Cebreros Violeta Industry Analysis Lea

The objective of the present industry analysis is to provide an overview of the main trends and characteristics of the luxury leather goods industry to further understand he underlying drivers of supply, demand and ultimately profitability in the sector. All the data collected for the industry analysis was obtained through extensive research on Internet and, thus all sources are primary source such as reports from Remuneration, Denominator, Pain & Company, Millionaire’s, BCC, etc.

Luxury leather goods comprise a subcategory of luxury accessories and typically refer to products such as handbags, wallets and belts made out of high quality leather. The category of luxury leather goods is estimated at a value of 28 billion for 2011, while the global personal luxury goods markets is estimated at a value of 191 billion for 2011. Today’s post-recession economic environment is favorable for the luxury market, with demand soaring due to an economic boom in emerging markets, especially China.

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However, high taxes in the Asia-Pacific markets have lead to price differentiation and lower margins for the companies. Another industry trend that has led to lower margins is the cost increases due to steep price increases of high-quality leather hides provoked by scarcity, leading many of the companies to seek vertical integration with suppliers to ensure their supply. Moreover, demand has also experienced an increase due to a shift in the demand due to a change in consumer ostentatious consumption and towards the high-end classic products which are considered durable.

In terms of competitiveness, the luxury leather goods sector is competitive due to the large number of brands in the market, which find the industry attractive due to the high profit margins. However, differences amongst products and sellers exist- conglomerates and single- brand companies, core business in fashion or core business in leather goods, artisan production or fabric production and, finally, brand. In the luxury leather goods sectors brand image is a key differentiating factor amongst firms, specially since it commands a premium and builds on customer loyalty.

Key players in the industry include Louis Button, Gucci, Pravda, Channel, Hermes and the likes. Although most key players are of European origin they all compete at a global scale. Most luxury brands have built a considerable network of directly-operated boutiques which give them more control over their distribution, Hoover, they still rely on department stores to broaden their scope and specially to reach emerging markets here brands are still to set their own operations. Overall, the luxury leather goods industry is thriving and is expected to continue growing in years to come.

For brands to maintain their positioning and market share they embrace the new consumer trends and adapt their business strategic to remain profitable. They must move away from ‘affordable luxury and focus on ‘absolute luxury products, this will allow them to find a better balance between demand and supply, reducing some of the strain on supply provoked by the scarcity of high- quality leather. With this change the gap between supply and demand is reduced in arms of volume but not value as consumers are now purchasing a higher price- point, which will also lead to higher margins for the companies.