prices increased an estimated 4 percent over 1989. During January-August 1990, Department of Commerce composite average monthly price of 3 types of hides was 94 cents per pound, up 10.5 percent from the same period in 1989. The Bureau of Labor Statistics' commodity index for cattlehides for the same period was also up about 7 percent from the previous year. For January-August 1990, the Producer Price Index (PPI) for all leather increased about 5.5 percent from the same period in 1989. Hide prices weakened somewhat in the third quarter of 1990, but were expected to remain stable in the fourth quarter. Although slaughter will increase slightly in 1991, hide prices will remain firm as domestic demand also increases.

Cattlehide Exports

Combine exports of raw and wet-blue cattlehides totaled an estimated 27.1 million hides in 1990, down about 2 percent from 1989 (Figure 1). Expressed as a percentage of total commercial slaughter, these exports by quantity decreased slightly in 1990 to 81 percent. Raw cattlehide exports declined about 11 percent in 1990 to an estimated 20.8 million pieces; wet-blue cattlehide exports increased a substantial 45 percent to an estimated 6.2 million pieces. During the first half to 1990, South Korea (48 percent; Japan (30 percent; Taiwan (6 percent; and Mexico (5 percent) - in that order - were the largest importers of U.S. cattlehides, and they took a combined 89 percent of the total.

Unlike many other countries with abundant hide supplies, the United States is the largest hide exporter. The high proportions of cattlehides exported by the United States in recent years have been the major cause of high domestic hide and leather prices. Developing countries - particularly those with abundant raw material supplies such as Argentina, Brazil, and India - impose export controls or taxes to restrict raw material exports in order to encourage the growth of their own tanning and leather products industries. Export restrictions depress the price of hides and skins within these countries, thereby indirectly subsidizing their production and exports of leather and leather products. Large quantities of these products come to the United States.

The United States produces about 4 million calfskins annually and exports almost all of them, primarily to South Korea, Japan, Taiwan, Italy, and Mexico. Because of limited supplies of imported raw materials, goat and kid leathers are no longer tanned in significant quantities in the United States. In 1990, about $5.8 million domestic sheepskins, supplemented by about 6 million imported pickled sheepskins, were tanned into grain and suede garment leathers and shearlings. Much of this leather was exported for manufacture of leather products in other countries.

Environmental Regulation

Environmental regulations affecting the leather tanning and finishing industry are administered by the Environmental Protection Agency (EPA). In 1985, EPA established new standards to control pretreatment of liquid wastes tanners discharge indirectly to publicly owned waste treatment facilities. These standards do not require biological treatment but do require control of sulfides, chromium, and acidity. Most tanners are coping successfully with these Federal standards. In some states, however, local restrictions and tighter standards have forced other tanners to close altogether or confine production to the processing of wet-blue or crust leathers.

All tanners discharging directly to waterways, including those constructing new plants, must operate with EPA-approved National Discharge Elimination System permits. EPA standards for this group require control of conventional pollutants, such as solids and biological oxygen demand among others, in addition to sulfides, chromes, and acidity. Control of these wastes requires both primary and secondary (biological) treatment facilities. They may require very expensive tertiary treatment in the future if EPA tightens the standards or broadens them to include other pollutants.

The tanning industry has 4 primary areas of regulatory concern for the future. First, EPA is expected to implement second-generation discharge standards for industrial and municipal effluent to reduce or eliminate all identified toxic components. These may include ammonia, salt, biocides, and surfactants not currently regulated at the Federal level. Control of these parameters can most likely be achieved through process modifications. Second, EPA may abolish the exclusion from Federal hazardous waste regulation of chromium-containing solid waste materials, such as waste scrap leather, wet-blue trimmings and shavings, and tannery sludges, because in land disposal this trivalent chromium waste might be oxidized to the more toxic hexavalent form. The majority of chromium-containing solid waste would then be classified as hazardous and require treatment prior to land disposal. The industry is developing and adopting new tanning systems that will use other nontoxic metal salts or combinations thereof to replace some or all of the chromium currently used. Third, strict Federal standards are likely to be established that curb emission of volatile organic compounds resulting from tannery finishing operations. Consequently, the industry is adopting low-solvent or solvent-free finishing technology. Finally, the industry's use of chemicals that are potentially toxic or hazardous may focus public attention on workplace and consumer exposure to tanning chemicals, biocides, dyestuffs, and solvents. Although the use of leather has not been associated with such hazards, the industry believes that it could face enormous difficulties and costs in proving otherwise.

INTERNATIONAL COMPETITIVENESS

Leather Exports

U.S. leather exports increased in 1990 by about 40 percent to $875 million. The weaker U.S. dollar coupled with strong economies in developed countries stimulated export demand.

