Your Salad Lunches Are Killing American Leather

May 28, 2015 10:10 AM
Your Salad Lunches Are Killing American Leather

Underneath a cluster of fluorescent lights, Lisa Howlett inspects a 50-pound piece of skin that had, until recently, covered the back, belly, and shoulders of a cow. Dull blue, faintly moist, and so large that its sides drape over the edges of a huge table, the hide is destined to be dyed and cut into shoelaces by workers at Howlett’s company, Auburn Leather, in Auburn, Ky.

Auburn’s corporate roots stretch to 1863, but it’s only in the past decade that the little-known, fifth-generation company has become the uncontested global leader in the leather shoelace industry. Howlett sold 50 million laces in 2013. For a sense of the scale of her operation, look at your feet, or those of the strangers on your next commute: If they’re shod in Ugg, Sperry Top-Sider, L.L.Bean, or Timberland, the leather laces probably came from Howlett’s factory.

There used to be more leather lacemakers in America, until the exodus of manufacturing to China in the 1990s. Howlett alone survived the purge, renegotiating deals with customers and buying out a last competitor in 2009. For a while, it was good to be the shoelace queen. Now she’s facing another, potentially graver crisis, and her 152-year-old company’s in jeopardy again. But Howlett, who’s not going without a fight, has a plan.

In the receiving area of her tannery in the nearby town of Franklin, Howlett chats with a cluster of workers as a forklift buzzes around unloading shrinkwrapped pallets of yet more “wet blues.” Tall and blonde with a short-cropped haircut, Howlett, 57, dresses in a sort of country-business casual, with a collared shirt and jeans. She picks up the shoulder flaps of the hide on the table.

“We cut these off and sell them for $12 wholesale,” she says. “Two years ago the hides cost me $50, and that didn’t seem so bad. But now they’re $112,” Howlett sighs. “Twelve bucks starts to feel like a pretty raunchy deal.” As a middleman between cattle ranchers and shoe sellers, Howlett has limited ability to pass along her rising costs. Auburn’s sales have begun to decline, to $19 million in 2014 from $20 million the year before, and net profit has been cut in half.

Leather has always been a byproduct of the meat industry, and as Americans’ beef consumption grew over the 20th century, the leather industry grew with it. The past three decades, though, have seen a decline of about 28 percent in Americans’ appetite for beef, and the supply of hides has dwindled accordingly. At the same time, drought in the Midwest has pushed up feed prices. The result is that America has fewer and more expensive cows. Meanwhile, the world’s consumers still want leather goods.

In most situations, reduced supply and consistent demand would simply point to higher prices. The leather industry doesn’t work that way, at least not in the short term. “When hides shoot up, it’s the tanners who take the hit,” says Stephen Sothmann, president of the U.S. Hide, Skin and Leather Association. “They’re locked into six-month contracts with their buyers.”

Even if they weren’t, a producer like Howlett can’t double her prices and expect customers to keep buying. Not all leather is considered equal: A banker buying a pair of Gucci loafers might not blink at a $200 price increase, but customers at companies Howlett supplies—L.L.Bean, for instance—are sensitive to price. “Tanners at the lower end who get caught up in the commodity cycle are finding it very, very tough,” says Michael Redwood, a professor at the University of Northampton and the director of the Clayton Street Tannery in Chesterfield, U.K. “It’s most obvious in the shoe trade, where leather is [easily] replaced by synthetics.”

Changes in diet and climate, along with the rise of a global consumer class, are forcing Howlett to rethink her business. “The things we took for granted,” she says, “we can’t take for granted anymore.” 

A typical steer weighs from 1,300 to 1,400 pounds. Its carcass yields about 850 pounds of meat, which sells wholesale for an average of $2,300, according to the U.S Department of Agriculture. The hide sells for about $100, making it a mere 4.3 percent of the value of the animal. (Dairy cattle hides cost a little less, but the meat-to-hide ratio is the same.) Leather in all its forms—the aspirational $10,000 Hermès bag, the $6,000 upgrade package in a Mercedes, the $120 New Balance sneaker—is the wrapper around what will become someone else’s Big Mac.

