MILAN — In Giorgio Armani’s words, the coronavirus is delivering “a brusque jolt to the fashion system, which often appears to travel on parallel tracks. Instead, we are all humans and it’s good to remember it.”
Designers and fashion houses are bracing themselves for a Milan Fashion Week, running Feb. 19 to 24, that will be mainly sans Chinese buyers and press. “We ourselves have invited our employees to limit their trips to the absolute indispensable and to use every possible precaution. We are very close to our Chinese teams and customers,” continued Armani, who is also chairman and chief executive officer of his namesake company, noting that his signature brand and Emporio shows will both be live-streamed for inclusiveness.
“The hope naturally is that a vaccine can be found as soon as possible so that it will bring back everything to normality. The beginning of the year has been turbulent, and surely the local business will be impacted. But I must also say that the other markets performed well at the beginning of the year, so there is a certain balance,” said Armani. “Speaking as a man and not as a businessman, I really hope that everything will be solved in the best possible way and that the number of casualties will be contained.”
The Chinese, whether in China or abroad, account for 35 percent of personal luxury goods consumer spending, with a value of almost 100 billion euros. In 2025, they are expected to represent 50 percent of the total, according to Altagamma. The Chinese in 2019 accounted for 90 percent of the market’s growth.
There are almost 200 million Chinese tourists in the world, and they represent 20 percent of shoppers in Milan’s high-end district of Via Montenapoleone. With more than five million overnight stays a year, Italy is the first destination of Chinese tourists among European countries and in average they stay almost 13 days, said Matteo Lunelli, president of the Italian luxury goods association. As a consequence, “the immediate economic impact of the coronavirus will be significant.”
Carlo Capasa, president of the Camera della Moda, said the virus is expected to cause a 1.8 percent decrease in revenues of the Italian fashion industry in the first quarter. According to preliminary data released by the fashion association, in 2019 the fashion industry — including textiles, clothing, leather goods and footwear — had total revenues of more than 67.3 billion euros, up 0.5 percent compared to the previous year, while the overall sector — which includes costume jewelry, eyewear and cosmetics — grew 0.8 percent to 90.2 billion euros.
Capasa said the Chinese travel lockdown will inevitably impact fashion week attendance, as more than 1,000 Chinese executives will desert the shows, and “only a couple of hundred living in Europe or the U.S. will be able to come to Milan.”
The organization compared the coronavirus crisis to the 2003 SARS situation to gauge possible financial consequences, estimating a reduction of Italian exports to China of at least 100 million euros in the first quarter of 2020, which could reach 230 million euros if the crisis continues into the second quarter.
Lunelli said it was difficult to provide any forecast by comparing the two scenarios because “the size of the luxury market was different and different was the weight of the Chinese spending, which in the 15 past years has grown exponentially.”
Sales of the personal global luxury market totaled 127 billion euros in 2003, compared with 281 billion euros today. Chinese spending represented 2 percent of the total, compared with 35 percent today.
While admitting there is a psychological effect, Lunelli believes the high-end sector, “as seen in the past, reacts quickly to difficult moments.”
He also conceded impacts on the supply chain, and on tourism. “However, I remain very optimistic on the perspectives of the luxury goods and tourism sectors in the long term, despite the temporary negative economic effect,” concluded Lunelli.
Salvatore Ferragamo ceo Micaela Le Divelec Lemmi praised the Camera della Moda’s initiative to allow the Chinese fashion operators to follow the shows and to interact through the use of technology, while admitting Milan Fashion Week “will surely be different from past editions,” given the absence of Chinese buyers and journalists, who accounted for a large contingency of visitors.
The executive was cautious about prospects. “The current uncertain situation does not allow us yet to fully evaluate and quantify the impact of the Cov 19 on our sector, and not even at a global level,” she said. In terms of retail, “the situation in China is very fluid and changing constantly. This is both because of the health guidelines provided by local authorities and because mall landlords can decide in full autonomy if and when to close the shopping centers. This is a situation of uncertainty that we experience on a daily basis together with all the other luxury brands.”
Massimo Ferretti, executive chairman of Aeffe, parent company of Alberta Ferretti, Philosophy di Lorenzo Serafini, Moschino and Pollini, also highlighted the use and help of technology, noting that the company was working through a virtual showroom. “We are paying more attention to photos, the shoots and the looks,” he observed. Ferretti said he was “monitoring things day by day. We want to be close to our franchisees in this difficult moment.”