The United States exported leather to about 70 countries during January-June 1990. Japan was the largest importer, accounting for 18 percent of all U.S. leather exports. Over 84 percent of Japanese imports from the United States were of automotive upholstery leather, which is exempt from the tariff-rate quota Japan imposes on other leather imports. South Korea, a leading exporters of leather footwear and garments to the United States, and Italy, were tried for second, each with a 14-percent share. Canada ranked fourth with 8 percent, followed by the Dominican Republic, 7.5 percent; Taiwan, 7 percent; West Germany, 4 percent; and Mexico, 4 percent. The European Community (EC) accounted for 22 percent.

In 1990, cattlehide leather accounted for an estimated 75 percent of all U.S. leather exports. Twenty-five percent, by value, of all leather exports was wet-blue cattlehide leather, including splits. Almost 50 percent of wet-blue exports went to Italy. South Korea and Taiwan were the next largest importers. Trade in wet-blue leather continues to increase because of lower shipping costs, quality advantages, and environmental benefits for these products compared with raw cattlehides. In response, the largest meat packer has expanded production capacity to almost 3.5 million hides annually to meet greater domestic and foreign demand for wet-blue leathers.

For January-June 1990, upholstery leather exports increased 29 percent over the same period in 1989 and accounted for 18 percent of all U.S. leather exports. The largest markets for U.S. upholstery leather were Japan (80 percent of the total) and West Germany (8 percent).

During the first 6 months of 1990, U.S. leather exports to beneficiary developing countries - countries that receive tariff concessions from the United States under the Generalized System of Preferences (GSP) section of the Trade Act of 1974 - were 24 percent of total U.S. leather exports, down from 28 percent for the same period in 1989. Large increases were recorded for the Dominican Republic, Thailand, and Mexico.

Leather Imports

In 1990, U.S. leather imports declined about 4 percent to an estimated $715 million from $744 million in 1989. About 76 percent of this total was leather from bovine animals, 5 percent from sheep, 5 percent from goat, and 4 percent each from pigs and reptiles. Although U.S. imports, by value, of most other types of leather declined, those of upholstery leather increased about 30 percent to an estimated $85 million.

The United States imported leather from almost 70 countries in 1990, and Argentina was the largest supplier with about 24 percent of the total or an estimated $175 million. Italy was second with a 13-percent share, followed by the United Kingdom, 9 percent; Brazil and Canada, 5 percent each; and West Germany and India, 4 percent each. Argentina and Italy were the largest suppliers to the United States of cattlehide leather; the United Kingdom of sheep leather; and India of goat leather.

During January-June 1990, leather imports from EC countries accounted for 32 percent, by value, of total U.S. imports. The beneficiary developing countries' share of total imports for the 6-month period was 50 percent. Many developing countries have converted more of their domestic raw material supplies to leather and leather products for export markets. Becuase tanning capacity in these countries 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 reached an agreement to settle a long-standing dispute concerning Japan's import quotas on leather and leather footwear, which were found to be illegal under the General Agreement on Tariffs and Trade (GATT). Japan replaced these import quotas with GATT-legal 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 amounts. The agreement is scheduled to expire in March, 1991.

For January-June 1990, U.S. exports to Japan, by value, were up 136 percent over the same period in 1989 to $70 million. However, 83 percent of these exports or $58.1 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. U.S. exports to Japan of leather other than upholstery increased from $6.9 million for January-June 1989 to $11.8 million for the same period in 1990.

Japan's bovine leather global quotas were 500,000 square meters in 1989, only about 1 percent of Japan's total bovine leather market. Almost all of the latter is produced from imported raw cattlehides. The United States supplied about 85 percent of these, or 7 million hides, in 1990.

Countervailing Duties

In February 1990, a group of U.S. tanners filed a petition with the Department of Commerce alleging that Argentina was providing, directly or indirectly, bounties, grants, and subsidies on leather exported to the United States within the meaning of section 303D of the Tariff Act of 1930, as amended. The petitioners listed a number of practices by the Government of Argentina which conferred bounties or grants on Argentine leather tanners. However, their main concern centered on the long-standing Argentine embargo on cattlehide exports that suppressed Argentine hide and leather prices and thereby subsidized exports of low-priced leather to the United States.

After an investigation and verification, the Department determined that the embargo was limited to a specific industry, the tanning industry, and was, therefore, counter-vailable to the extent that it was causing hide prices to be lower than they would have been absent the embargo. In September 1990, the Department directed the Customs Service to levy countervailing duties averaging 15 percent on almost all types of leather imported from Argentina until further notice. The industry expected these additional duties to narrow the price gap between U.S. and Argentine leathers in the U.S. market.

Outlook for 1991

Leather shipments are expected to increase in 1991, to about 15.2 million equivalent cattlehide units. Their constant-dollar value will increase about 9 percent. An increase in domestic slaughter will make more hides available for U.S. tanners, and a weaker U.S. dollar will stimulate export demand for this leather. Higher duties on imported leather from Argentina, the most important source, should result in increased U.S. production.