For thousands of years, this byproduct was vegetable- tanned: The skins would soak in natural tannins for several weeks until they pickled to the texture of what we think of as leather. There’s an equally long history of people using tanned leather for apparel, but until the Industrial Revolution, the material was used sparingly. As a rule, the only people clothed in hide were people surrounded by cattle. American Indians had a surfeit of bison and wore leather apparel for centuries. In Western society, leather didn’t go mainstream until after World War I, and it was only in the 1950s that “leather became much more available,” says Michelle Finamore, a curator of fashion arts at the Museum of Fine Arts in Boston.

This was the result of America’s embrace of factory farming. By the mid-1970s, there were 140 million head of cattle in the U.S.—more than one cow for every woman in the country. Cattle totals began to decrease in the 1980s, as ranchers got better at making their cows fatter faster, and Americans started reevaluating red meat. In 1985 there were almost 110 million head of cattle, according to the USDA, and the average American ate 79 pounds of beef a year. By 2009 the cattle population had dropped 32 percent, and Americans consumed just 61 pounds of beef each. Every time you opt for a salad over a burger, the law of supply and demand works against Lisa Howlett.

Her great-great-grandfather founded the company. A Civil War veteran, George Washington Caldwell made his way to Auburn in 1863, began as a foreman at the local tannery, and eventually bought his bosses out. Howlett’s grandfather, W.C. Howlett, helped the company transition from making leather straps for buggies and carriages to crafting more specialized equestrian gear. In the 1950s, Howlett’s father, Joe Richard Howlett, repositioned the company again, turning to leather shoelaces just as boat shoes became a major U.S. fashion trend.

In 1969, Joe sold the company, bought it back with a partner, and lost it again. In 1985, at the age of 28, Lisa bought the leather-cutting facilities back herself, paying $40,000 for the original warehouse.

In 1986, Auburn Leather’s first official year back in business, the company had 12 employees and grossed $900,000. Howlett’s big break happened early. “Our first client was a little American company called”—she pauses for effect—“Nike.” Today, Howlett employs 115 workers in two locations and subcontracts about a third of her cutting business to a factory in China. The facilities are large enough that she isn’t involved in their day-to-day operations. Instead, she has the typical duties of a top executive, focused on strategy and long- term growth.

Howlett speaks with a Kentucky twang, where “can” sounds like “kin,” and is so close to her workers that she takes cigarette breaks with them outside her office. She drives a late-model Subaru Outback that’s adorned with “COEXIST,” “Member of the religious left,” and Human Rights Campaign bumper stickers. She bristles at the suggestion that tanneries are bad for the environment. Her facilities include a filtering system connected to the town’s wastewater treatment plant, and most of the tannery’s byproduct is recycled. “Contrary to popular opinion, those who make leather don’t want to be the bad guy,” Howlett says. “My vegan friends say, ‘Oh no, your leather shoes are from an animal,’ and I say, ‘Well, do you know where it would be if it wasn’t on my feet? In a landfill.’?”

Every hide Howlett buys comes from a dairy cow. “A dairy cow’s been walking around, being milked, for six to eight years,” she says. “The hide is tougher and thinner, which is what you need for a strong piece of leather.” (A steer, in contrast, is usually killed after about 18 months and has spent much of its life stationary, which gives it a thick skin. The top of a steer hide is often used for automotive leather, while the bottom, which is textured because of its connection to muscle, is turned into suede.)

After a cow is killed, the skin is pulled off the corpse and sent to a tannery, where it’s placed in a solution that opens the pores to remove the hair follicles. It’s then soaked in a chromium-based solution, which, along with turning the hide blue, is what constitutes the first phase of the tanning process. Howlett contracts this part out for about $19 a hide.

By the time the hide makes it to the receiving area in Franklin, the gruesome part is over. If you look hard enough, you can see lines of blood vessels and fat wrinkles, but there’s no gore. The facility smells of chemicals, not flesh, and even when Howlett’s workers are shaving the hide on a splitter, the scraps look more like wood shavings than chunks of skin.

