This past 18 January, Expo Riva Show renewed its rendezvous with analysing the sector’s most relevant themes in an interview with Enrico Cietta – economist and President of the Expo Riva Schuh Scientific Committee as well as the CEO of Diomedea – conducted by Alberto Mattiello – business futurist, author, entrepreneur, and keynote speaker, who is also Head of Innovation for the ERS Scientific Committee.
The starting point was a market study, conducted this past year by the Expo Riva Schuh Scientific Committee (which can be downloaded from the fair’s website), which presented a picture of the fashion industry on a global level that was heavily impacted by the exponential increase in the price of raw materials and transportation. The risk that emerged then was the worst possible scenario for the future, deflation – that is to say a low demand by consumers and progressive increase in costs-, with companies forced to absorb all the cost increases on their own without the possibility of transferring part of these costs to the final price, because of the low purchasing power of consumers. An extremely dark picture, especially when considered in light of a general situation of great financial difficulty for the companies themselves, because of the pandemic, with critical problems of cash flow and late payments from customers. Now that some time has passed, the situation seems to be less serious than what was originally imagined, above all thanks to the fact that the market showed itself to be much more reactive than expected, with a rise in demand that has gone beyond expectations. Negatively impacting the economy over the next 4-5 years will be a general increase in costs and a rise in inflation: after many years when inflation was at 1%, and sometimes even negative, at the end of December, most EU countries, along with the USA, recorded an inflation of around 4-5%.
The threat of inflation
Inflation occurred in the short-term because of the lack of available stock following the outbreak of the pandemic, with retailers who stopped purchasing in order to free themselves from what was already present in their warehouses, without however the ability to promptly react to the recovery in demand. There are also, however, long-term causes that resulted in an increase in the inflation rate. The first is connected to the fact that national governments provided economic support during the pandemic, which increased public debit. The second reason is instead connected to the drive towards a more sustainable production, with governments that supported this change in direction on an economic level, without there being however a simultaneous adaptation of technology and green materials, with a resulting increase in prices.
Forecasts for the next 4-5 years
To understand what we can expect to see in the near future it is necessary to take a step back and analyse the situation in the fashion industry on a global level at the end of 2021. By doing so, it’s possible to see that the USA reacted before countries in the EU did at the outbreak of the pandemic, allowing them to already record an economic recovery during the first half of 2021, which then went on to also include Europe. China, from its end, was the market that suffered the least from the effects of the global crisis, registering a quick economic recovery. In general, classic and elegant footwear recovered with more difficulty when compared to casual and athletic shoes, and it’s no coincidence that 2021 was the year of the sneaker. At the same time, the Chinese luxury market always maintained an extremely positive trend in terms of numbers and purchasing power, thanks to the growing demand for luxury goods by the new Chinese middle class, which is young and extremely digitalized. In Europe and the USA, also the low-cost market grew. Starting from this context, it’s possible to predict that this growth will continue in these directions over the course of 2022, arriving at pre-Covid levels towards the end of 2022, for at least 90% of the market. Footwear will recover more quickly than leather goods, a segment that also includes luggage, which remains heavily penalized by the crisis in the travel and tourism industry.
Towards new business strategies
The return to pre-Covid levels does not mean however having the same strategies on a local and global level. In fact, we are witnessing a radical change in the very concept itself of ‘globalization’. “In the last 20-30 years, we have witnessed a general drive towards globalization, in terms of sourcing, global brands, and investments in key metropolises, with the aim of covering the different markets on an international level” – confirms Cietta. “This idea of a global market has however been irremediably changed in terms of sourcing, retail, and business models. With smart working, people began spending less time in big cities – where they would go to work every day – often remaining at home and bringing small towns to life also in their free time. A phenomenon that convinced large-scale retail to also invest in small towns, so they are closer to consumers during their free time and when shopping. This does not necessarily mean that large-scale retailers must open stores in every small township, but they should think about integrating their offering with new forms of multibrand sales”. “The key word for the coming future – concludes Cietta – accordingly becomes ‘integration’. This state of things also opens the way to the critical question of how large-scale retailers can, in a future that is not so far off, interact and share with small-scale retail, not only their business, but also their available data”.