Long-Term Prospects

The longer-term outlook for the leather tanning and finishing industry appears even brighter than half for 1991. The hide supply will continue to increase reversing a long-term downtrend and prices should decline. Producers of wet-blue leather, particularly meatpackers, will continue to increase their share, by quantity, of total U.S. leather production. Environmental problems will remain a concern, but new technology, equipment, and wet-blue plants will help the industry remain the most cost-competitive and highly productive of any in the world. If ongoing U.S. Government trade actions and negotiations result in greater access to international raw material and leather markets, this industry will achieve solid long-term growth. - James E. Byron, Office of Consumer Goods, (202) 377-4034, September 1990.

Additional References

Membership Bulletin Leather Industry Statistics, 1990 Edition, Leather

Industries of America, Inc., 1000 Thomas Jefferson Street N.W., Suite

515, Washington, DC 20007. Telephone: (202) 362-8086. Leather, International Journal of the Industry (monthly), and International

Leather Guide, 1991, Benn Publications Ltd., Sovereign Way,

Tonbridge, Kent TN 91 RW, England. Journal of the American Leather Chemists Association, Leather Industries

of America Research Laboratory, Campus Station, Cincinnati,

OH 45221. Telephone: (513) 556-1200.

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 1990, the value of industry shipments declined about 6.3 percent to an estimated $4.07 billion from $4.34 billion in 1989. This decrease resulted from a decline in unit shipments of about 10 percent. The rate of decline varied among the 4 major sectors of the industry: house slippers (SIC 3142), and men's footwear, except athletic (SIC 3143), were each down about 15 percent; women's footwear, except athletic (SIC 3144), and footwear, except rubber, n.e.c. (SIC 3149), were down about 8 percent and 2 percent, respectively.

Production

For the second consecutive year, production of nonrubber footwear declined about 10 percent to an estimated 204.7 million pairs, from 227.4 million in 1989. Production losses were largest for soft-sole slipper and men's cement-sole types. Production of Goodyear welt types of men's footwear recovered somewhat from declines in 1988 and 1989. Injection-molded footwear production, particularly string-lasted types, increased strongly.

In 1990, slipper production declined about 16 percent from 1989, men's production dropped about 14.5 percent; women's, about 8 percent, and footwear n.e.c., about 2 percent. In the latter category, production of children's and athletic footwear increased over 1989 levels. The most recent 2-year decline in nonrubber footwear production renewed a downward trend that began in 1968 when output peaked at 642 million pairs. Production has declined at a compound annual rate of about 4.8 percent over this 22-year period, although it stabilized somewhat between 1986 and 1988.

House Slippers

Shipments of slippers declined about 16 percent in 1990 to an estimated 49.4 million pairs from 58.7 million pairs in 1989, and their product value declined from $226.1 million to $196.9 million. Slippers accounted for about 26 percent of the quantity, but only 6 percent of the value, of total shipments of nonrubber footwear in 1990. Only about 6 percent of slippers were produced with leather uppers.

Women's Footwear, Except Athletic

Domestic production of women's footwear declined about 8 percent in 1990 to an estimated 63.5 million pairs from 69 million pairs in 1989. Shipments of women's footwear also declined about 8 percent to an estimated 67.1 million pairs in 1990 from 72.8 million pairs in 1989. The value of product shipments declined to $1.35 billion from $1.4 billion a year earlier. Women's footwear accounted for 31 percent by quantity and 35 percent by value of all nonrubber footwear product shipments in 1990. Import penetration was 87 percent for the period in the women's sector.

Men's Footwear, Except Athletic

Production of men's footwear, which includes dress and casual shoes and work shoes and boots, declined about 15 percent in 1990, to 42 million pairs from 49.1 million pairs in 1989. Shipments of these products also declined about 15 percent from 51.9 million pairs in 1989 to an estimated 44.4 million pairs in 1990. The value of product shipments of men's footwear dropped in 1990 to an estimated $1.75 billion from $1.92 billion in 1989. Men's footwear accounted for 21 percent by quantity and 45 percent by value of total U.S. nonrubber footwear shipments in 1990. Over 90 percent of men's footwear was made with leather uppers. Import pentration of this section was 71 percent.

Footwear, Except Rubber, N.E.C.

Shipment of footwear for youths and boys, misses, children, infants and babies, and athletic and other miscellaneous types of footwear declined about 2 percent to 55.7 million pairs; however, their value increased to $563 million in 1990 from $559 million in 1989. Shipments of footwear in this group accounted for 26 percent by quantity and 15 percent by value of all product shipments of nonrubber footwear in 1990.