The coronavirus is affecting not only business in China, where the company is planning to open the first two Moschino children’s wear stores, but the tourist flows, he said, to cities such as London and Paris. However, Ferretti was confident the Chinese “will be able to react.”
In terms of upcoming projects, Alberta Ferretti will stage its resort show in May in Rimini, as reported, and Moschino in July in Paris. Philosophy will launch an eyewear capsule with Lozza in April during the Salone del Mobile and in June a capsule with Liberty fabrics in London.
Michele Norsa, vice chairman of Missoni, said the brand is not heavily exposed to China, where the plan, still in motion, is to open its first three banners in 2020, most likely in the second half. “We still have time,” he said of the project. Business-wise, he admitted the situation offers retail opportunities, as it did when he was helming Valentino during the SARS outbreak. He cautioned against the media’s “often frantic and negative analysis,” and said issues must be considered on a monthly basis, thinking long-term and not by quarter.
Norsa said the Chinese government is offering incentives to consumer spending and that he expected cities distant from the hub of the virus to resume business at least partially. The executive was more concerned with “the negative mood and the fact that people are not traveling. I am cautiously optimistic about the pickup of the Chinese economy in the short term, but it’s more difficult to measure the impact in Europe,” said Norsa, who believes it is important to diversify and balance business between markets.
“The Russians are more resilient now, they travel a lot to Dubai, to London, Paris, Ukraine and I see strong tourist flows from the Middle East, and there are opportunities in Latin America,” said Norsa, who at the time of the interview was actually on his way to Russia. “These are also alternatives to avoid relying too much on China alone.”
The situation will also prompt companies to reevaluate costs, the expense of events and communication. “In light of the expected impact on profitability, companies will need to slim down, and managers will reflect on the organization and expenses,” said Norsa, who pointed to unsold goods, either not shipped or returned, or late. “I see a lot of discounts of current products online, it’s worrying.”
Roberta Benaglia, ceo of MSGM and a founder of Style Capital, which in 2018 acquired a 32 percent stake in the brand, said traffic in malls in China is “close to zero.” MSGM has 12 stores in China, which, at the time of this interview, were closed, causing a 70 percent drop in sales.
MSGM, like other brands, is affected by the fact that Chinese tourists are not able to travel to countries such as Korea and Japan, but it is not impacted by issues linked to the supply chain, given that all its products are manufactured in Italy. “This could represent a competitive advantage as there will be no delays in deliveries,” said Benaglia.
The Asia Pacific region accounts for around 40 percent of MSGM’s sales. China represents around 15 percent of that and Hong Kong in particular for 5 percent. Benaglia admitted 2020 could be challenging, as Hong Kong’s performance was dented by the protests in the second half of 2019. “We were planning an additional 20 stores in China in the next two or three years, but we are now slowing this down,” she said.
Although she admitted China “is such an important market it can’t be replaced and sales in 2020 will be compromised,” Benaglia struck an upbeat note, believing “the coronavirus will have a strong impact in three months, but it will not have long-term repercussions. When things will die down in the second half, China will be ready to enthusiastically restart.”
In the meantime, Benaglia said the company is setting in motion new ways to kick off its sales campaign, through look books, line sheets and streaming. “It’s more complex, but we will have to be good at finding ways [to do business].”
Data collected by Prometeia up to 2021 and presented by Mediobanca Research Area show that turnover generated by the Italian fashion industry should continue to increase, reaching 80 billion euros, up 8 percent in two years, double the speed expected in other sectors. This means more growth and higher margins, according to the study. In 2021, operating profit margin will be almost six percentage points higher than the average in other sectors.
The growth is mainly driven by the fashion industry’s online presence. The 559 brands owned by the 173 companies studied attract around 300 million Internet searches a month, with 57 brands recording more than a million searches each, said Prometeia. “This reflects the growth in demand, which is estimated to increase by 1.7 billion euros over just two years.”
Germany and the U.S. conduct the most online searches for Italian fashion, followed by China and Russia. There is great potential for Italian brands, with untapped markets in Australia, Brazil, India, Poland, Canada and Mexico, where export volumes are lower than the brands’ popularity. “Despite the fact that young consumers seem to be less interested in Italian fashion than generations before them, particularly in the United States, the most famous Italian brands still top the online search rankings for this sector,” continued to research. “Some of the most common key words associated with Italian brands in online searches include quality, authenticity and reliability. Other key words include sustainability, online shopping, cruelty and conflict-free, reflecting new global consumer trends that Italian brands have been quick tap into.”