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Propping Up the Pipeline in Italy

If the smaller cogs in the country's production wheel are not maintained, the entire system faces a dire fate.

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Pipeline.

This story first appeared in the February 21, 2014 issue of WWD.  Subscribe Today.

The term, usually associated with oil or water transportation, might sound remote when it comes to the luxury designs craved by fashion consumers.

Yet — the suppliers’ pipeline, encompassing the hundreds of factories and small and mid-sized suppliers throughout Italy working with fashion brands, is essential to the survival of the Made in Italy label.

From raw material to finished product, countless hands weave, draw, cut, stitch, dye, wash, iron, fold, check, package, ship and service looks for customers around the world.

RELATED STORY: Made in Italy: Modern Times >>

As the country continues to be weighed down by economic and political instability — the latest being the ascension of the young pro-business Florentine mayor Matteo Renzi to become the next prime minister, representing the third new government in a year — high costs of energy and labor, unemployment and a credit crunch, a complicated, byzantine bureaucracy and a punitive fiscal system, Italy’s pipeline is at risk. International and Italian fashion entrepreneurs realize steps need to be taken to keep this pipeline alive and functioning, to ensure the industry’s survival. 

“We have always leveraged and believed in the production variables, at a time when they were not seen as relevant as the name of the brand or marketing, for example,” said Franco Pené, chairman of Gibò, which produces collections for brands including Jean Paul Gaultier, Roberto Cavalli, Rochas and Michael Kors. “Production has increasingly become an asset brands cannot overlook in a country where people used to believe there were never going to be manufacturing problems. Instead, those that were not positioned in the high-end range have been hurt.”

Last year, Gucci partnered with Banca CR Firenze, part of the Intesa Sanpaolo Group, to offer companies that are part of the Italian luxury firm’s finished leather goods supply chain — a network of more than 600 firms — easier access to credit from banks. The bank and Gucci share information to support suppliers and subsuppliers providing customized benefits and competitive interest rates. Gucci’s supplier evaluations are factored into decisions.

Also, last year, Renzo Rosso, owner of OTB, which controls firms including Staff International and Diesel, presented a new initiative called CASH, which stands for Credito Agevolato [facilitated credit]  Suppliers Help, to support a group of small and mid-sized Italian companies. The entrepreneur signed an agreement with Ifitalia, of BNP Paribas Group, that allows Staff International suppliers easier and speedier access to credit, for a total value of 50 million euros, or $68.7 million at current exchange, at interest rates in line with those provided to OTB.

Staff obtains the line of credit and makes it available to suppliers of the entire pipeline, from those that provide raw materials, fabrics and accessories to those providing production or end products, and factories. The credit is handed out on the basis of a Staff International evaluation system.

“This means that our subcontractors have a high standard of quality. It’s a fantastic project, and our relationship with them becomes tighter,” said Rosso, revealing that he is developing a similar project, “but expanded.”

Rosso said banks often do not support the pipeline’s small companies precisely because they are small.

“Bankers say there is too much paperwork for too little money, it’s too much hassle, and they don’t want to deal with it. For each operation in a bank, they expect more than 20 signatures from you. Who reads them? What are they for?” he lamented. “Micro-credit does not work in Italy, they don’t even take you into consideration if you are small.”

The Veneto-based Staff International produces collections for brands including Maison Martin Margiela, Viktor & Rolf, Dsquared2, Vivienne Westwood, Marc Jacobs and Just Cavalli.

In 2009, Gucci inked a deal with local associations and unions to enhance and promote the pipeline. It was a gesture of patronage, and made sense for economic and social sustainability.

Addressing the latter, Francesco Pesci, ceo of luxury men’s wear brand Brioni, believes help should be directed to those suppliers “that operate abiding by the rules of safety and total transparency. It’s not only about a product — consumers today are very sensitive to ecological and social sustainability.”

While conceding profit is a necessity for any business, Pesci believes the relationship with any supplier must never be one of exploitation.

