LONDON — Eager to secure rare know-how — and meet rising consumer demand for responsible, sustainable business practices — Europe’s luxury players are getting a tighter grip on their supply chains.
On Tuesday, Manolo Blahnik took a big step closer to its peers by acquiring a top Italian women’s shoe manufacturer, Calzaturificio Re Marcello Srl, securing familiar artisanal talent and shoemaking know-how for its own purposes.
The British footwear firm had been working with the family-owned facility since 1990, and said the purchase was part of a broader vision.
“In 2016 we initiated a strategy to develop the foundations of Manolo Blahnik, future-proof our supply chain and allow greater freedom for customization and special exclusives,” said Kristina Blahnik, the company’s chief executive officer, adding the Re Marcello transaction was proof of the strategy.
“Additionally, as we take on responsibility for the North American market, we are adopting a more dynamic and reactive business model.”
Manolo Blahnik is the latest luxury brand to acquire production facilities — and on a day when two investment banks urged investors to focus on manufacturing integration and greater supply-chain transparency, or put their elite reputations in peril.
“We see a specific risk in the luxury goods industry sourcing practices that we think investors need to factor into their long-term valuations,” Luca Solca, luxury analyst at AB Bernstein, wrote in a research note. “Many luxury companies only directly manage product development — all the processes that lead from the artistic sketch to a prototype and its technical specifications — while they outsource much of the actual manufacturing to third parties.”
Morgan Stanley stressed that levels of integration vary significantly across the luxury spectrum with Loro Piana at the highest end of the range — 90 percent — followed by Louis Vuitton at 78 percent. Salvatore Ferragamo sits at the bottom end of the spectrum, at 1 percent vertical integration, according to Morgan Stanley’s compilation of company data.
Luxury brands have largely built out their store networks, and “there is instead a lot to be done to make the upstream processes more presentable,” according to Solca, who predicts that capex spend will shift into the supply chain in the next five to 10 years.
He noted that makers of hard luxury goods are ahead in upstream integration.
Trouble spots include subcontractors, which brands can squeeze “more so than their own workers;” and product origin disclosures, as existing regulations make it possible to label a product “made in” even if a “small amount of the value added is indeed created in that country,” Solca wrote. He also flagged “less than ideal” conditions for Chinese workers in Italy.
Morgan Stanley, meanwhile, suggested investors should prod luxury goods companies for information about their supply chains and ask about the frequency of factory visits and independent audits.
The bank summed up points from recent roundtable talks led by equity analyst Edouard Aubin on the high-end sector that centered on environmental, social and governance issues — commonly referenced by the acronym ESG.
While fast fashion has been the focus for supply chain concerns, Morgan Stanley cited articles in the press highlighting the lack of formal employment contracts, employee insurance and poor working conditions in the luxury sector.
In theory, more vertically integrated brands are well positioned to have better visibility over their supply chains, said Morgan Stanley, noting French brands tend to own more of the stages of production than their Italian counterparts that often outsource more.
Indeed, Kristina Blahnik stressed that the company’s latest acquisition “will enable us to take a holistic approach to our supply chain. We take our responsibilities in this area very seriously.”
Founded in 1938 by the Re family, the Re Marcello facility in Vigevano, Italy, not far from Milan, employs 77 craftsmen who will now become part of Blahnik’s company.
As part of the acquisition, the current management team of Bruno Re and Giuse Galazzi will stay on for the foreseeable future, working alongside the Manolo Blahnik management team.
“I have known the Re family for nearly three decades and have been a longstanding admirer of their business,” said Manolo Blahnik, the designer. “I have enjoyed a close working relationship with them and all the skilled artisans in the workshop, as their ability to bring my designs to life turns fantasy into reality. I am enormously excited that this wonderful partnership can flourish and look forward to welcoming the family and employees into our company.”
Re, chairman of Calzaturificio Re Marcello, said: “Ours is a family business, carefully built over many years, using the finest materials, techniques and artisanal skills.”
He noted the London brand’s “long-term confidence in our products” and said the Blahnik family “shared our values for quality and tradition. Together we can create a lasting legacy. It is our deep pleasure to be sealing our bond.”
Kristina Blahnik said Re Marcello will be the company’s first wholly owned atelier and manufacturing facility, “creating greater creative and operational flexibility for the future of our business.”
Asked whether Re Marcello would be making shoes for other brands, she said: “We are currently looking at this strategy as we want to nurture the craft of Italian shoemaking not just for ourselves, but to help the development of others.”
The Italian factory, then known as Invitta, was founded in 1938, and specialized in making children’s shoes. It expanded into high-end women’s shoes after World War II and was renamed Re Marcello in the Sixties.
In the late Eighties, Re Marcello shifted its strategy from wholesale to producing footwear for international fashion and luxury brands.
Factory acquisitions and expansions have been multiplying recently.
Last month, Hermès International confirmed it would continue to expand production for its gloves and small leather goods in France, with plans to move its Ganterie Maroquinerie de Saint-Junien factory to a 54,000-square-foot site neighboring its existing factory by 2022. The new site will be more than triple the size.
It will also double the workforce employed at the facility — from 130 to 260 — in the same time frame. The French brand has opened a new training workshop for its leather artisans near Lyon, France, and two new factories, in the Gironde and Seine-et-Marne regions, are in the works, with plans for each to employ 250 artisans.
In 2017, Compagnie Financière Richemont purchased Serapian, the high-end Italian leather goods brand, and has been using its factories to scale up production and develop expertise across the group.
In 2018, Burberry purchased its longtime Italian leather goods manufacturer in a bid to exert more control over its accessories offer, and work closer with the artisans making its bags and leather accessories.
Earlier that year, Gucci unveiled a Tuscan factory called ArtLab, its biggest-ever industrial investment. Dedicated to leather goods and shoes, which account for 70 percent of the brand’s sales, ceo Marco Bizzarri described the factory as unrivaled in the world.
Morgan Stanley warned that factories would come under increased scrutiny: “Brands will need to start, whether driven by regulation or investor pressure, thinking about how to consider the full life cycle of their products in a sustainable way.”
While carbon emissions are on the rise as the luxury sector expands, a number of companies are reporting decreasing emissions in absolute terms, noted the analysts, citing Burberry, GrandVision, Kering, LVMH Moët Hennessy, Richemont and Tod’s.
The analysts singled out Moncler and LVMH for reporting the highest waste recycling, at 98 percent and 91 percent, respectively.
With Burberry coming under pressure last year for destroying unsold clothing and other goods, companies need to be aware that scrutiny from the investor community is on the rise.