Patrizio Di Marco

MILAN Can “Lux-taly” be a realistic project to boost the growth of the Italian luxury sector?

Inspired by the success of Eataly, which thrust a large number of niche, high-end food products into the international spotlight through its global culinary shopping destinations, Francesca Di Pasquantonio, Deutsche Bank head of global luxury research, urged the audience at the 22nd edition of the Pambianco Luxury and Fashion Summit, held here Thursday, to imagine a fashion-focused replica of the high-end food emporiums.

“Considering all the resources, ideas and talents we have in Italy, which can still be exalted, what about creating an Eataly of fashion, a container located for example in Ginza in Tokyo, on New York’s Fifth Avenue or on the Champs Elysées in Paris, collecting all those Italian brands which have great products, but are not big enough to build an international business on their own?” said Di Pasquantonio.

According to Deutsche Bank research she presented, Italy, which this year saw its exports of luxury products grow 4 percent, doesn’t only comprise the largest number of companies listed in the top 100 luxury brands, but according to Google, the Made in Italy label is the third most powerful brand in the world.

But, in the increasingly competitive global market, Italy has to face the fact that a huge percentage of its luxury companies are still family-owned businesses, which are not structured enough to face the competition from bigger international players. And these companies are definitely attractive for private equity investors.

“I think that in Italy there are so many entrepreneurs who are not able to make the second step with their companies,” said Marco De Benedetti, managing director and cohead of Carlyle’s European Buyout Group, which in February acquired the Italian high-end footwear label Golden Goose Deluxe Brand. “They reach revenues of 100 million euros and then they stop mainly because they want to do everything by themselves and are not able to attract talents. Private equity can definitely help them in jumping into a new growing phase.”

Andrea C. Bonomi

Andrea C. Bonomi  Courtesy Photo.

To be sure, fashion brands and design companies are being targeted by private equity Investindustrial, said its founder and managing principal Andrea Bonomi. Investindustrial acquired Sergio Rossi from Kering in 2015 and in September 2016 bought Italian kitchen label Arclinea through the controlled B&B interior design firm.

“There is not a fixed strategy to approach fashion companies. They are more fragile entities, since they have a short-term business focused on short-life-span products and the risk is always to flatten the soft side of the company, which is the one connected to creativity,” Bonomi said. “I think there are great opportunities in Italy, which is actually one of the more stable countries now, also considering the situation in the United Kingdom with the Brexit and in the United States, but the model based on one entrepreneur and one product should be overtaken to focus on the creation of global platforms.”

Bonomi forecast that several private equity firms will adopt different strategies focusing on long-term investments in the very near future.

“At this point, investors are ready to see funds staying longer in a company and I think that several private equities will keep their investments in brands for between 10 and 15 years,” he said.

Mergers and acquisitions are not the only opportunities for high-end brands, which can also consider a public listing. This is the strategy Eataly decided to embrace. The luxury food retailer will list on the Milan Stock Exchange within the next 24 months.

According to Eataly executive president Andrea Guerra, the company closed 2016 with revenues of 380 million euros and is ending 2017 with sales of 500 million euros. It expects to generate revenues exceeding 1.5 billion euros in five years and to open additional 150 stores in leading cities worldwide.

“I don’t think that being listed will change the strategy and the approach to the business. What I think is totally relevant is that the company has to continue to be credible in the long-term,” said Guerra, who highlighted that the success of Eataly’s business is linked to the fact that its founder, Oscar Farinetti, “understood that the contemporary customer is looking for experiences and emotions.”

Eataly, which earlier this month inaugurated its first location in Los Angeles, has inaugurated Fico Eataly World Bologna, a food and beverage park born from the involvement of more than 100 entrepreneurs who invested a total sum of 140 million euros. According to Guerra, Eataly is also working on the acquisition of between two and three brands in the agro-alimentary industry.

Food and fashion, along with natural and artistic beauty, enable Italy to be one of the most appealing destinations for international tourists, who, according to Deutsche Bank’s research, generate 50 percent of the global sales of luxury products.

