Entering the European market for leather bags

Some of the world’s most interesting markets for leather bags are in Europe. However, entering a new market requires research, investment and dedication. Investigate the different sales channels and set realistic goals, so that you can measure your performance and success.

1. What requirements must leather bags comply with to be allowed on the European market?

If you want to sell leather bags on the European market, you need to comply with several requirements, some of which are mandatory, whether they are legal requirements or not. Others are voluntary, but meeting them can give you a competitive advantage. Some requirements only apply to certain niche markets.

What are the mandatory requirements?

There are several legal requirements you need to comply with if you want to export leather bags to the European market. Including requirements concerning product safety, the use of chemicals (REACH), labelling, intellectual property rights and the use of endangered species of animals.

Follow these steps to ensure that your product complies with the relevant legal requirements:

1. Product safety. Make sure that your product complies with the EU’s General Product Safety Directive (GPSD: 2001/95/EC). If your buyer supplied the product design, it is their responsibility to guarantee it is legally safe for consumers to use.
2. Use of chemicals. Make sure that you comply with the EU’s REACH Regulation. This restricts the use of chemicals in leather bags and trims, including certain azo dyes, flame retardants, waterproofing and stain-repelling chemicals, chromium (the widely used chromium III variant can transform into chromium VI under certain production and storage circumstances), formaldehyde, and nickel (which may occur in metal trims and accessories, such as zippers, buttons and jewellery).
3. Use of restricted substances. Ask your buyer if they use a Restricted Substances List (RSL). These are often inspired by the guideline on safe chemicals use of the Zero Discharge of Hazardous Chemicals (ZDHC) Foundation. Download the ZDHC Conformance Guidance here.
4. Labelling. Specify the material content of every leather item that you export to the EU, in accordance with EU Regulation 1007/2011. Check the EU Access2Markets online help desk for more information on how to do this.
5. Endangered species. Do not use materials derived from endangered animal species in your leather bags, in compliance with EU legislation (EC 338/97). Check which animals and plants are restricted on the website of the EU Access2Markets online help desk.
6. Intellectual property. Do not violate any intellectual property (IP) rights and do not copy designs from or share designs with other buyers. If your buyer supplied the design, they will be liable in case the item is found to violate a property right.

Non-legal mandatory requirements

In addition to the legal requirements mentioned above, you may be required to comply with non-negotiable terms and conditions that buyers have created for their suppliers. Such requirements are not required by law, but they are still mandatory.

Quality requirements regarding tanning methods

Buyers will always search for the type of leather that best fits their product. Their first consideration will be the tanning method, which determines the look and feel of the leather, even if much can be adjusted later in the finishing stage. Leather can be tanned using vegetable, semi-veg, chrome, low-chrome and chrome-free tanning.

Different types of leather are suitable for different products. For example, vegetable tanned leather is relatively firm, thick and has deep, warm natural colours (but is less suitable for dyeing in vibrant colours). It is mostly used for bags and belts. Vegetable tanned leather is especially popular in Northern European countries, where consumers appreciate it for its natural look.

Chrome tanning may result in softer, thinner and softer leathers that can be used in many bag styles and other leather products. Nowadays, certain vegetable and chrome-free tanned leathers can provide the same characteristics, with reduced impact on the environment.

Sustainability and consumer safety concerns are other reasons that buyers use to select a certain type of leather. Vegetable tanned leather is popular among European brands that promote themselves as environmentally friendly, although it is difficult to assess the exact environmental impact of each product, since much depends on the way tanneries manage their input and waste streams.

Chrome-free tanning

For reasons of both sustainability and consumer safety, ever more buyers require chrome-free tanned leathers, such as C&A. This is to avoid the risk of formation of REACH-restricted chromium VI in leather items. Chrome-free leather can be either vegetable tanned or wet white tanned leather.

Figure 1: The growing popularity of chrome-free leather is shown by different exhibitors in the leather section at Première Vision in September 2021

Quality requirements regarding finished leather

Finished leather is available in different qualities, from high to low: full-grain aniline and semi-aniline, pigmented smooth leather, nubuck, suede, split leather and bonded leather. The number of scars, cuts and blemishes is expressed in grades: A (lowest number of defects, highest quality), B and C (highest number of defects, lowest quality).