In 1990, production of all of these types declined about 2 percent to 52.6 million pairs from 53.8 million pairs in 1989. For January-June 1990, production was up 154 percent for athletic footwear, 10 percent for misses' footwear and 6 percent for children's footwear over the same period in 1989. Production was down 11 percent for youths' and boys' and 4 percent for infants' and babies' footwear.

Including rubber/fabric footwear (sneakers) imports and domestic production, athletic footwear consumption increased to an estimated 565 million pairs in 1990. This total represented 40 percent of combined nonrubber and rubber/fabric footwear consumption of about 1.4 billion pairs.

For January-June 1990, imports of all juvenile footwear were up 7 percent over the same period in 1989, and imports of athletic nonrubber footwear were up 11 percent. Import penetration was 83.8 percent for juvenile footwear and 93.1 percent for athletic nonrubber footwear.

Footwear Consumption

In 1990, apparent consumption of nonrubber footwear increased for the first time in 3 years, about 3 percent to an estimated 1.102 billion pairs. Per capita consumption also increased in 1990 to about 4.43 pairs from 4.35 pairs in 1989. From a low of 3.3 pairs in 1980, per capita consumption gradually increased to a high of 4.9 pairs in 1986 before turning down again. The rise in demand was met by increased imports. During the early 1980s, growing consumer demand for nonrubber athletic footwear was largely offset by a decline in rubber/canvas footwear consumption. After 1986, this trend was reversed: per capita consumption of nonrubber footwear dropped, and rubber/canvas footwear consumption increased. In 1990, rubber/canvas footwear consumption continued to increase for the fourth consecutive year - about 20 percent from 1989 - and reached an estimated high of 310 million pairs or 1.25 pairs per capita.

Personal consumption expenditures (PCE) on both rubber and nonrubber footwear in 1990 increased about 0.83 percent of total (PCE), down slightly from 1989. However, PCE in constant (1982) dollars remained unchanged, indicating that unit retail sales were stagnant and inventories were increasing at all levels in the distribution chain.

In 1990, consumers demanded comfortable footwear with proper fit. Casual and walking shoes in particular reflected these qualities. Technology that had incorporated padded collars, linings, and insoles, and other comfort features into athletic footwear was being used to produce more functional shoes, including those with traditional styling. Boat shoes and moccasins, with water-resistant leather uppers in a wide variety of colors, were selling very well. Boots also were popular, and women's pumps in classic styles had higher heels.

Prices and Profits

The average factory price for nonrubber footwear in 1990 increased about 21 percent to an estimated $21.70 from $17.04 in 1989. This rise followed increases of 8 percent in 1988 and 12 percent in 1989 and reflected substantially higher prices for leather over the 3-year period. The producer price index for nonrubber footwear was up 4.6 percent for the first seven months of 1990, while the Consumer Price Index for all footwear, including imports, increased about 2.5 percent over the same period.

An analysis by Footwear News (August 1990) indicated that, as a group, 22 publicly held footwear resource companies reported a 19-percent increase in sales in 1989 over 1988 and a 54-percent increase in profits. However, 48 percent of total sales and 76 percent of total profits for the group were accounted for by the three largest athletic footwear producers, all of which manufacture overseas. Profits to sales for the group increased to 6 percent in 1989 from 4.6 percent in 1988. By contrast, the ratio for the three athletic producers ranged from 8.9 to 9.8 percent. The same survey also indicated that, in 1989, profits and profit margins also rose for a group of five publicly held footwear retailers. However, this strong performance came from their apparel and specialty segments rather than footwear.

In 1989, foreign athletic producers were performing far better than domestic manufacturers, according to another industry survey. For 5 athletic companies, return on sales averaged 9.4 percent in 1989, compared with 4.8 percent for 15 other manufacturing companies; return on total equity was 25 percent for the athletic companies compared with 11.7 percent for the other manufacturers; and return on invested capital was 22.5 percent for the athletics versus 9.2 percent for the manufacturers.

Employment

Total employment in 1990 declined about 7 percent to an estimated 63,600, from 68,500 in 1989. Production employment in 1990 also declined about 7 percent, to 55,500 from 59,900 in 1989. Bureau of Labor Statistics data on industry productivity indicated a decline of 3 percent for the first 6 months of 1990 compared with the same period in 1989. Productivity had trended upward at an annual rate of 2 percent from 1981 to 1989.

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. Other sources indicate that the industry has experienced net factory closings every year except 2 dating back to the mid-1960s, when 990 plants were operating. By 1990, the number of plants had declined to less than 300.

Surveys by the United States International Trade Commission in 1985 indicated that two-thirds of the nonrubber footwear companies accounted for less than 14 percent of total domestic production. In 1990, the 20 largest producers captured about 55 percent of total domestic output.

Production Trends

In 1990, about 55 percent of domestically produced nonrubber footwear contained leather uppers, 4 percent less than for imported nonrubber footwear. Despite the large increase in hide and leather prices, consumers continued to prefer leather over all other upper materials. Leather footwear provides higher profit margins than other materials both for U.S. manufacturers and for importers.