“Brands have to collaborate with tourism to maximize the possibilities linked to the flux of tourists,” said Di Pasquantonio, highlighting, for example, the importance of simplifying visa requirement procedures and focusing on the travel-retail segment, which for certain luxury brands, accounts for 10 percent of their total business.

Chinese, North American and Russian tourists are the biggest consumers of luxury products in Italy, according to a Premier Tax Free research.

“In total, they account for 50 percent of the whole tax-free shopping business in Italy,” said Premier Tax Free Italian country manager Sara Bernabè, who highlighted that in 2017 the national tax-free sector grew 21 percent compared to the previous year and is expected to generate a 6 percent increase in the first quarter of 2018. “We forecast a total growth of between 5 and 6 percent next year,” she added.

According to the research, Milan remains the most appealing Italian destination for international shoppers, followed by Rome, Venice, Naples, the Amalfi coast and Capri.

In addition, Bernabè pointed out how luxury brands have to consider cultural differences when approaching international shoppers and they have to implement their in-store mobile payment methods to meet the needs of Far Eastern customers.

With Chinese shoppers representing one-third of global luxury customers, as Deutsche Bank’s research highlighted, the future of the sector, which in 2017 grew between 6 and 7 percent compared to last year, seems to depend on the country.

“In the last 15 years, between 70 and 80 percent of global growth of the luxury business has been driven by Chinese customers,” said Patrizio Di Marco, who, following his exit from Gucci in January 2015, has been consulting for a range of international labels. “I think it’s a great opportunity but also a big risk, so I suggest everyone to be a tad more cautious in forecasting future scenarios.”

In particular, Di Marco pointed out that, since September, the Chinese government has been registering transactions made by Chinese customers abroad. “This means that the flux of tourists from China to Europe is slowing down,” he said.

Di Marco, who said he expects to continue his career of adviser rather than joining a company, also highlighted the importance for brands to not focus only on Millennials.

“Everybody is talking about Millennials, who actually play a relevant role, but we must not forget that Baby Boomers generate 25 percent of the total sales of luxury goods,” he said. “Generation X is also very influential, as well as the younger generations including Z. Actually, brands have the task of attracting those kids who were born in an already recessive economy.”

Luxury brands have to attentively look at Generation Z — that includes consumers born between 1995 and 2010 — who are digitally native, according to Franco Di Rosa, Ernst & Young branding and communication leader for Italy, Spain and Portugal.

In particular, he explained that the members of Gen Z are used to comparing and returning products and giving feedback to companies, along with being less sensitive to pricing and expecting to find a correspondence between the digital and the online environments.

But how can a company practically create deep, efficient connections with them?

Di Rosa explained that three factors are key to deliver relationships meeting shoppers’ expectations: building and updating customer knowledge; adopting smart solutions to collect data at the different touchpoints, and developing immersive store experiences transforming shops into “theaters for the brand.”

Branding strategies are key also for a company like Marcolin, which designs, produces and distributes the eyewear collections of a range of international labels, including Tom Ford, Ermenegildo Zegna, Tod’s and Diesel, among others.

“Marcolin is not only a licensee but also a brand, rooted in quality of design and production,” said Giovanni Zoppas, Marcolin’s former chief executive officer, who has been recently appointed executive vice chairman in charge of areas such as licenses, international affairs, human resources, legal and institutional communication for the Italian eyewear maker. He will also hold the role of ceo of the venture between LVMH Moët Hennessy Louis Vuitton and Marcolin, which will be called Thelios.

Giovanni Zoppas

Giovanni Zoppas  Courtesy Photo.

Forecasting future scenarios in the eyewear industry, Zoppas said he expects a range of manufacturing players to systematically disappear from the industry, along with several brands. “I think that those surviving will be the collections featuring compelling assortments of sunglasses and frames and a right positioning on the market.”

In addition, asked about the differences between Thelios, which starting next year will design and manufacture eyewear for the Céline brand, with the goal of “becoming, in the future, the preferred partner” of the LVMH group in the eyewear business, and Kering Eyewear, Zoppas said: “While Kering is based on products and marketing, the LVMH and Marcolin joint venture features the factory as its pillar.”

load comments
blog comments powered by Disqus