SIC 3171
WOMEN'S HANDBAGS AND PURSES



This classification includes establishments primarily engaged in manufacturing women's handbags and purses of leather or other materials, except precious metals. Establishments primarily engaged in manufacturing precious metal handbags and purses are classified in SIC 3911: Jewelry, Precious Metal.

NAICS Code(s)

316992 (Women's Handbag and Purse Manufacturing)

Industry Snapshot

The women's handbag and purse industry produces all women's handbags and purses of leather and other materials, except precious metals. Approximately 64 percent of the domestic handbags shipped in the United States in the late 1990s were made of leather. Handbag shipments declined from $287 million in 1997 to $246 million in 2000. Total industry employment plunged from the 1997 figure of 3,492 workers to just 2,302 in 2000.

Background and Development

Historically, women have made most of their handbag purchases at boutique specialty stores and department stores. Consumers in the purse and handbag industry most often made handbag purchases on the basis of designer recognition and style. During the 1980s, consumers took great interest in their appearance and became slightly extravagant. Sales of high-priced and mid-range brands, such as Coach and Dooney & Bourke, proliferated. Personal consumption of handbags and other apparel accessories nearly doubled in the 1980s, with an average annual growth rate of 7.3 percent. Then, hurt by the recession, weak growth in disposable income, and high unemployment, consumers became much more cost-conscious.

Along with these economic changes came changes in consumer psychology. Designer names, high-priced accessories, and frequent shopping sprees were not as popular as they once were. Consumers became more value conscious and began purchasing less expensive products at lower-end retail establishments and mass merchandisers. A writer for Footwear News indicated that leather buying habits started shifting to form, function, and comfort, away from designer names.

Despite the recessionary economy, however, Coach and Dooney & Bourke products, which ranged from just above $100 to more than $400 in 1996, remained consistently strong performers. But other high-priced segments of the handbag business have not fared as well. High-priced lines like Liz Claiborne stumbled badly at the retail counters. Many experts attribute the success of Coach and Dooney & Bourke to the lines' classic/casual styling versus Liz Claiborne's dressier appearance.

Shoppers changed their handbag buying habits throughout the early 1990s. Consumer purchasing shifted toward the most basic, functional accessories. Rather than purchasing a handbag to match each outfit—the pattern during the first three-quarters of the twentieth century—shoppers began purchasing a single handbag versatile enough to match many outfits. This pattern reflected a more value-oriented consumer, as well as an aging population seeking comfort and casualness. In the past several years, many mass merchandisers have added more recognizable national brand names to their in-store inventory. In the past, most brand names were distributed only through department stores.

In 1992 specialty and department store retailers were optimistic about the growth of the handbag category, according to Stores Magazine. At the time, retailers were predicting increases in handbag sales ranging from a low of 8 percent to a high of 20 percent. Through 1996, however, sales were continuing to drop by an average of 4 percent a year. The key for sales success was to have the right assortment of handbags, from the moderate-priced to the higher-priced brands. By 1992, the moderate-priced handbag business doubled its 1990 sales level. Brand names such as Perry Ellis America, Capezio, and Esprit led the pack in producing fashionable handbags at moderate prices and giving retailers new inventory options.

Current Conditions

Shoppers began spending again in the late 1990s as the economy recovered and financial security returned. In turn, the department store shares of sales began creeping up again, and shoppers who were seeking more basic handbags and lower-priced goods in strip malls and outlet stores were going back to the department stores. Discount stores still held the largest share of business, but they had loosened their grip on retailing somewhat as the economy recovered and consumers were willing to shop at the specialty and department stores. For mass retail stores such as K-mart and Wal-Mart, brand name recognition was still important, and such brands as Chic and Gitano were particularly successful. Abe Chehebar, president of Gitano handbags, told Discount Merchandiser that functional, organizer-style bags have been solid performers for his company. As a result, shoulder bags and totes continue to be strong performers. Chehebar also considers designer signatures on handbags to be important features because they elevate the accessories as status items.

The biggest challenge at the end of the 1990s continued to be increased competition from overseas markets. Shipments were estimated to have declined almost 14 percent from 1997 to 1998, and another 11 percent from 1998 to 1999. These figures were expected to decline another 11 percent in the early 2000s. The weakening U.S. economy in the early 2000s presented yet another challenge to the industry as shoppers once again became price conscious.