“We must guarantee continuity and protection,” said the executive, adding that the company has sometimes bought raw materials to help suppliers in dire straits that could not provide cash in advance to secure the fabrics.

“Fashion companies often try to avoid buying fabrics to minimize their risks,” he said.

While the executive lamented the lack of industrial direction provided by Italy’s politicians, he remains optimistic: “Italians don’t need a revolution, just a dose of normalcy and stability, so that entrepreneurs are able to work.”

Establishing continuity with one’s chain of suppliers was hailed by executives including Michele Norsa, ceo of Salvatore Ferragamo. “Our double-digit increases in sales and in production of our core shoes and leather categories over the past three years have benefited our suppliers and allowed them to consolidate their activities, participating  in the success of the brand,” Norsa remarked. “We have relationships that last as long as 40 years, and we are very proud of the solidity of our pipeline, all maintained in Italy.”

Fendi also relies on skilled suppliers that have been working with the Rome-based company for more than 40 years, said ceo Pietro Beccari. As the brand continues to grow, Fendi is “also integrating small ateliers and their know-how for continuity,” such as a maroquinerie (leather specialist) in Porto San Giorgio in the Marche region. Considering himself a custodian of the brand, Beccari said it was “a duty to pass on the company in the best possible way for those who will come next.”

Tod’s chairman and chief executive officer Diego Della Valle has long been vocal about supporting Italy and its web of producers, urging his peers to give back. One of the first entrepreneurs to build a kindergarten within his company, he has donated a school, helped employees with bonuses, and last year revealed the donation of 1 percent of profits to activities in the Marche.

“Ours is a simple logic of solidarity that our group has always brought forward. We believe that for a two-way relationship of respect, individuals that work with us at all levels should work in the best possible way in a dignified location and with all the possible support by the company,” said Della Valle. “We also believe that it is important for companies to help the country in a complicated moment. For this reason we have earmarked a part of our profits to support people that need it more, while respecting the institutions.”

Della Valle is equally outspoken about the absence of political strategies in the country. “It’s a very long story — a book should be written about it — but we could say that for too many years, we have been managed by incompetent people, without the necessary vision to project Italy in a competitive European scenario and especially without ethical and moral values to guide our country. Naturally, there are also exceptions; unfortunately there are few.”

Della Valle concluded by praising any initiatives that support small and mid-sized Made in Italy firms. “We must absolutely keep their skills and relevant characteristics alive.”

The Missoni family and the territory in Sumirago, near Italy’s Varese, are also entwined in a two-way relationship, said Alberto Piantoni, ceo of the brand.

“The land and its values depend on and refer to the Missoni family and their way of life,” said Piantoni. “The Missonis have a unified line of conduct.”

Relying on local suppliers, the family has often financially supported a number of firms facing difficulties, and sped up payments. “They are our strength and without them we would face a tremendous loss,” reasoned the executive.

Ethical issues were top of mind for Umberto Angeloni, ceo of Caruso. “The first thing that big companies and brands should do to guarantee the survival of small suppliers is to ensure an adequate profit margin and the certainty of continuous work,” he said.

Angeloni denounced the “malpractice” of pressuring for lower prices, sometimes so much so that these don’t even cover direct costs, and of putting suppliers in competition with one another “by keeping them in a precarious situation,” which has determined “the failure of many small artisanal and family companies.”

Larger companies are vertically integrating so that the pipeline survives, but with “few independent operators, who instead represent the more vivacious part of it.”

The executive complained about how “the Italian economy is not favorable to the survival of small and mid-sized companies.” He believes it is “impossible” for entrepreneurs to tackle and overcome the country’s many obstacles and shortcomings.

“The companies that differentiate themselves for quality, innovation and efficiency and that can compete in the global market would deserve to be defended,” he said. Instead, to   channel public money toward companies “that are inefficient and obsolete represents a menace to the healthy ones.”