Most buyers will require a certain type of leather and leave the selection of grades up to you. Lower grade leathers are relatively cheap but using them will increase waste, because you need to work around more blemishes. In any case, buyers will reject ready-made products with too many visible defects on the leather, unless the natural defects are part of your sales pitch.

Expect buyers to also set requirements for colour fastness, especially when you use suede-type leathers.

Quality requirements regarding ready-made products

To guarantee product quality, your buyer may set an acceptable quality limit (AQL) for you. This refers to the lowest acceptable quality level. For instance, AQL 2.5 means that your buyer will reject a batch if more than 2.5% of the whole order quantity over several production runs is defective.

Common quality defects in ready-made leather bags include:

• uneven, wonky cut leather parts and patches;
• uneven, wonky stitching lines;
• visible material defects due to the use of lower grade leathers;
• colour shadings.

Sustainable production and social compliance

Buyers in Europe are increasing their demands for sustainable production and social compliance. At the very least, buyers will ask you to open your factory doors for them, so they can conduct personal inspections of your factory.

A particular new focus for European brands and retailers is the shift to a “circular economy”. With its new Green Deal, the EU is targeting the reuse, repair, remanufacturing, and recycling of consumer products in Europe, including leather items. This means that manufacturers should train their design teams to develop new styles that are durable and easy to reuse, repair, refurbish, repurpose, or recycle.

Ideally, manufacturers should play a significant role in remanufacturing, refurbishing, and repairing leather bags that are at the end of their life cycle.

Additionally, you may be requested to comply to the following independent standards:

• The Leather Working Group (LWG) is a multi-stakeholder organisation based in the UK that counts 450 tanneries worldwide as members. Each member tannery has been audited for its environmental processes. LWG certification is the most requested standard in leather fashion.
• Naturleder is a quality and sustainability standard specific to leather. Most of its members are based in Germany.
• ZDHC is increasingly becoming a benchmark for using the right chemicals to limit emissions and thus protect workers, the environment and consumers.
• Textile Exchange has launched a new framework for sustainable production in the entire leather supply chain, called the Leather Impact Accelerator.
• The Sustainable Leather Foundation is a new sustainability platform where leather companies can register their certificates from other organisations and get a score on a social, environmental and governance module.
• Buyers may require that you use only vegetable tanned or chrome-free leathers (see above).
• Suppliers of leather tanning chemicals are introducing ever more sustainable solutions on the market. Check, for instance, Zeology by Neratanning or EasyWhite™ by Stahl.
• Another sustainability issue during tanning is the (excessive) use of salt. Many tanners and their suppliers are switching to techniques requiring less or no salt. Check out, for instance, Litehide.
• To prevent wastage, invest in computer-controlled cutting machines for optimal use of leather skins or discuss the option of using smaller patches in the designs with your buyer.
• Regarding social responsibility, BSCI (Business Social Compliance Initiative) is the most popular and not rarely the only certification that European buyers will require. Other popular social responsibility standards include WRAP, SEDEX, ETI, SA8000, ISO 26000, FWF and FairTrade.

Figure 2: Overview of common standards and initiatives for sustainable production and social compliance

Packaging requirements

in most cases, your buyer will give you instructions on how to package the order. This is specified in their vendor manual. These rules need to be respected and can lead to extra costs in case the final delivery does not comply with the instructions. Your buyer will also appreciate any efforts you make to reduce the environmental impact (and financial cost) of the use of packaging materials.

In case you have ordered bags made with chrome-tanned leather (which is legally allowed), make sure that the items are handled properly. A change in temperature during transport can change chromium III into the forbidden chromium VI, which would make your product non-compliant with REACH (see above).

A common requirement in the leather bags industry is to store, pack and ship your goods in dry, well-ventilated conditions. Leather tends to absorb moisture from the air, which can lead to loss of sheen, bad smell, spots, stains and growth of mould or mildew. Packing your leather goods with silica gel packets is a common measure to reduce excess moisture during shipment. Wrap metal accessories separately to prevent them from damaging the leather.

