The leather garments industry in China is in the process of consolidation. Many small companies are expected to stop operations in the next few years as various industry challenges are making it more difficult for them to compete against midsize and large suppliers. In addition, exports are expected to continue their downward slide.
To survive, a number of leather garment manufacturers in China are expanding their markets and diversifying product lines.

China is said to be the largest volume manufacturer of leather garments in the world. It is difficult to obtain the exact number of leather garment makers in the country, but industry estimates reach up to 10,000. The majority of these suppliers are small companies, some of which have only 40 to 50 sewing machines at their workshops.

The fickle nature of the fashion industry has hit makers hard. Demand for leather garments, particularly coats and jackets, peaked a few years back, encouraging many suppliers to join the line. But with fur now leading fashion forecasts this season, a number of these companies are experiencing dwindling sales. Low demand for leather coats and jackets is intensifying competition in an industry with a large supplier base.

In 2005, the industry suffered an 8 percent drop in export volume sales. Exports have continued to fall, going down 21 percent in the first eight months of 2005 compared with the previous corresponding period.

Apart from the large supplier base, Russia's strengthened crackdown on illegal tax and customs practices is another reason for China's dwindling exports. Most leather garment enterprises, particularly those in north China, export to Russia. Many of them ship to the country via Russian companies that charge foreign businessmen certain fees so that the latter do not need to pay high import taxes. This practice has been causing Russia large tax revenue losses.

The majority of companies that used to focus on Russia are now expanding to the US and the EU, which they believe are more lucrative markets for their businesses. Exports to these markets, however, are also slowing, with consumers preferring fur to leather.

Further, in 2006, the China government reduced the export rebate for finished leather from 13 percent to 8 percent and textiles from 13 percent to 11 percent. Companies engaged in low-value finished leather and textile products now have to speed up their technical innovation to boost their competitiveness.

Because the industry is experiencing such a fluctuating business environment, China's leather garment exports are estimated to continue decreasing though 2007, by at least 10 percent.

Suppliers are diversifying into other product lines in response. More than 50 percent of companies interviewed for this report now have a secondary line to leather garments. A number of these suppliers used to stop production during the off-season. Some of them even close their factories and go on vacation for up to a month.

Some large makers have ventured into the manufacture of other product lines, including leather bags. For instance, Nanhai Yashan, one of the profiled suppliers, began producing leather bags in early 2006. It is now planning to focus on increasing capacity and output of the product in 2007.

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All information contained in China Sourcing Reports is the result of exclusive, ground-level and definitive research conducted by Global Sources' analysts. Companies featured in these reports may or may not be clients of Global Sources.