Shoe Material Industry Is Making A Whoop: Who Has Eaten Our Profits?

"Indeed, the lack of stamina in the leather industry's profit growth is worth noting."

Who has eaten our profits? The question is not to find an answer, but to understand and sort out the confusion of the industry more objectively, and to ponder deeply about the way to go in the future.

"The first thing I have to go to work every day is to turn on the computer and see the price of these materials.

Now the price of many materials has reached the highest point in history. The cost is so high that it can keep the capital intact, and the profit is dared not think.

Sun Zong, who runs a shoe material enterprise, told the author.

Since last year, with the recovery of the global economy and the rising oil prices, the price of main raw materials has increased, which has affected almost every link of the leather industry chain.

It is estimated that since the end of last year, the cost of a pair of shoes has increased by more than 5% because of the price increase of raw materials.

"The rising price of raw materials will not be directly pmitted to the terminal and will be digested. This is due to the impact of supply and demand on the one hand, and the limited space for product negotiation. On the other hand, because of the supply cycle, there will be price lag."

China Leather Association footwear Office official said.

From the shoe material and surface accessories market, the price of all kinds of shoe sole materials, including Shun Ding and natural rubber, has been rising all the way since last year, and some of them even increased by more than 50%. Because of the rising prices of raw materials, cotton and oil this year, the production cost of textile enterprises has increased, and the price of textile materials has also risen sharply.

In Hebei Baigou original auxiliary material market, I learned that the purchase price of zippers increased by 5% over the same period last year, and the average price of pull rods increased by about 1 yuan. The average price of handle boxes rose by 0.2 yuan per month.

A salesperson who has been selling leather for many years told me that the price of PU rose by 0.5 yuan last month, which is the second time that the price has been raised in the first half of this year.

Tanning enterprises have been hit harder in this round of rising raw materials.

"Now many tanning enterprises are in a state of small profits or zero profits. On the surface, the orders are good, and they are doing very well. But in fact, profits have been reduced to a very low level. It is very difficult". Chen Zhan, Deputy Secretary General of the China Leather Association and director of the leather and leather Specialized Committee, are worried about this.

Take pig skin enterprises as an example. Since last year, due to the rise of pork prices, the rate of pigskin peel and peel has dropped significantly, and the skin of pigskin is tight.

Zhang Zhengshu, deputy general manager of Fubang leather, told the author: "at the beginning of last year,

A raw leather of about 60 yuan, the highest in the second half to 100 yuan, and the trend of price rise does not seem to stop.

The cost increase has greatly squeezed the profit margins of enterprises, and enterprises have reduced production. Even leather tanning enterprises above designated size are no exception.

Compared with last year, the production capacity of leather industry in Sichuan decreased by 20% to 30% this year.

The production of cattle and sheep skin has been more affected, because China's high-quality cattle and sheep can be used as leather materials, and its raw materials are heavily dependent on imports. The price of international raw materials has surged, rising from $20 at the end of 2008 to $80.

Downstream products enterprises have been picking up orders since the global economic recovery, and demand for finished leather is large. However, they are affected by bargaining power, market and other factors, and prices can not rise. Tanning enterprises are sandwiched in the middle.

Two of the main culprit of profit killing: labor costs are rising rapidly.

"We expect labor costs to rise gradually, but it is faster than we can imagine to go up so fast."

Shi Jihong, chairman of the rookie luggage and bags Industrial Co. Ltd., told the author.

In 2010, with the difficulty of recruitment as the starting point, the Foxconn event as the leading line and the minimum wage standards raised by major cities as the starting point, leather enterprises had to bear the huge blow brought by the soaring labor costs.

Using the lyrics of a popular song, "waking up in the morning", is really awakening. Everyone suddenly finds a new era.

"Over the past few years, we have also felt the pressure of labor shortage, but this year's momentum is strongest.

In the past three years, the wages of manufacturing enterprises in the surrounding areas of Shanghai have been slow to increase, and the per capita wage has risen by 100 yuan per year, and this year it has risen by 20% to 30%, basically reaching the average wage of 2000 yuan / month.

Shi Jihong was filled with emotion.

It is understood that in the relatively low labor costs of the western region, such as Chengdu and other places, labor costs also rose from three yuan to 600 yuan to 700 yuan / month to the current 1600 yuan / month.

Affected by this, the total cost of many product enterprises increased by 8% to 20%.

The rise of labor costs will inevitably encroach on the profits of enterprises. However, the entrepreneurs of leather industry are also becoming more mature. Many entrepreneurs say that this wage rise tide is a bit too fierce, but it can be treated objectively. We believe that through the rise in wages, the benefits of employees have been greatly satisfied, and the reasonable labor value has been reflected, which is a good thing for the long-term development of enterprises.

Three of the main culprit of profit killing: double squeeze of environmental protection requirements and technical barriers to trade

The leather industry must do a good job in environmental protection, remove the hat of "heavy pollution" and take a new green leather road that is in line with the circular economy. This has become the consensus of the leather industry, and has been more deeply recognized in the industry along with the action of the environmental protection self-discipline group in tanning industry.

In the past, some entrepreneurs put the cost of environmental protection into the profit margins of enterprises. Now, everyone's knowledge has changed, and realize that environmental costs are the expenses that enterprises must pay in the production process and take the initiative to undertake.

In recent years, to meet the needs of the state

In recent years, leather enterprises have increased their investment in environmental protection in the recent years.