Payment terms

For a first-time order, European buyers may agree with a down payment (e.g. 30%). They will pay the remainder (70%) after the order has been completed. The safest payment method for you as a manufacturer is the LC (Letter of Credit). An LC obligates a buyer’s bank to pay the supplier when both parties meet the conditions they have agreed upon. However, many buyers no longer favour LC payments, as this will block their cash flow. Be aware that LCs do not offer financial protection against bankruptcies.

For any further orders, most European buyers will ask for a TT (Telegraphic Transfer) after 30, 60, 90 or sometimes even 120 days. This means you as a manufacturer finish the production and hand over the shipment to the buyer, including the original documents, before payment is due. The payment will be made after the number of days that you have agreed on with the buyer. This is a risky payment agreement because you are taking the full financial risk. The goods will become the buyer’s property before you get paid.

Additional requirements

In addition to non-legal, but mandatory requirements like standards and certifications, there are many services that buyers implicitly expect or at least highly appreciate if you want to do business with them. These requirements can differ from buyer to buyer.

Product design and development

Most buyers have their own design team and do not solely rely on the collections that factories present to them. Still, having your own ideas on product design and development will be highly appreciated. Buyers are always looking for special designs, materials (surprising colours, finishes, trims and types of embossing) and production methods to help them stand out in the market.

Figure 3: The weekender is one the most popular traveller bags in Europe

Photo by Jan de Keijzer on Unsplash.

Styles

Popular bag styles on the European market are: the traveller bag (a large bag that can be carried on the shoulder), the shopper (a multi-purpose bag with top opening), the cross-body bag (carried on the shoulder across the body. The male version is called the messenger bag), the backpack (a practical bag with two shoulder straps), the tote (a large handbag with short straps), the clutch (a small bag that you can hold in your hand), the hip bag (worn around the waist) and the laptop bag (a practical bag that can fit a number of different sizes of laptop).

Leather bags should not only be fashionable, but also practical. In your design, always consider the day-to-day items that are stored in a bag, such as a laptop (allow for specific sizes), a water bottle, an umbrella, or a mobile phone.

Communication

Smooth communication is an implicit requirement of all buyers. Always reply to every email within 24 hours. Even if it is just to confirm that you have received the email and will send a more complete reply later. If you have a problem with a production order, immediately notify the customer and try to offer a solution. Another good tip is to create a T&A (time and arrival) of every order and share it with your buyer. This file will help you to manage expectations, monitor the approval progress and is the best guarantee of on-time delivery.

Flexibility

Many factories focus only on getting convenient orders: simple designs, large quantities and long delivery times. However, if you want to start a business relationship with a European buyer, be prepared to accept complicated orders first. Buyers will want to test your factory before giving you large, easy orders. Make sure that a buyer will not continue to place only difficult orders with you and convenient orders elsewhere. Every business starts with solving a buyer’s problem.

Expect a European buyer to require in their first order:

• high material quality and impeccable workmanship;
• order quantities below your normal minimum order quantity (MOQ);
• a price level that is lower than you normally would accept for small quantity orders.

Transparency

Because few manufacturers worldwide can currently comply with buyer requirements regarding traceability of leather, having a transparent supply chain can give you a serious competitive advantage. This means you should map your suppliers as far up the value chain as possible and try to demonstrate that your product is not connected to violation of worker rights, animal cruelty, deforestation or other forms of environmental degradation and unfair labour practices.

Niche requirements

The following requirements appeal to a small minority of buyers in Europe, but they may give you a competitive advantage in the future, as some niche markets eventually evolve into the mainstream.

Organic leather

Although there is no official definition of organic leather, the term suggests that the leather is tanned with organic tanning agents and dyes and made with skins from animals that are organically fed. Check Meindl, for example, a German footwear brand. For its Meindl Identity product line, the company only used leather from organically reared cattle from a specific region in Germany.

