THE ITALIAN PROMISE
THE FUTURE OF ITALY’S FASHION EMPIRES DEPENDS ON MAINTAINING TRADITION.

Byline: Samantha Conti

Over the past 50 years, the Italians have transformed fusty businesses into powerful fashion groups, textile mills into luxury brands, and niche labels into hot names. But what of the next 50 years? How will emerging generations keep it rolling?
Like their counterparts in other world fashion centers, the Italians have capitalized on a global fascination with la moda, presented elements unique to their culture and prospered in a highly competitive international arena.
Industry consultants agree the key to Italians’ continued success will be flexibility. The future fashion landscape, they say, will be so polarized that companies will be forced to take stock of how well they are faring and then join forces with the big luxury goods groups, seek an initial public offering, downsize or remain small.
Fashion’s middle ground, the land where companies with around $500 million in sales flourish, will most likely disappear in the long term, they say.
Andrea Ciccoli, a consultant for Bain, Cuneo & Associati, says the medium-sized groups are in the most danger of disappearing. “Those companies and brands will be squeezed from the top by the big luxury groups, and from the bottom by firms like Zara, which produce clothing with an increasingly strong price-to-quality ratio.”
On the other hand, Ciccoli added, the smaller, niche companies, those with sales of about $250 million or less, will most likely prosper.
“There is an increasing need for these small companies, companies with a tradition, a history and a certain exclusivity. Their challenge, instead, will be how to distribute their products successfully if they don’t have the funds to open single-brand stores.”
Armando Branchini, vice president of InterCorporate, a luxury goods consulting firm here, said the large luxury groups — LVMH Moet Hennessy Louis Vuitton, Gucci, Prada and Richemont — will exert enormous pressure on medium-sized companies that don’t have a strong identity.
“The strong names will probably get stronger, and the weaker ones may disappear simply because the barriers to entry in the market will be so high. It’s as if the strong brands were building a walled city and not letting anyone in,” Branchini says. “The room at fashion’s head table is getting very small.”
Domenico De Sole, the president and chief executive of Gucci Group, disagrees with these analysts’ predictions. He believes there will be room for any company that’s determined to thrive.
“I don’t know where these theories are coming from. I don’t believe them, and I don’t understand them,” De Sole says. “In the future, the field will be open to a variety of creative and competent people. Gucci was broke in 1993, and look at where we are now. I think the large groups will continue to thrive, but I don’t believe that the landscape will be reduced to large or small companies. Medium-sized companies will thrive too. Success depends on how good and creative the people inside the company are.”
Furthermore, some observers project, an IPO will be a luxury that only a few medium-sized companies will be able to afford.
“Going public only makes sense for certain brands, those that are globally recognized or close to being globally recognized; investors are really interested in multimarket brands,” observes Claire Kent, a luxury goods analyst for Morgan Stanley in London. “Not all brands have the potential to be global. The option for the smaller, less diversified groups is to join forces with some of the giants.”
For groups that do make the IPO grade — and for those that are already listed on the stock exchange — the outlook is rosy. In a report issued late last year, Kent said prospects for the luxury sector are quite strong in the long term for three reasons: Global wealth is rising, the number of Asian tourists is growing and new customer categories, like young, professional women and members of Generation Y, are emerging.
While the future might belong to the large groups, they too have a series of challenges to face.
“Consumers are becoming more sophisticated and more demanding, which means that the big brands will have to stay ahead of the game. They can’t rest on their laurels or hope that size alone will help them. They can’t be content simply to run their businesses. They have to constantly change their approach to the business. Most importantly, though, they have to continue to manage their brands carefully,” says Branchini.
Ciccoli of Bain, Cuneo also believes that the larger groups — like Gucci and Prada — will also be forced to spin off some of their more successful brands. “Eventually, they’ll want to hand over some liquidity to minority investors and/or highlight the successful companies in their stables via an IPO.”
As for Italy’s fashion industry overall, consultants say the future is bright mainly because of the converging forces of its textile, apparel and accessories production expertise.
“Italy has such a rich tradition of production: Florence is specialized in leather; Prato, Biella and Como are specialized in textiles; Mantova is known for hosiery, and the region of the Marches is famous for its production of footwear. The list goes on,” says luxury consultant Carlo Pambianco.
“These areas make a typically Italian product that is recognized and respected throughout the world — and none of Italy’s competitors can match it. Italians, however, have to remain faithful to their artisans’ roots and continue to turn out quality products,” Pambianco adds.
Luigi Maramotti, whose father Achille founded Max Mara 50 years ago, says the artisans’ traditions that began in the company’s hometown of Reggio Emilia during the Renaissance are still very much alive at his company.
Indeed, Max Mara has started the Giulia Maramotti Foundation to finance training courses for new generations of seamstresses, patternmakers, designers and fabric specialists. Maramotti, who is the managing director of Max Mara Group Srl, says: “We believe in instilling core values in our employees, including this consciousness of the bottega, or artisan’s workshop. That is because we believe our biggest challenge in the future is in human resources. We want to educate generations of workers so that our clothing traditions never die.”