Where is luxury headed?“The Italian fashion industry did quite well in 2016: it ended the year with a +2% increase, for a turnover […]
“The Italian fashion industry did quite well in 2016: it ended the year with a +2% increase, for a turnover equal to 84 billion euros. Exports were equal to 62 billion euros, while the foreign trade balance arrived at 25 billion, a number that accounts for half of the entire Italian foreign trade balance, in what is an absolute record”. This is how Carlo Capasa, President of the Italian Chamber of Fashion kicked off the 9th Luxury Summit, “Luxury among innovation and new alliances”, organised by Sole-24Ore on 24 May, observing how it is necessary to “maintain and reinforce this record: the Italian fashion system promotes a positive image of all of Italy around the world and is an extraordinary source of economic stimulus”.
Claudio Marenzi, President of Sistema Moda Italia and the newly created Confindustria Moda, also spoke of how exports are key in providing momentum to the fashion and luxury industry: “The worldwide economic crisis, which was triggered off in 2008 by the Lehman Brothers bankruptcy, put the Italian fashion system to the test, but today we can look to the future with cautious optimism. – he declared – First, because today with Carlo Capasa and the Ministry of Economic Development Carlo Calenda, we have started up joint projects that are short, mid, and long-term. Second, because Made in Italy continues to be appreciated in the markets with the most important growth trends, like China and South Asia, or in Russia, where we are recovering shares previously lost in the past… we cannot forget however about two problems: the slowdown experienced by exports to the USA, as a result of this country’s increasingly strong retail crisis, and the growing number of Chinese tourists to Russia, which is mainly penalizing Italy and France”.
The Luxury Summit identified the other challenges that luxury companies are currently facing today: internationalization and the need to find capital for its funding, digitalization, and sustainability.
Luxury is increasingly confirming itself to be a capital intensive industry, which today requires investments not inferior to 1 billion euro in order to make a company truly international. This is why foreign capital can be of help to Italian companies: “The problem of Italian luxury businesses lies in their size – explains Claudio Marenzi – Capital from France, China, and the United Arab Emirates is being invested in Italian luxury companies, and this is not necessarily a bad thing, as long as the brands remain tied to Made in Italy and maintain their production and workers in Italy. Everything becomes more complicated when facilities and interests are moved outside of the country”.
Maurizio Castello, partner of KPGM Advisory, presented a picture of acquisitions and mergers taking place in the Italian luxury sector over the last three years, with an increasing number of deals finalized, and extremely active foreign investors. At the same time, the accessories industry has seen a drop in these activities equal to 20-30%. Among the sectors, fashion with its EBTIDA multiple dominates over all the other categories, while retail is experiencing the greatest downtrend. Nevertheless, high multiples are no longer sustainable: today, private equity investors focus on smaller brands with a high potential for growth and greater possibilities for international expansion, like Italian brands “that generate around 20-50% of their profits abroad”.
Digitalization is the other challenge being faced by luxury: in a retail logic that is increasingly dominated by a multichannel mentality, strategies that know how to integrate the physical store with the virtual one are the winners, but it is also important to know how to reply to the growing demand for customization by customers (not only of the product itself, but also of the service). “In this context – explains Davide Consiglio, principal of Boston Consulting Group – not only is an approach that is increasingly focused on the customer needed, but it is also important to effectively diversify this approach for a more streamlined and effective communication”. Fortunately, today’s digital technology is of great help: “The calculation power we have available today allows us a possibility of predicting consumer behaviour, which is close to divination. Only that it is real and reliable”.
Real and virtual have already come together in luxury retail: Pascal Houllon, CEO of Cegid provided various examples of how this is happening at the summit. “The store is increasingly becoming a retail APP, where a ‘physical’ customer would like to experience the merging of reality with virtual”.
Moreover, technology offers luxury many advantages: from the possibility of personalizing a service to that of redefining the role of a store. From digital branding meant to engage the customer to the possibility of monitoring customer behaviour and gathering data that can subsequently be used to develop a personalised sales experience… two other aspects have important potential: first and foremost, the development of mobile devices as a means for making purchases, and the other is the commercial potential of the social network.
The last issue discussed at the summit was sustainability: a study by The Boston Consulting Group estimates that from today to 2030, sustainability could generate an additional 160 million euros in revenue for the fashion industry and, obviously, luxury cannot stand by on the sidelines and watch.
The case history of Save the Duck presented at the summit is a perfect example of this: it demonstrated how improving business performances, in order to satisfy the increasingly strict criteria of customers and international markets, leads to a concrete result also in terms of turnover.