Recycled leather

A growing number of European fashion brands, such as French Connection or BEEN London, are using recycled leather. The term recycled leather usually describes a composite material made from shredded cutting waste. Recycled leather can also refer to items made from leather patches cut out of post-consumer leather fashion items and upholstery. Beware that some recycled leathers are vulnerable to water. Check out this video on YouTube for an explanation of the basic steps in recycling leather.

Natural dyes

Some buyers may require leathers dyed using only natural ingredients. Natural dyes are typically used for finishing vegetable tanned leathers. Natural dyestuffs can include plants, such as berries, oils and coffee. Be careful with naturally dyed leathers, since they tend to discolour quickly in sunlight.

Plant-based materials

European buyers are increasingly experimenting with plant-based materials as alternatives to leather, such as paper (Uashmama, for example), pineapple (H&M using Pinatex), cork (Pelcor), and micro-organisms (Le Qara). These leather-like materials are often branded vegan, meaning no animals were used in the process of making the product. Most of these materials still have a very specific look and feel, clearly different from real leather. For more info on bio-based leather alternatives check this video on YouTube.

2. Through what channels can you get leather bags on the European market?

Before you start to approach European buyers, you need to determine exactly what market segment fits your company best and through what channels you want to sell your product. Each segment and channel has very distinct requirements.

How is the end market segmented?

European buyers of leather bags can be classified by price-quality level.

Table 1: Leather bags market segmentation

The luxury consumer

Luxury leather brands require the highest product quality level and sell their product at the highest retail prices. Some of the world’s most renowned and successful luxury brands are from Europe, including Hermès, Louis Vuitton and Chanel. Many of these brands source their materials from designated suppliers and manufacture their products in-house or within Europe. This makes it very difficult to supply to these companies.

The fashion-conscious consumer

The upper-middle market is also highly fashionable, with well-known European companies, such as Hugo Boss and Ted Baker. To service these buyers, you must be able to provide many different material qualities, colourways, embossings, finishings and high-quality packaging. You also need to be flexible, as buyers will require small order quantities and fast delivery. Innovation in product design and material is a must.

The practical consumer

Middle-market buyers require good products for competitive prices. This market features companies such as Sandqvist, Esprit and Marc O’Polo. Volumes are higher than in the upper-middle and luxury markets, because profit margins are smaller. You will face fierce competition in this market from manufacturers in other countries, so you need to focus on product development, in addition to quality and price. This market is under pressure.

The lower-middle market is less focused on quality and unique designs but more price aggressive. A well-known European brand in this segment is Pieces, for example. Even more than in the middle market, you must be able to supply high volumes, because profit margins are low. Product development is still appreciated, but less so than in higher market segments. This market is under pressure.

The price-conscious consumer

Large retailers such as Camaieu or Aldi operate in the budget market, where profit margins are very small and volumes are large: more than 10,000 unites per order. Although you can use relatively cheap materials, your product still needs to look good. Visible material defects and uneven stitching will lead to rejections. Making a profit in this market requires a high level of mechanisation, including punching machines and computer-controlled sewing machines that reduce production time and wastage. This market is growing.

Through what channels does the product end up on the end market?

The most marked difference among your potential buyers is their place up the value chain, because that will determine how they do business with you. Within each part of the value chain, you will find buyers of different market size, with different requirements regarding certification, quality, MOQ and price.

Each type of buyer requires a specific approach. Always try to find out in what part of the value chain your buyer is operating, what challenges they face in the market and how you can contribute to their sales strategies.