Once planed, dyed, and dried, the hide is trucked to Auburn, where 80 people—48 women and 32 men, roughly 10 percent of the town’s workforce—cut the brightly colored sheaves of hide into laces, package them, and ship them around the globe.

In the 1990s, big New England shoe companies such as G.H. Bass, Sperry, Timberland, and L.L.Bean began offshoring their operations to China. Howlett fought to stay in business. By agreeing to customize laces for her customers and using time- intensive, costly dying techniques, she persuaded them to keep their leather laces American. “Whether we’re making shoes in Maine or China or in the Dominican Republic, we use Auburn laces,” says David Nau, the vice president for men’s design at Sperry. “There are other people making laces, but you get what you pay for, and often those other options don’t pass our standards.”

Some companies actually required Auburn laces by name in their shoe specifications. “When you tie that sucker up, you don’t want it popping,” Howlett says. “They’ve made this $15 shoe that you’re paying $69.95 for, and the whole deal gets killed over 45¢.”

Howlett’s competitors began to falter. She hired a well- connected Chinese salesperson to build relationships with factories on the mainland. Auburn’s laces are always flown out on Thursday night so they reach Hong Kong by Sunday, ensuring that factories have a healthy supply for the coming workweek.

Sales rose steadily through the 2000s, at an average rate of 13 percent. Then the hide crisis hit. The average price of a live beef steer, which tracks the price of a dairy cow, has risen almost 90 percent in the last decade. Steer hides have roller-coastered, from $64 in 2008 to $28 the following year, and reached an all-time high near $120 in 2014.

“Most tanners, especially the big ones, are getting squeezed,” says Sothmann. “There’s an identity crisis,” he says. “I think most of our members are pretty swayed by the idea that [in the future] it’s going to have to be considered a luxury item.”

For super-high-end companies such as Louis Vuitton, that’s fine. Their leather goods are already perceived as luxuries, and their profit margins are probably almost 80 percent of the retail price, says analyst Luca Solca, the managing director of the Exane BNP Paribas luxury goods team. “At the end of the day, raw material price increases would be taken in stride,” he says. “I don’t see that this is such a headache for Gucci or other, similar brands.” Howlett, however, sells to the lower end. And she’s not ready for her 50 million shoelaces to be designated and priced as luxury goods, a move that would obliterate demand.

Howlett’s solution is to produce more leather goods while using less leather for each product, a strategy that might prove instructive for the entire industry. “We’ve worked with our major customers like Sperry Top-Sider and said, ‘OK, our cost is going to be astronomical based on the substance requirements right now,’?” she says. “If we change the requirements by 0.2 millimeters, which won’t diminish the quality or strength of the lace, we can counteract the hide market. And they said yes.”

Howlett has also set her sights on those $12 shoulder flaps. “That’s where you get your added value,” she says. “Polo said, ‘Your prices are pretty high; what can you do?’ So our sales manager went to them and said, ‘You’ve got some accessories. We need the part that’s left over”—the shoulder flaps—“to go into those accessories.” Now Polo Ralph Lauren is selling purses made, at least partially, with excess from Howlett’s hides.

To produce this accessory-ready leather, Howlett made a large capital investment in what’s effectively a spray-on tanner, which she uses to treat leather superficially to make a range of styles. Now, no matter how large or small the piece of hide, the company can color and sell it.

In the short term, doing more with less appears to be paying off. On the day Howlett inspected the wet blue hide in her warehouse, Auburn had multiple orders in the thousands of square feet for leather for accessories; the company has stayed in the black even as the market for boat shoes has softened. She likes to refer to herself as small beans: “Nineteen million dollars in sales doesn’t make a dent in the world’s leather business,” she says. Modest as she might be, Howlett has the same tools, and is subject to the same resources, as the largest producers on the planet, and she’s determined to make things work. “We’re maximizing every square inch,” she says. “I said to someone yesterday, ‘Isn’t it a shame it took me 29 years to figure that out?’?”

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