Salvo Testa

The pandemic is still playing out across the world. It is an extraordinary health emergency with no precedent other than the so-called “Spanish” flu that claimed millions of lives more than a hundred years ago. The real novelty is that this is the first major pandemic of the modern era – essentially since the Second World War – to have a huge disruptive impact and consequences also on consumption, economic activities, jobs, wealth and growth of countries. Right now – while we are still in the midst of it and without any certainty as to when and how we will emerge from it – we can only reflect on what has happened so far and on the possible medium and long term effects. And we will do this by examining, in particular, the Italian fashion supply chain and the system of small and medium-sized family businesses, which account for 90% of this reality in our Country.

As for the impact, to date it is quite clear that the consumption of fashion products has been more significantly affected than others, think of food or capital goods. The lockdown has blocked and reduced life outside the home, the crisis of shops and traditional distribution was accentuated by closures, prescriptions and the fear of consumers, the limitation of social and economic activities reduced the need to update one’s wardrobe. Globally, the consumption of fashion and luxury goods for 2020 is expected to fall by about 30-40% compared to 2019. In this scenario, however, it should be noted that online sales (also in other sectors) have grown, much higher than the trends already experienced in recent years. So much so that many fashion and luxury companies have managed to replace all or part of their sales lost from physical channels with sales from online channels. Here we can make an initial consideration: the pandemic has helped to accelerate a process of change that was already underway and that naturally would have taken a few more years, i.e. the crisis of physical distribution, growth of online distribution and integrated management of marketing, communication and omnichannel sales processes. Companies – small, medium or large – that were already implementing or were able to accelerate this transformation of the sales model have been able to better cope with this situation, and in some cases were able to gain positions over their competitors. Digitisation has had a strong impact not only on sales activities (e-commerce) but also on other internal processes, starting with the management of daily work activities of blue collar workers, i.e. office staff and external professionals and collaborators. Remote working and smart working have become indispensable for many companies, even the smallest ones, so that they can continue their activities, at least those not directly affected by the lockdown such as production activities. Therefore, the pandemic has certainly had an impact on small family businesses in the sector, but those that are rapidly implementing the digital transformation process have managed not only to mitigate its negative effects, but also to courageously face the technological, organisational and cultural change that is now irreversible for all players in the fashion supply chain.

As for the medium-long term scenario and the structural changes taking place in the sector, in order to assess the consequences on small family businesses we need to make a clear distinction between two possible company profiles: brands and retailers that offer their product to the final consumer (B2C) and manufacturers, suppliers acting as supply chain partners (B2B).
In the first group, with the exception of specific ‘market niches’, there will be less and less space for small businesses, precisely because of the increasing investments and structural costs needed to cope with the complex marketing, communication and sales processes on international markets, using the most advanced digital skills and technologies. In this case, maximum effectiveness and efficiency will be made possible or at least facilitated by a larger organisation.
In the second group, on the other hand, small Italian companies will still be able to play a decisive role, since the ‘economies of scale’ with respect to specialisation, innovative capacity, speed of response and personal relationships are not as significant as in the first group: in essence, the flexibility and entrepreneurship that has always characterised these businesses and which sees the role of the ‘owner family’ as an element of strength and guarantee for the customer. This does not mean that these companies can avoid facing the challenges of digitalisation and other structural changes also taking place in the fashion industry, such as sustainability, circular economy, social responsibility, which are also profoundly transforming production chains. But in this case, compared to the companies in the first group that are oriented towards the final consumer, the historical skills of knowledge of the product, materials, and processes will continue to be the real critical factor of success, as they are still the true essence of “Made In Italy.”