• If you want to target European end consumers directly, try selling via platforms such as Alibaba, Wish and Amazon. Most online consumers can be found in countries in Europe’s northwest. You will need to invest in a web shop, stock and order management, and customer service. Your biggest challenge will be return policies and lack of brand awareness, making it difficult to find buyers outside the budget market.
• The growing second-hand market in Europe is serviced by online platforms such as vestiairecollective.com, vinted.com, depop.com or national websites such as marktplaats.nl (the Netherlands).
• Multi-brand online shops are another channel, including Zalando, Asos, Klingel and Yoox, together with specialised online shops, such as La Boutique Maroquinerie (France), My Bag Factory (Germany) and Travelbags (the Netherlands). In addition to selling other brands, these companies often develop their own private collections of mostly value brands.
• If you want to sell to European fashion retailers, you can target large retail chains, such as Zara, H&M and Camaieu. Specialised leather fashion accessory retail chains are smaller but still interesting, including Paul Marius (France and Belgium), Gusti (Germany) and Duifhuizen (the Netherlands).
• Europe is home to many leather bag brands, from luxury brands, such as Mont Blanc and Bally, to mid-market companies like Picard, Liebeskind and Royal Republiq, to more price-aggressive brands, like Pieces. Brands sell to retailers, but also directly to consumers via their own online stores.
• Intermediaries such agents, traders, importers and private label companies, sell your product on to buyers up the value chain. They are price focused and require flexibility in quantities and qualities. Some are located near or in the production countries and primarily do sourcing and logistics, such as Li & Fung. Others, such as Broadway and MTR Fashion Flair work from Europe and also do market research, design and stock keeping. Their service level determines the commission rate they charge.

Figure 4: Leather bags market value chain

What is the most interesting channel for you?

If you are a small to medium-sized manufacturer in a developing country, traders are likely the most interesting type of buyers for you, followed by brands and multi-brand online platforms. End consumers are a difficult target group because of complicated customer service demands. European retailers buy mostly from brands and traders, but large fashion retail chains, and small leather bag chains and boutiques are struggling in a declining market.

Intermediaries

Agents, traders, importers and private label companies are usually the first to explore new sourcing destinations. Be aware that they are very price focused. Intermediaries act as a middleman between you and companies further up the value chain, which means they need to keep their prices close to your factory price. This leaves less room for negotiation for you as a manufacturer. Furthermore, traders require flexibility from manufacturers regarding quantities and qualities.

Intermediaries can be found both in Europe and in production countries. Check, for example, True Trident Leather in India, and Guangxin Leather in China. You can find intermediaries via their websites online or via platforms, such as Alibaba.

Among traders, fair-trade traders such as FairForward and Goldbach deserve special mention. In contrast to the typical price-focused traders described above, these traders buy artisanal items, including leather bags made according to FairTrade principles. Many of these traders are based in Culemborg, the Netherlands, from where fair-trade wholesale centre FairPlaza supplies to retailers throughout Europe.

Small (niche) brands and retailers

Many European fashion brands and retailers are trying to cut out intermediaries and source directly from manufacturers. Hence, these companies can be an interesting category of buyers, but beware: supplying major European brands and retailers as an SME may not be realistic due to the high requirements and high volumes. Unless you have the right certification and can produce volume orders, small (niche) brands and retailers are more likely business partners.

Europe also has many start-up brands and retailers (especially on-line) that search for small factories to support them with business development. The main risk with smaller companies and/or start-ups is that their business is risky and can be terminated in case of a bad season or performance. It is therefore important that you always study the risk vs. The benefit of doing business with small start-up buyers.

Brands can be found on buying platforms, such as Foursource, or leather goods trade fairs, such as ILM and ACLE.

Online multi-brand retailers

Also promising are multi-brand online stores that produce private collections, because this market is growing. This is a budget market with low profit margins, but potentially big volumes, mostly spread over many small orders. Check for instance ‘8’ by Yoox, Zalando’s private label brand ‘YOURTURN’, or ‘ASOS DESIGN’ by Asos.

3. What competition do you face on the European leather bags market?

As a leather bags producer, you are competing with thousands of suppliers from within and outside of Europe. However, European buyers are usually interested in hearing about new suppliers, so try to learn from the companies you are competing with and the conditions in the countries where they are based.

Which countries are you competing with?

Table 2: Competing countries

Which companies are you competing with?

Crescent Tanners from India is a vertically integrated manufacturer of high-quality leather and leather accessories, including bags, belts, shoes, gloves and wallets. The company presents itself as an innovative company with a long heritage in leather making, exporting high-quality products to the US and Europe. It features its ISO 9001 certification for quality management prominently on its website.

