Why Italy’s luxury industry is booming

Record sales and increasingly global presence: that’s how the country rules the high-end market as never before.

Giulia Rhodes

05/07/2016


Gucci, Armani, Dolce & Gabbana, Bottega Veneta… a stroll down Milan’s exclusive Via Monte Napoleone confirms Italy’s pre-eminence in the global luxury fashion stakes.When only the best will do – be it a suit, handbag or sunglasses – the answer is Italian.

 

For Intesa Sanpaolo – the luxury fashion industry’s leading bank – celebrating and supporting the sector’s growth and its huge contribution to Italy’s economy and its international standing are key priorities.

 

The bank was proud to sponsor and participate in the recent London Business School forum, Luxury Value Chains, Local Roots for a Global Future, joining leaders from companies including Prada Group, Emilio Pucci LVMH Group and Luxottica to examine Italy’s high-end success story.

 

“Our fashion industry – clothing, textiles, leather goods and jewellery – employs 500,000 people, comprises 69,000 companies and generates around €83 billion of annual turnover”, says Gregorio De Felice, the bank’s chief economist and a keynote speaker at the event.

 

This Italian “snapshot” is, he continues, an unusually healthy one, with the country accounting for the largest share of Europe’s fashion manufacturing output at 13 per cent.

“Luxury fashion remains central to our economy. While other counties have experienced a negative trade balance, our fashion export has grown almost 20 per cent since the start of the economic crisis”.

The roots of this booming business, says De Felice, are “distinctively Italian”.

Luxury leather goods have done particularly well, with foreign sales up 39 per cent between 2008 and 2015, followed by jewellery at 38 per cent. In 2015, luxury fashion exports hit record levels with a value of almost €55 billion.

 

The sector remains organised in historic, highly-specialised districts – such as leather and footwear from Florence, eyewear from Belluno, garments from Empoli – where tradition, artisanship and established production chains sustain dynamic, competitive industries with meticulous quality control.

 

The Florentine leather district, he notes, comprises a network of some 600 suppliers working with brands such as Ferragamo, Prada and Gucci. It is a system which fosters skills, easy communication, innovation and creativity.

 

Photo: Gregorio De Felice, Chief Economist, Intesa Sanpaolo.


Luxury leather goods have done particularly well, with foreign sales up 39 per cent between 2008 and 2015, followed by jewellery at 38 per cent. In 2015, luxury fashion exports hit record levels with a value of almost €55 billion.

The sector remains organised in historic, highly-specialised districts – such as leather and footwear from Florence, eyewear from Belluno, garments from Empoli – where tradition, artisanship and established production chains sustain dynamic, competitive industries with meticulous quality control.

The Florentine leather district, he notes, comprises a network of some 600 suppliers working with brands such as Ferragamo, Prada and Gucci. It is a system which fosters skills, easy communication, innovation and creativity.

Newer medium-sized companies – with turnover of between €10m and €50m ­– are also seeing strong growth in such places. “Rather surprisingly they have drivers for success which are often out of reach for companies without critical mass – international brands, new product capacity, patents and entrepreneurial dynamism”, says De Felice.

 

Maintaining these specialist districts is crucial to defending Italian dominance of the luxury market, he insists.

“The artisan skills and traditions are incredible. As an Italian the first thing people look at is my shoes. Our luxury products are our ambassadors. Their quality sustains demand around the world”.

Resulting high levels of export have protected the industry from the domestic effects of recession – with the fashion industry back in growth by 2013 – while their worldwide distribution has provided a buffer against economic crises in other countries.

 

“The value of exports to Russia has halved, China is slowing and OPEC countries have been hit by low oil prices. But European exports have been growing and the weaker euro has resulted in particular interest in America”, says De Felice.

 

Intesa Sanpaolo’s Corporate and Investment Banking Division provides around €5 billion of credit to the sector, €1.2 billion of it agreed in 2015 alone.

Marco Perelli-Rocco, head of consumer, retail and luxury industry believes the bank’s commitment is clear:
“The demand for absolute luxury is still growing. The fortunes controlled by the ultra-rich get bigger – sadly along with the gap between rich and poor – and the space for luxury is there”.
Photo: Marco Perelli-Rocco Head of consumer, Retail and luxury industry at Intesa Sanpaolo.


The bank can help brands meet this demand, says Perelli-Rocco. “We have long-standing relationships across all the Italian luxury brands. We have followed companies such as Prada and Ferragamo on their listings and Versace in their mergers and acquisitions activity (when Blackstone came in with a 20 per cent stake), but also through difficult times. Our clients remember this”.

 

Recent years have seen many houses refocus their efforts, closing poorly-performing overseas shops in China or the US to concentrate on the new high-growth areas, such as Indonesia and South Korea. There’s renewed emphasis on quality and the distinctive product characteristics which attract the discerning consumer.

 

In many cases, lower-price diffusion ranges have been discontinued.

“The most elevated brands have moved towards absolute luxury”,
says Perelli-Rocco.

“The buyer pays ever closer attention to exclusivity and the balance between quality and price. He or she will pay more, but the craftsmanship – the intricate leather weave on a Bottega Veneta bag, for example – must reflect that. Our specialist artisan districts – where we live and breathe a trade – favour this”.

 

To help strengthen this unique Italian system Intesa Sanpaolo has developed a large-scale project inviting luxury brands to nominate strategically important suppliers whose size and financial organisation would ordinarily render bank credit inaccessible.

 

“We look at the chain as a whole and as a result can lend more, with better terms and help these businesses grow”, says Perelli-Rocco. In the past two years the bank has underwritten 300 contracts with brand champions and aims to expand that number by at least another 40 per cent.

Defending the country’s luxury heritage is vital, but so is innovation. This means addressing priorities including e-commerce, digital payments and sustainability, and also investing in the skills and creativity of the future.

Funding for education and the sharing of expertise are among the bank’s commitments. “No one can predict where we will find tomorrow’s design genius, but this type of support is really valuable for our clients”, says Perelli-Rocco. “We have a responsibility to the sector and we meet it with pleasure”.

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