Widespread use of computers is shortening production time and improving market response for manufacturers. In order to maintain competitiveness, manufacturers must respond to trends in fashion in hours and days rather than weeks. Computer-aided shoemaking - which includes computer-aided design, computer-aided manufacturing, and computer-integrated manufacturing (CAD, CAM, and CIM) systems - helps manufacturers improve competitiveness through better quality, greatly expanded design flexibility, and lower production costs.

CAD systems allow manufacturers to change dimensions, patterns, texture, and color of material instantaneously. CAD computerizes data that can later be used to cut patterns, dies, and materials; make lasts; cost the product; and operate CAM systems. The latest CAM technology provides for automatic stitching and cutting. Computers also allow manufacturers to combine several operations or machines under fewer operators, thereby reducing handling time and improving quality control. Computerized robots have been developed for handling and transfer operations within and between these modules. All of these various computer systems are being combined with CIM systems.

INTERNATIONAL COMPETITIVENESS

Imports Up Again

After 3 consecutive years of decline, nonrubber footwear imports increased in 1990 about 6 percent to an estimated 912 million pairs, from 860 million pairs in 1989. The customs value - excluding insurance, freight, and duty - of 1990 imports reached an estimated $8.5 billion, up 14 percent from $7.44 billion in 1989. Imports of slippers represented about 21 percent, by quantity, of apparent consumption for January-June 1990. For January-June 1990, imports of men's nonrubber footwear totaled 53 million pairs, unchanged from the same period in 1989.

Imports grew from 175 million pairs in 1968 to 941 million in 1986, a compound annual rate of growth of 9.8 percent. Imports stabilized at about 375 million pairs and 50 percent of apparent consumption during the 4-year period beginning in June 1977 of the quotas imposed by the Orderly Marketing Agreements (OMAs) with South Korea and Taiwan. However, after these agreements were allowed to expire in 1981, imports increased by more than 100 million pairs annually, reaching a peak of 941 million pairs in 1986. Import penetration peaked the following year at 82 percent of apparent consumption and declined to 79 percent in 1989 before rising again to an estimated 82 percent for 1990.

During the first 6 months of 1990, U.S. imports of nonrubber footwear totaled 453.5 million pairs, up about 6.5 percent from the same period in 1989 (Table 3). Imports from China rose about 85 percent, or 52 million pairs, as more production from Taiwan was shifted there because of lower labor costs. Other countries showing large percentage gains over 1989 were Indonesia (252 percent) and Thailand (57 percent).

From January-June 1990, the average unit price (customs value) for imported nonrubber footwear was $8.69, up about 9 percent from the same period in 1989. As the year progressed, import prices increased more rapidly as the U.S. dollar weakened and leather prices firmed. Worldwide leather supplies tightened further in 1990, and the higher prices reduced somewhat the competitive advantage of imports from traditional suppliers such as Taiwan, Korea, and Brazil over domestic producers.

For January-June 1990, the five largest suppliers of nonrubber footwear to the United States were China (25 percent of total quantity); Taiwan (21 percent); Korea (18 percent); Brazil (13 percent); and Italy (7 percent). As Table 3 shows, these five countries accounted for 84 percent of all U.S. nonrubber footwear imports for the 6-month period. Although the United States imported nonrubber footwear from over 90 countries during this period only six other countries - Thailand, Indonesia, Spain, Hong Kong, the Philippines, and Mexico - captured more than 1 percent of the U.S. market for imported footwear.

Korea, Brazil, China, Taiwan, and Italy were projected to be the largest suppliers of U.S. leather footwear imports for the entire year, accounting for about 85 percent, by quantity, of imports. China, Brazil, and Taiwan, in that order, were the largest suppliers of men's leather footwear; Brazil and Italy, women's leather footwear; Korea and Italy, juvenile leather footwear; and Korea, Taiwan, and China, leather athletic footwear.

U.S. leather footwear imports accounted for about 59 percent of total nonrubber footwear imports in 1990. This proportion was unchanged from 1989 and remained several percentage points higher than that for domestic production. For January-June 1990, the average unit value for leather footwear imports was $11.91, up about 12 percent over the same period in 1989 but still substantially below that for domestic production.

For January-June 1990, China accounted for 45 percent, by quantity, of all U.S. imports of nonrubber footwear with vinyl or plastic uppers; Taiwan supplied about 40 percent. U.S. imports of footwear with vinyl or plastic uppers accounted for about 37 percent, by quantity, of total nonrubber footwear imports for the period. The average unit price was about $4.10.