Gionar from China is a leather bag manufacturer and trader, selling to brands and retailers in both the US and Europe. It presents itself as a modern, innovative manufacturing company with accurate knowledge of trends in its target markets. This is reflected on its company website, which features a ‘new arrivals’, a blog section and a page dedicated to the topic ‘Why choose us’.

HUB Leather from Pakistan is a manufacturer and retailer of high-quality, well-made and competitively priced leather bags including bags, belts, wallets and keyholders. The company supplies European buyers, such as Debenhams, Shop Direct and several Dutch companies under the Dutch Agreement on Garment and Textiles. Being part of the MIMA Group, HUB Leather is vertically integrated.

Which products are you competing with?

As mentioned above in niche requirements, non-leather materials are increasingly replacing real animal leather in accessories. Artificial leathers, also called synthetic or faux leathers, were originally made of polyurethane (PU) or polyvinyl chloride (PVC). These materials are cheaper than real animal leather, but far less durable, and therefore common in the budget market. They eventually penetrated the middle market as their appearance and quality improved, but have been losing ground to real leather more recently.

Another competing material to real leather bags is textile, both artificial and plant-based ones, such as cotton and canvas. Furthermore, in the wake of rising demand for vegan food in Europe, bags made without materials from animal origin is a small but fast-growing niche. Increasingly, vegan niche brands advertise such collections as ‘animal cruelty free’. See for instance the PETA Fashion Awards 2020. If you use plant-based or synthetic alternatives to materials such as leather and wool, you can apply for the PETA approved vegan certification. PETA’s website offers a database with more than 1,000 PETA-approved vegan brands.

Many companies use creativity in their designs to lower the cost price of a product. If the composition of a style is not obligatory, factories may combine cheaper synthetic materials with real leather. These materials have the same look and feel, but are much cheaper and therefore substantially reduce the price.

If you are still using chrome-tanned leathers for your leather bags, expect competition from manufacturers that are using chrome-free leathers vegetable tanned or wet white in their products. More than 85% of all leathers worldwide are estimated as still chrome tanned, but the demand for chrome-free is rising.

4. What are the prices for leather bags on the European market?

The price of your product, in fashion jargon often indicated as the FOB price (for free on board), is influenced by many factors, including the cost of materials, the efficiency of your employees, your overhead and profit margin.

The following chart shows the average cost breakdown of a typical FOB price:

Note that these percentages may vary per factory and per order. Some factories accept lower profit margins during offseason periods, or when order volumes are high. In addition, the percentages for labour versus fabrics may differ, depending on the efficiency and wage level of the workforce and the price of the materials. Efficiency goes up and material prices go down when producing large volume orders.

Retail pricing

The retail price of a leather bag is on average four to eight times the FOB price, which is called retail markup. It follows that the FOB price is on average 12,5%–25% of the retail price of the product. Exceptions do exist. In the budget market, some large European retail chains may sell products for a markup of just twice the FOB price. Retailers mark the FOB price up four to eight times because they need to account for import duties, transport, rent, marketing, overhead, stock keeping, markdowns, VAT (15%–27% in EU countries), among other costs.

According to Eurostat’s 2020 comparison of retail prices for apparel, France has the highest price level of the top six European importers of apparel and footwear at 107.6 points compared to the European average of 100, followed by the Netherlands (106.1), Italy (101), Germany (98.2), and Spain (92.2). The UK, which is now out of the EU, had a score of 90.7 in 2019. Note that brands and retailers that sell in multiple European countries usually keep prices equal or deviate only slightly from the standard retail price.

Online commerce and a strong budget segment have made consumers in Europe accustomed to low prices. However, an increased focus on sustainability and rising costs for materials and production (due to the global COVID-19 pandemic and political instability) as well as shipping have put manufacturers, suppliers and buyers under enormous price pressure. In the first quarter of 2022, this resulted in sharply rising European retail prices for many consumer goods. Check Eurostat for actual information on retail price inflation in the EU.

This study was carried out on behalf of CBI by Frans Tilstra and Giovanni Beatrice for FT Journalistiek.

Please review our market information disclaimer.