According to the data of China Leather Association's annual survey of eco leather enterprises in 2009, compared with 2008, eco leather enterprises increased their environmental protection investment by 72% over the same period in 2009.

However, from the domestic environment, as reflected by some enterprises, there are still some problems such as the continuity of environmental protection policy, the disjointing of policy implementation, and the fact that environmental standards do not conform to reality. Indeed, the enterprises have done some repetitive construction and carried out many ineffective environmental inputs, resulting in waste, which has hurt the enthusiasm of enterprises in environmental protection investment, and has eaten the profits of enterprises and consumed the competitiveness of enterprises.

From the international environment, technical barriers to trade also raise the cost of export enterprises.

The European Union's REACH regulations have been launched, and European and American countries have constantly raised the requirement to limit lead content and limit the two methyl fumarate, which has also increased the cost of testing to a large extent.

At present, the main measures for the use of technical barriers to trade in China's leather industry are concentrated on six aspects, namely, certification requirements, technical standard requirements, personal safety requirements, environmental protection requirements, toxic and hazardous substances limit requirements and packaging and material requirements.

Many enterprises say that many customers are demanding very hard now. They not only require the products to be sent to the European Laboratory for testing, but also require that every batch of products be tested. Some enterprises will charge hundreds of thousands of tests a year.

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Four of the main culprit: resource costs soaring

In Ruian, Zhejiang, the author saw that the one or two floor of the factory building of a luggage enterprise continued to start production, and the three or four level was being rebuilt in full swing.

"This is the third time that it has been rebuilt.

No way, the cost of land is too high, and it can only be built or rebuilt on the basis of the original plant. Otherwise, it is very difficult for enterprises to scale up. "Xu Zong, the boss of the enterprise, told the author:" the land auction price of land in Wenzhou has reached over 3 million ~ 5 million, and the housing prices in Ruian and other areas have been affected by the radiation of Wenzhou's land price, which has been rising rapidly in the past two years. This is a great blow to the luggage manufacturing industry which is highly dependent on land resources. "

The above picture is only a microcosm of the rising cost of land resources in China.

With the scarcity of land resources, the pfer of leather and other manufacturing industries to the central and western regions has become a general trend.

Enterprises in Zhejiang, Guangdong and other places have been restricted by the rising cost of land resources in recent years, and the development has entered a bottleneck. Many entrepreneurs say that the rising cost of land resources is indeed burdened by enterprises. Other costs can also be compressed or controlled, and land costs are not digested.

At the same time, the prices of resource products such as water, electricity, gas and so on continue to rise, which further compresses the profit margins of enterprises.

Five of the main culprit: RMB appreciation shocks foreign trade enterprises

"Every day, we are busy running with the exchange rate, how to avoid the risk of RMB exchange rate". Mr. Li, who is engaged in the export of luggage products, told the author: "in July alone, the RMB appreciated by 0.6%. It is expected that the market will rise by 3% to 5% in the second half of the year.

Usually, every order of a foreign trade enterprise has to go through several processes: first, negotiating with foreign customers, confirming that the price, delivery and other articles effectively evade exchange rate risk may occupy corporate profits.

Large scale brand enterprises often use exchange rate locking to avoid exchange rate risk brought by RMB appreciation, but this is a bitter experience for those SMEs with low bargaining power.

It is often difficult to pick up orders, but many customers do not agree to accept the exchange rate lock, and finally can only make money.

In the interview, many leather entrepreneurs also said that since the RMB exchange rate reform, the appreciation of the renminbi is expected to weaken significantly, and the central bank has also made clear that the RMB does not have a substantial appreciation basis, which has given everyone a reassurance. Now the enterprises have been able to face up to the issue of RMB appreciation.

Six of the main culprit of profit cutting: management costs are overlooked.

"The management cost of leather enterprises has been greatly improved in recent years, which is often ignored by everyone." Li Yuzhong, deputy director of the China Leather Association, told the author: "because of the increasingly stringent requirements of the state on corporate social responsibility, salary and welfare, and now many enterprises with more than 40% of the above scale have refined management mode, these will bring about an increase in management costs."

In fact, management cost mainly includes decision cost, control cost and responsibility cost. For many large scale development paths, the order can be handed over to the factory for production and finally delivered to the product.

The cycle of product enterprises may be around 3 months. Many tanning enterprises have a longer cycle, and some even reach half a year.

Since last year, the impact of the depreciation of the euro, the RMB appreciation of the euro more than 15%, so that many European exports to the company suffered heavy losses, since the beginning of this year, the RMB appreciation of the dollar has been strong, once "broken eight", in June 19th, the central bank started RMB exchange rate reform, the RMB exchange rate system, the largest fluctuation day of the exchange rate is 329 basis points, the minimum is 34 basis points, the average volatility is more than 90 basis points, exchange rate fluctuations will also bring more uncertainty to foreign trade enterprises. If the leather enterprises can not, after breaking away from the original family workshop development mode, they will inevitably assume the cost of rising management costs.

Market economy emphasizes meticulous management, management should keep pace with changes in the market, and many decisions need to be based on Market Research and meticulous analysis. Instead of making decisions in the family management mode, these inputs must be included in management.

It is necessary to manage the cost and at the same time, the cost control should not be ignored. Entrepreneurs must weigh and choose between improving the management quality and controlling the cost.