As companies adjust to the economic environment following the Great Recession, there are differing opinions as to how consumers and businesses will behave in the wake of that era-defining downturn. One recent paper by Deutsche Bank, titled “Back to the ’90s,” implied that a new period of conspicuous consumption, premium pricing, ubiquitous distribution and wide-ranging category extensions would return to the luxury sector.
However, another school of thought outlined a profoundly changed landscape that would require new ways of thinking in a “reset world,” a term defined by Tuck School of Business at Dartmouth professor Vijay Govindarajan. Umberto Angeloni, partner and chief executive officer of Caruso SpA and founder of the Uman label, is a firm adherent of the latter view and sketched both the pitfalls and opportunities awaiting companies that evolve with this new reality.
As the head of an Italian company, Angeloni found particular consequences for Italian luxury products and manufacturing in a post-recessionary world.
Angeloni emphasized three key changes among consumers. First, shoppers are seeking value at every price level. “There must be some sort of rational relationship between the quality of something and the price,” he noted. Second, values-oriented considerations are becoming more important in purchase decisions. “The consumer no longer feels the act of acquiring and consuming a luxury good is completely alien to ethical considerations. By ethical I mean having to do with the environment, society, sustainability,” said Angeloni.
Third, consumers, more than ever, are seeking authenticity in brands. “He can see through the brand. He wants to understand what the content, heritage, provenance and process of a brand is — and he wants that authenticity to be tangible,” explained Angeloni, a former ceo of Brioni.
However, that heritage and authenticity must be made pertinent to the modern consumer and not just a nostalgic look backward. “Heritage has been the ‘in’ word for the last couple of years. Heritage, unfortunately, has often been used as a date, as a way to celebrate an anniversary, as opposed to actually constructing from a company’s past what is relevant to the future and the consumer,” said Angeloni.
Case in point: Italian manufacturing may face a crisis if it clings to its past glories rather than prepare for the future. “The excellence of Made in Italy doesn’t come by chance. It comes when the country itself is educated, when the country invests in culture, in preserving the environment, in research, innovation and development,” said Angeloni. “That is the basis for the future. Unfortunately, that is not the case in Italy over the past couple of decades.”
To drive that point home, Angeloni highlighted a number of bleak studies. Italy ranks 30th in Europe in public education expenditure as a percentage of public spending, behind Croatia and Bulgaria. Italy is 18th in the European Union in research and development investment as a percentage of gross domestic product and 69th among all countries in an environmental sustainability study by the World Economic Forum. The World Bank ranks Italy 80th in terms of ease of doing business.
In a global innovation index ranking from INSEAD Business School, Italy ranked 38th, and in a global competitiveness index from the World Economic Forum, Italy was 48th, between Lithuania and Montenegro.
However, despite these grim figures, the country still enjoys a highly positive image among consumers. Eighty percent of Chinese consumers and 79 percent of affluent American consumers hold a favorable or very favorable impression of the Made in Italy label. In a 2011 Virtuoso Luxe Report, 75 percent of North Americans called Italy a dream destination and 62 percent called it the most romantic destination.
Clearly there are lucrative opportunities in leveraging that image and good will. In 2009, Angeloni invested in the manufacturer Caruso and also launched his own label, Uman. Caruso employs 630 people, and Angeloni said it combined Old World hand-tailoring with modern industrial technology, a capacity for innovation and cutting-edge design talent.
“I thought it had the sufficient competencies to be a survivor and to thrive in the new environment,” he noted.