As indicated by typical sales data, the demand for leather craft products of companies in this sector seems to be very weak and continuingly declining in the past several years due to unfavourable retail environment. 

Sector’s Current, Trend, Causes behind trend, and Future

Current and Trend

1. The demand for leather and leather craft products in US market seems to have been weak in the past three years as indicated by the continuingly declining same store sales of those typical companies in this sector.

2. The retail performance in those companies’ own stores seems to be better than in store of wholesale customers of those companies, a fact that may means that demand is still strong enough to be sensitive to promotions.

3. As a response to the soft same store sales/traffic, we have seen accelerating expansion of new stores from some of typical companies. However, those strategies seem to have been hurting profitability of those companies due to the whole unfavourable environment in the industry.

Causes behind the trend

1. Decline in wholesale sales should be attributable directly to less stores visits of their wholesale customers.

2. Improved retail sales in their owned store may be due to the larger flexibility of those stores, in pricing, than their wholesale customers, with ability to control product supplies.

Industry Future

1. We will probably be seeing continuingly weak performance of companies in this industry as traffic continues to go somewhere else other than those mall-based stores.

General Financial Performance of Companies In the Sector

It seems that, based on the typical company data, the demand for leather &leather craft products in North America market in the past three years has been weak and declining as indicated by the declining same store sales.

The decline, while not as bad as we have seen in other retail sector, should be consistent with the whole climate in retail industry of US market. The typical companies in this sector have managed to keep their retail sales by promotions. However, their wholesale sales inevitably decreased due probably to the slowing down traffic in store of their retail customers.

Companies have responded to the slowing down traffic by lowering product costs and expanding into new market areas. The typical companies’ gross margins are up to about average 64% in 2017.  However, the SG&A as percentage of sales (including store occupancy and staffing costs) went up to about 55% due to deleveraging of expenses as a result of expansion. The typical operating margin thus went down to 9% in 2017. Companies’ cash flow thus significantly decreased during the same period.

The typical average stock price/cash flow ratio is about 15.

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