Italian politicians, he concluded, “have an enormous historical responsibility for this situation, but the entrepreneurs could not foresee this deterioration, nor know how to react accordingly. It’s useless to hope that politicians will be able to heal so many shortcomings because the need to make money overcomes any other goal, and the bureaucratic machine is clogged with too many inadequate people for our times and the global economy.”

That said, several foreign companies are not discouraged by the challenges of Italy’s economy and issues, from powerful groups such as LVMH Moët Hennessy Louis Vuitton and Kering to storied German ceramics firm Meissen. The porcelain company’s ceo, Christian Kurtzke, praised the expertise of Italian manufacturers, noting that, in Germany,  small and mid-sized companies “are very isolated, and rarely collaborate with each other. It’s difficult to establish a cooperation.”

On the other hand, he said, in Italy, “there is a network approach and smaller companies collaborate, each with their unique set of competencies.” Meissen is developing couture, jewelry and furniture collections produced in Italy and has based its headquarters for these divisions in Milan. “We are investing in this country because we are looking at it long-term, regardless of its specific problems. We look at the essence, its fundamental creativity and lifestyle and nobody can take that away. Italy’s culture of Italy is unique and has a long-term perspective.”

Laudomia Pucci, vice president and image director of Emilio Pucci, controlled by LVMH, conceded that “the pipeline is born here, but it’s tough to maintain it and the family dimension is no longer enough.”

She believes firms “must find new business models in a system that needs encouragement with enlightened entrepreneurs,” and touted the “healthy evolution with acquisitions among European firms, to strengthen their dimension and concentrate knowledge and know-how. Everyone is investing in manufacturing.”

Massimo Ferretti, executive chairman of Aeffe, also doesn’t see “a more global world as a scandal. There are countries that are capable of developing certain crafts, and it is important to be very attentive to culture and education, but creativity cannot have a passport.”

However, Ferretti touted Italy’s suppliers unique skills in mastering the challenge “to manage creativity,” as only certain companies are “capable of realizing the dream of a designer. Fashion is not only a sketch, it’s the fit, the fabrics, how they are treated, it’s an education that can’t be improvised. The interpretation of the project makes the difference.”

Accordingly, Ferretti underscored the need to help suppliers who are facing “great difficulties today,” since their talent is what “makes the difference. We cannot risk losing them.” One way is to pay them promptly, he said. Aeffe, which controls the Alberta Ferretti, Moschino and Pollini brands and produces collections for labels including Emanuel Ungaro and Cédric Charlier, works with about 100 small and mid-sized suppliers from the Veneto, Emilia Romagna and Marche regions.

A flow of orders throughout the year and speedy payments are ways to show “respect for our suppliers and their need for liquidity,” said Luca Bertolini, ceo of Les Copains, noting that suppliers are paid within 30 to 90 days. “It’s an ethical issue. This is a country where average payments are made after 300 days. Italy can’t survive this. There is limited access to credit, and there are companies that  go bust with orders in hand because they have no access to funds that would allow them to finance their development.

“It makes no sense. We are proud to be a company that pays the same way it did 20 years ago, in terms of timing.”

Les Copains is controlled by Mario Bandiera’s BVM, based in Bologna, which also produces collections for Giambattista Valli.

Gianguido Tarabini, sole administrator of Blumarine parent company Blufin, said his company also works with around 100 suppliers in Italy. “We often act as a bank — also with our wholesalers that have been hit by the crisis,” said Tarabini. “Our priority is to continue to guarantee ongoing production and regular payments.”

The executive expressed concerns about the future. “Germany is our main industrial competitor, and if things continue this way, I don’t see a beautiful future for our country.”

Gibò’s Pené conceded that the quality of the chain of suppliers and subcontractors has over the years diminished because older artisans have not been replaced and that a number of companies had to close down, but noted that Italy “remains the country where there is the most excellence for luxury production. This is a winning card, the value today is achieved through the industry and not with services nor with banks. We have a clear and transparent relation with our subcontractors and we have never changed a subcontractor  because someone else cost less. We don’t see them as outside suppliers, but part of our consolidated assets, and as important as our designers. They are part of the family.”

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