October 24, 2020
Leather is one of the most functional commodities since ancient times. Leather goods have gradually transformed into a luxury item, through its demand in high-end products. The massive popularity and dynamic usage of leather products have also contributed to its higher price tag. To find alternate cheaper material, artificial leather was discovered covering most of the basic properties of leather and now the use of artificial leather has overtaken the usage of genuine leather. Artificial leather is a synthetic material used as a cheaper alternative to genuine leather. Based on types, artificial leather is segmented into polyurethane (PU), polyvinyl chloride (PVC) and bio-based leathers. They are also commonly referred to as synthetic leather, faux leather, pleather, leatherette, vegan leather, etc. Among them, PU Leather emerged as the most commonly used.
PU leather can replicate the look and feel of genuine leather. The two major types are normal PU leather and microfiber PU leather. The artificial material has a shinier appearance and generally is far less thick than real leather. It is also extremely pliable and can be stretched like spandex.
PU Leather is considered to be the fastest-growing segment of the leather related products industry over the forecasted period of 2016-2027. According to Grand View Research, the artificial leather industry is expected to grow to US$ 52.9 billion with a cumulative average growth rate (CAGR) of 7.8% from 2016 to 2027. PU leather is likely to contribute 32.9 billion of the total artificial leather market. The major production is coming from China, Japan, Korea, Taiwan, India, and Italy.
With the given advantages and wide acceptability, PU leather is used as the ideal leather replacement or some time even considered as a better option, depending on the usage. The footwear & leather accessories like wallets & belts, take up around 47% of usage. PU leather is used by other industries like furniture, automotive interiors, clothing, electronics, and others. Their applications across industries are summarized in the pie chart below, with footwear having the highest with 33% and furniture, automotive, clothing and accessories each cover a market segment between 14-17%.
In Bangladesh, PU Leather market is served by both local manufacturing and through import. Most of the manufacturers are exporting their manufactured products. Those selling at the local market usually sells around 2-5% of their total production. It is estimated that Bangladesh will have an approximate demand of 15-20 million square meters of PU leather for domestic use in 2019-2020.
The manufacturing process relies heavily on imports of raw materials and the finished products are exported to the global market. Unlike traditional leather for which the basic raw material is locally sourced, the required raw materials for PU leather are not found locally. But this need not be an issue for the manufacturing and trade, a similar arrangement has resulted in great success with the RMG industry. The growing local sales through wholesale and retail are not to be underestimated either.
The wholesalers usually cater to the local retailers and to the SME’s producing artificial leather goods. The wholesalers acquire merchandise from local manufacturers and through either direct importing (through clearing and forwarding (C&F) agents) or through traditional traders (importers).
Compared to the PU Leather with its multitude of usability, genuine leather usage is much less in the retail market. If we compare both categories in terms of sales from the retailers, the PU Leather occupies an overwhelming majority portion of the market, with traditional genuine leather mostly used for high- end fashion items. The retail market caters mostly PU Leather goods for its versatile use and cost-effectiveness. Source: Innovation Survey
The monthly business volume is a good tool to differentiate and understand the distinctive nature of business between the retailers and wholesalers of PU leather. The average volume of material sold by a retailer is 11,247 meters while a wholesaler’s monthly average sales volume is 32,370 meters. In comparison, a retailer deals with only 160 meters of genuine leather sales on average per month.
The local wholesalers import goods as well as buy from local manufacturers to supply to the local market, while very few retailers engage in import activity. The wholesalers import artificial leather goods directly by acquiring own import licenses while others through traders who import for the wholesalers as per the requirements. Around 73% of wholesalers manage their own imports, while around 27% depend on third-party trading houses.
Source: Innovation Survey
An optimistic future, if we overcome the challenges
The promising industry is not without its challenges. Talking with the industry insiders revealed that the most significant challenge they face is the shortage of skilled labor and adapting to the shifting technology for the production. The wholesalers and retailers are also concerned about market competitiveness and quality products. Though optimistic, both the trade group commented on the quality issues like the thickness, cost and as well as the sourcing destinations.
Given that the importers are bringing in products from various destinations and quality classes, the wholesalers and retailers face stiff competition among themselves especially with cost competitiveness. Business entities expressed concern over the low-quality products selling at a much cheaper price and newer import destinations like Myanmar, as the product quality from this country is questionable.
Bangladesh’s economy is experiencing high GDP growth rates in recent years and the manufacturing industry is one of the major sectors that contribute to it. PU leather sector can tap to the growing local demand and eye on the strong global demand, especially through deemed export (footwear, furniture, clothing etc.). This can make the PU leather sector the next big export product. The local supply chain is not robust, and leaves immense space for maneuvering and innovation. Fulfilling local demand and cutting back on import dependence itself may boost the industry. The leather and faux-leather goods industry is already touted as the next potential frontier for Bangladesh after the RMG sector, the PU leather can be a significant part of it.