U.S. manufacturers export large quantities of cut footwear parts to many developing countries where they are assembled and exported to the United States as finished or partly finished products. Under the U.S. Tarriff Schedule, duties are assessed only on the valued-added content. Moreover, U.S. duties on partially finished but unlasted nonrubber footwear are 5 percent or below compared with 8.5 percent or more for completed leather footwear. Frequently, final manufacturing operations requiring less labor - such as bottoming, finishing, and packing - are performed in the United States. During January-June 1990, U.S. imports of such partially assembled leather footwear totaled about 11 million pairs, primarily from the Dominican Republic, Mexico, and Brazil.

Exports Also Up

In 1990, U.S. nonrubber footwear exports also increased by about 5 percent to an estimated 15.1 million pairs. Their value increased about 90 percent to an estimated $270 million. The average unit price of these exports was about $14.95, up 46 percent from 1989. The weaker U.S. dollar encouraged exports growth as U.S. producers found it easier to compete in high-cost, developed-country markets. However, about 15 percent of total exports represented partially assembled footwear, particularly slippers, shipped to developing countries where they were finished and re-exported to the United States.

For the first 6 months of 1990, the United States exported 7.7 million pairs of nonrubber footwear valued at $124.7 million. Mexico received the largest quantity during that period - 1.085 million pairs, or 14 percent of the total, valued at $3.8 million. Almost all of these were slippers.

Canada ranked second, with 960,000 pairs, or 12 percent of U.S. exports, valued at $21.1 million. This growth resulted from the phased reduction in Canadian duties on imported footwear under the U.S.-Canada Free Trade Agreement that became effective in 1989.

Japan ranked third with 866,000 pairs, or 11 percent, of U.S. exports. These exports were down about 21 percent from the same 6-month period in 1989. Although certain types of U.S.-produced leather footwear are price-competitive in the Japanese market, and over 80 percent of all 1990 U.S. footwear imports to Japan were athletic footwear (exempt from Japan's restrictive global tariff-rate quotas on leather footwear exports), these quotas and the licensing procedures required to administer them discourage U.S. manufacturers' attempts to export to Japan. The Japanese market for leather footwear is estimated to exceed 100 million pairs. Japan's global tariff-rate quotas, which are legal under General Agreement on Tariffs and Trade (GATT) regulations, restricted leather footwear imports to about 3.5 million pairs for Japan's fiscal year 1989. The United States was unable to capture only about 5 percent of the global quota.

For the period January-June 1990, Italy was the fourth largest market for U.S. exports, followed by the Netherlands, France, West Germany, and the United Kingdom. In 1990, U.S. manufacturers were more successful in increasing exports to the European Community countries than to any other area.

Legislation

In September 1990, the Congress passed and sent to the President the Textile, Apparel and Footwear Trade Act of 1990 that limited the aggregate annual quantity of nonrubber footwear imports to the 1989 level of 860 million pairs, with subquotas also set by price category. Previous attempts to enact similar legislation in 1985 and 1987 were vetoed; the outcome of the present initiative was also uncertain. Also, legislation extending the Caribbean Basin Initiative (CBI), which provided duty-free status for most products, except footwear, leather products, and several others, appeared certain to be passed by the Congress in 1990 with the footwear and leather products duty exemptions again included.

Outlook for 1991

Shipments of nonrubber footwear are expected to decline about 2 percent in 1991 to 211.9 million pairs. Shipments will decline in three sectors; slippers by 4 percent, to 47.4 million pairs; men's footwear, 4 percent, to 42.6 million pairs; and women's footwear, 3 percent, to 65.1 million pairs. Shipments of footwear, except rubber, n.e.c., will increase 2 percent to 56.8 million pairs, primarily because of expected production gains in the athletic, misses', and children's subsectors. Imports of nonrubber footwear, by quantity, are expected to increase for the second consecutive year, by about 3 percent. As a result, both apparent consumption and per capita consumption are expected to increase slightly. Import penetration will rise to about 83 percent.

Long-Term Prospects

The long-term outlook for the nonrubber footwear manufacturing industry is only slightly brighter. Industry production is expected to increase gradually over the next 5 years. Assembly of footwear from cut and sewn uppers produced offshore will increase substantially. Weaker firms will continue to close. Stronger ones will consolidate plants and invest in new technology designed to narrow the disparity between foreign and U.S. labor costs. The industry's capacity to respond quickly and effectively to changes in the market at the retail level is improving rapidly. Success in this area is essential to partially offset the lower costs of new Southeast Asian suppliers in Thailand, Indonesia, and China. Faced with this competition, the industry will have great difficulty achieving real growth. - James E. Byron, Office of Consumer Goods, (202) 377-4034, September 1990.