Experts attribute the growing appeal of outlet stores to the value-conscious shopper. Outlet stores' primary draw is price. The merchandise is often top quality and comes from current inventory, although many manufacturers use their own outlet stores to move surplus and low-quality merchandise. Manufacturers prefer this form of distribution to off-price retailers because they avoid tarnishing their brand names, which can occur when too much merchandise is sold through discounters. In addition, outlet stores tend to be located away from the selling areas of conventional department and specialty stores. This decreases the chance that the manufacturer's regular retail customers will lose sales to the outlet stores.

Storage of inventory is one of the highest expenses a retailer faces. To reduce this expense, retailers increasingly demanded that manufacturers carry inventory instead and make deliveries when retailers' stock was low. For this type of relationship to work, especially when dealing with the large quantities of merchandise required by stores such as Wal-Mart or K-mart, retailers and vendors found it necessary to form partnerships. Quick response is the most important aspect of this relationship; orders must be replenished automatically via computer links called electronic data interchange (EDI).

Industry Leaders

Throughout the late 1980s, the 10 largest publicly traded apparel and accessory companies saw their market share increase by nearly 5 percent. Part of this growth can be attributed to increased demand for these companies' products. But the remaining growth was a result of acquisitions and consolidations. As large department store retailers merged in the late 1980s, they consolidated their buying functions. Larger manufacturers benefited from this because it became more efficient for a fewer number of buyers to use one vendor rather than several. In response, growth-oriented handbag and purse manufacturers increased their acquisition activity in search of new brands and broader product offerings.

In addition, the enormous growth of large mass merchandisers was driving the industry to consolidate in the mid-1990s. From 1981 through 1991, Sears—the nation's largest retailer—saw its sales increase rapidly, as did Wal-Mart and K-mart. Historically, many brand-name manufacturers sold their goods only to department stores, but they soon began selling nearly identical merchandise to mass merchandisers and catalogues in order to participate in the phenomenal growth experienced by those sales channels. Not surprisingly, this affected the manufacturers' relationships with the department stores, who seek exclusivity in their products. To remedy the situation, many manufacturers began to produce several different categories of brand names, each of which was distributed through a different type of retailer. Each retailer had brand exclusivity within its own category.

As of 1999, the industry leaders were Pyramid Handbags Inc., Jaclyn Inc., AD Sutton and Sons, Koret Inc., JLN Inc., Ima Fashions Inc., Coach Leatherware Company Inc., Chaus Accessories, LANA MARKS Boutique, Nine West Accessories Inc., Ponte Vecchio International, and Michael Stevens Limited.

In the leather industry, 20 percent of the total work force is employed in the handbags and purses industry. However, employment was expected to continue its decline through the year 2006 due to increased competition from overseas markets and their cheaper goods and lower wages.

America and the World

Because labor costs represent such a high proportion of total production costs, handbags and other personal leather goods industries encountered significant import competition in the 1980s and early 1990s. This competition came primarily from developing nations where wage rates are far below those in the United States. China, for example, has rapidly become the dominant supplier to the United States of all these products. Some of the world's leading brands of these goods are now produced in developing countries—a trend that is expected to continue because of the drastic differences in labor costs. Furthermore, because international demand for handbags and other leather goods rose in the early 1990s, many more developing countries with appropriate supplies of leather and suitable production skills could possibly enter the trade. Most of these developing nations enter the trade by producing travel goods or small leather articles, which tend to stay in fashion longer than women's handbags. This way, the producers have opportunities to establish steady export businesses before turning to the production of the seasonal women's handbags.

U.S. exports of handbags, luggage, and personal leather goods were $46.5 million in 1997. Mexico, Japan, and Canada were the leading exporters. Mexico was the largest market by quantity, accounting for 51 percent of all U.S. exports. However, most of these exports were cut parts for handbags that were assembled in Mexico and re-exported to the United States as finished goods. Japan was the leading market for finished U.S. handbags.

The total value of U.S. imports of women's handbags or purses was $1 billion. China and Italy commanded this market in 1997.