Additional References

(Call the Bureau of the Census at 301-763-4100 for information about

how to order Census documents.) Footwear, Current Industrial Reports, M31A (monthly, with annual

summary), Data User Services Division, Customer Services (Publications),

Bureau of the Census, U.S. Department Commerce, Washington,

DC 20233. Telephone: (301) 763-2553. Footwear Manual, 1990, Footwear Industries of America, 1420 K Street,

NW, Washington, DC 20005. Telephone: (202) 789-1420. Nonrubber Footwear Quarterly Statistical Reports, United States International

Trade Commission, Washington, DC 20436. Telephone: (202)

252-1000. Footwear News (weekly), Fairchild Publications, 7 East 12th Street, New

York, NY 10003. Telephone: (212) 741-4000. American Shoemaking (monthly), World Footwear (monthly); and American

Shoemaking Directory, 1990; Shoe Trades Publishing Co. Inc.,

P.O. Box 198, Cambridge, MA 02140. Telephone: (617) 492-2387.

LUGGAGE AND PERSONAL LEATHER

GOODS

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 and purses (SIC 3171); personal leather goods (SIC 3172), and leather and sheeplined clothing (SIC 2386).

The total value of industry shipments for all 5 of these industries increased about 1 percent in 1990 to an estimated $2.46 billion. The value of product shipments also increased 1 percent to about $2.13 billion. But when measured in constant dollars, industry and product shipments each declined in 1990 about 3.3 percent from 1989. In 1990, industry employment fell 3.7 percent to 31,600, and production employment dropped 3.8 percent to 25,000.

INTERNATIONAL COMPETITIVENESS

Because labor costs represent such a high proportion of total production costs, these industries all encounter significant import competition, especially from developing countries where wage rates are far below U.S. levels. In 1990, the value of imports of luggage and personal leather goods rose about 15 percent to an estimated $3.96 billion. The import of apparent consumption ratio for the group rose to 66 percent in 1990 from 62 percent in 1989.

Primarily because of the weaker U.S. dollar, the value of exports for the group in 1990 also rose a substantial 21 percent to an estimated $195.7 million.

Leather Gloves and Mittens

The U.S. leather glove and mitten industry is composed of 2 product segments; work gloves and mittens, which account for over 85 percent of domestic production; and dress gloves and mittens, accounting for the remaining 15 percent. These products are made either entirely of leather or of a combination of leather and textiles, such as cotton, wool or nylon.

The value of product shipments in 1990 rose about 3.5 percent to $168 million. Measured in constant dollars, however, product shipments declined about 2 percent. Industry and production employment each declined about 2 percent to 2,800 and 2,500 employees, respectively.

Apparent consumption, by value, of leather gloves and mittens in 1990 was up about 3.5 percent over 1989 to an estimated $333 million. Imports reached an estimated $178.8 million, 54 percent of apparent consumption. Principal sources of imports, by quantity, were China, with 77 percent of total imports; Hong Kong (8 percent); and the Philippines (5 percent).

Exports of leather gloves and mittens in 1990 increased about 24 percent to an estimated $14.3 million. However, almost 75 percent of these, by quantity, were exports of cut parts to Mexico for assembly and reentry into the United States as finished gloves. Under section 9802 (formerly 807) of the Harmonized Tariff Schedule of the United States, these are subject to U.S. duties only on the value-added content.

Luggage

The luggage industry produces a variety of products, including suitcases, briefcases, hand luggage, tote bags, trunks, and occupational cases. Materials used include leather; plastics; fabrics, such as nylon, cotton, and linen; and metals. Combinations of these materials are frequently used. Construction methods include sewing, molding, and laminating. About 25 percent of U.S.-produced finished goods are made of leather and leather usage is highest in attaches and briefcases.

In 1990, the value of luggage product shipments increased about 3.5 percent to $967 million. In constant dollars, however, product shipments declined about 2 percent. Both total employment and production employment declined about 2 percent to 11,200 and 8,400, respectively.

Apparent consumption, by value, of luggage in 1990 was up about 13 percent over 1989 to an estimated $2.1 billion. Imports rose 22 percent to $1.22 billion and represented 58 percent, by value, of apparent consumption. Countries with the largest share of U.S. imports of luggage were Taiwan (37 percent); China (21 percent); Korea (19 percent); Thailand (4 percent); and Mexico (4 percent).

Exports of luggage in 1990 increased about 25 percent to an estimated $82.5 million. Mexico, Japan, Canada, Ireland, the United Kingdom, and West Germany were the largest importers of U.S. luggage.

Handbags

The handbag industry produces women's handbags and purses of leather and other materials, except jewelry and precious metal which are classified in SIC 3911. Leather's share, by quantity, of domestic handbag shipments in 1987 was 61 percent.

In 1990, the value of handbag product shipments declined about 6 percent to $480 million. Product shipments, in constant dollars, also declined about 10 percent. Industry and production employment declined about 10 percent each to 7,800 and 6,500 employees, respectively.

Apparent consumption, by value, of handbags in 1990 dropped about 1 percent to $1.31 billion. Imports of handbags increased 2 percent to an estimated $854 million and accounted for 65 percent, by value, of apparent consumption. Import penetration, by quantity, was about 87 percent. Countries with the largest shares by quantity of U.S. handbag imports were China (59 percent); Korea (15 percent); Taiwan (11 percent); India (4 percent); and Hong Kong (3 percent).

Exports of handbags in 1990 declined about 4 percent to $24.5 million. However, exports to Mexico were mostly cut handbag parts that were assembled there and re-exported to the United States as finished goods. Mexico, Canada, and Japan were the leading importers, by quantity, of U.S. handbags.

Personal Leather Goods (Flatgoods)

This industry subsector produces such items as wallets and billfolds, and eyeglass, cigarette, key and nonmusical instrument cases. These products are often referred to as flatgoods because they are small enough to fit pockets or handbags. Flatgoods are made, in whole or in part, of either leather (which accounts for more than 60 percent of the value of principal materials consumed in this sector), plastics, or textiles.

In 1990, product shipments increased about 5 percent to $468 million. Product shipments, in constant dollars, increased about 1 percent. Total employment and production employment increased about 1 percent each to 7,700 and 6,000 employees, respectively.

In 1990, apparent consumption of these products increased about 1 percent to $700 million. Imports declined about 2 percent to an estimated $253 million and import penetration, by value, was 36 percent, the lowest for the group. Principal foreign suppliers were China, Korea, and Taiwan. Italy ranked fourth, supplying mostly higher-priced flatgoods of leather.

U.S. exports of personal leather goods in 1990 rose 57 percent to about $20 million. Canada, Japan, Mexico, and West Germany were the leading export markets for personal leather goods.

Leather and Sheeplined Clothing

Leather wearing apparel manufacturers produce leather coats and jackets for men, women, and children, as well as pants, vests and skirts. Demand for leather and sheeplined clothing is more directly related to trends in fashion than is the case for other luggage and personal leather goods products, so consumption patterns vary widely from year-to-year. As leather prices rise - absolutely or relatively to other materials - consumers elect to purchase apparel of other materials or postpone such discretionary spending altogether. Although leather prices have increased in recent years and domestic producers have been adversely affected, importers have been able to partially offset these cost increases by buying from producers in Asian countries with far lower labor costs than those in the United States.

In 1990, product shipments of leather wearing apparel increased about 1 percent to $194 million. Product shipments in constant dollars, however, declined about 3 percent. Both total employment and production employment declined about 3 percent.

Apparent consumption, by value, of leather wearing apparel in 1990 increased about 21 percent to $1.6 billion, due primarily to import increases. In 1990, imports increased 25 percent from 1989 to an estimated $1.46 billion. Import penetration, by value, for leather wearing apparel was 91 percent, the highest of all the industries in this group. Korea remained the largest supplying country of leather wearing apparel accounting for a substantial 76 percent of total U.S. imports. Other significant suppliers included China, Taiwan, India, and Hong Kong.

U.S. exports of leather wearing apparel in 1990 rose 17 percent to $54 million. Japan, France, and Italy took the largest share of these exports.

Outlook for 1991

Demand for luggage and leather products is expected to slacken in 1991 as the economy slows. Imports will continue to capture a larger market share in most of these industries. As a result, constant dollar product shipments for this group of industries are expected to decline by 1.4 percent for the year. Rates of growth or decline for 1991 are expected to vary among the industries: gloves and mittens (SIC 3151), -1.0 percent; luggage (SIC 3161), -1.0 percent; handbags and purses (SIC 3171), -3.0 percent; personal leather goods (SIC 3172), 0.5 percent; and leather apparel (SIC 2386), -4.0 percent.

Long-Term Prospects

Consumer demand for luggage and leather products will strengthen again after 1991 because of demographic factors. Increased white-collar employment should result in increased purchases of leather office products. Growing numbers of professional women in the workforce will lead to higher sales of business cases. Larger numbers of retirees coupled with increases in disposable income may stimulate more travel and corresponding increases in luggage sales.

However, U.S. leather products manufacturers will continue to meet stiff competition from abroad. It is unlikely that any of the U.S. markets lost to imports during the last 20 years will be recaptured in the next 20 years. But a lower-valued dollar should help American producers maintain their present share of an expanding U.S. market for luggage and leather products. - James E. Bryon, Office of Consumer Goods, (202) 377-4034, September 1990.

Additional References

Leather Gloves; Luggage; and Miscellaneous Leather Goods, SIC 3151,

3161, 3171, 3172; 1987 Census of Manufacturers, Series MC87-(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 Manufacturers, 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 Avenue, New York, NY 10118. Telephone (212) 695-2340.

PHOTO : Figure 35-1 Cattlehides: U.S. Production, Exports and Prices

PHOTO : Figure 35-2 U.S. Nonrubber Shoe Supply by Source

COPYRIGHT 1991 U.S. Department of Commerce
COPYRIGHT 2004 Gale Group