Research and Technology

More than many other industries, production of handbags and purses is labor intensive. Therefore, like most companies, large producers of women's handbags are under extreme pressure to limit their number of employees by boosting productivity and efficiency. The industry considers new technology to be the key to increasing growth and profitability and keeping more production jobs in the United States. In recent decades, the increased use of computers has integrated design, manufacturing, management, and marketing functions. Computerized production allows manufacturers to emphasize such nonprice factors as quality and quick delivery to compete with imports.

Many handbag producers have turned to computeraided design (CAD) and computer-aided manufacturing (CAM) systems and software. As a result, these manufacturers can produce tooling from CAD data and link it to auto-stitchers, milling, and turning machines. Computers also enable manufacturers to combine several operations or machines under fewer operators—thereby reducing handling time and number of employees—and improve quality. The industry has also developed computerized robots to handle and transfer operations within and between production modules.

In order to meet the demands of retailers' quick response requirements, more manufacturers are utilizing electronic data interchange (EDI), which allows retailers and manufacturers to instantly communicate. The goal of quick response is to maintain lean inventories and avoid overstocking, while ensuring that retailers have the merchandise customers want to buy. In the EDI system, interlinked computer systems are placed at every point of the manufacturing and sales process. Through use of an electronic scanner and bar code that has been tagged to the merchandise, retailers record at the point of sale which merchandise has been sold. All sales data on the individual products, including details of color and size, are transmitted immediately to the manufacturer. Through this method, the manufacturer keeps track of every store's retail sales trends. This first-hand view of consumer purchasing trends allows manufacturers to produce handbags based directly on customer demand. The information contained in the bar code sets automatic reordering into motion. The industry also refers to this type of inventory replenishment as "flow" or "just-in-time." The manufacturer can quickly restock a retailer's shelves, using no more than a computer for communication. In addition to allowing automatic replenishment, EDI also enhances distribution and shipping. For example, once a shipment is ready to go, the manufacturer creates a labeling document and EDI sends an invoice automatically. In the future, EDI is likely to include electronic funds transfer as well.

Much of this new technology was developed and used in Europe before coming to the United States. Most of it can be readily transferred to Far Eastern producers, depending on the availability of capital. For these manufacturers, however, the labor-saving benefits of this new technology will not be as great as for producers with higher costs of production. Industry experts predict that the net effect of such technology will reduce the costs of U.S. production relative to Far Eastern production, although the latter will continue to maintain a competitive advantage for most categories of handbags.

Handbag producers are also making environmental breakthroughs. In late 1993, a company by the name of Holiday Fair began producing handbags made of EEKO, a mainly water-based combination of natural and synthetic rubbers with the look, feel, and colorability of leather. Holiday Fair's management team hopes this new material will eventually replace leather and leather substitutes. To promote its product, the company is placing heavy emphasis on retail and consumer educational programs that include detailed point-of-purchase literature and a store video. The company also intends to assume responsibility for the safe disposal, recycling, and reuse of all its products by using tags that offer consumers a value coupon toward their next Holiday Fair purchase if they return used handbags to the company. In January 1994, Holiday Fair also began shipping a new line of handbags made of polypropylene EEKO2, a material that emulates cotton, for products ranging from tote bags to belts.

Further Reading

Darnay, Arsen, J., Ed. Manufacturing USA. 5th ed. Farmington Hills, MI: Gale Group, 1996.

Hensell, Lesley. "Tandy Brands Adds Fashion Names." Dallas Business Journal, 24 March 1997.

Hoover's Company Capsules. Hoover's Online. 2000. Available from http://www.hoovers.com .

United States Census Bureau. 1995 Annual Survey of Manufactures. Washington: GPO, 1997.

United States Census Bureau. Economic Census 1997. 2000. Available from http://www.census.gov .

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

U.S. Bureau of Labor Statistics. Employment Statistics. 2000. Available from http://www.bls.gov .

U.S. Bureau of Labor Statistics. 1998-99 Occupational Outlook. 2000. Available from http://stats.bls.gov .

U.S. Industry and Trade Outlook. The McGraw-Hill Companies, 1999.



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