Italy’s Textile Supply Chain Holds Out in Coronavirus Crisis

MILAN — Italy’s lockdown of all nonessential manufacturing businesses last week left many questioning how the country’s fashion pipeline could survive the coronavirus-related crisis and forge ahead once the emergency is over.

Italy’s fashion sector, which in 2019 generated total revenues of 95.5 billion euros and employed 580,000 people across its textile, fashion and accessories businesses, is highly dependent on the 50,000 small and medium-sized premium suppliers. In particular, according to preliminary figures released by Confindustria Moda, the textile industry alone generated 7.57 billion euros in revenues last year, down 4.7 percent compared to 2018.

The COVID-19 pandemic is likely to impact the supply chain even further, dragging down the companies supplying local and international brands and representing the foundation of the fashion sector, which is the second most important business in the country.

“Stopping the engine of the country will have an economic impact in the long-term, probably for the next 10 years on a global scale. I think it’s worse than the 2008 subprime financial crisis when the world was still traveling, retail was still operating,” contended Ercole Botto Poala, chief executive officer of Biella-based textile firm Reda, noting 2020 will be a “suffering but challenging year.”

As the lockdown forced textile firms to stop their manufacturing activities at least until April 3 — with talk of a possible extension to April 18 — companies are trying to offset the negative impact by staying close to their clients, including developing new products, and most of the entrepreneurs, including Stefano Albini, president of the Albini Group, said they shipped goods ahead of the lockdown in order to pave the way for what is hoped to be a brisk return to business.

Vitale Barberis Canonico, another textile company operating in the North Italian textile district of Biella, is leveraging its stock service providing three-day delivery of goods to those companies that manufacture in countries that are not under lockdown. Alessandro Barberis Canonico, the company’s ceo and the newly appointed president of the Milano Unica textile trade show, said the new mind-set could extend beyond the emergency, noting that “faster services and deliveries will allow our clients to make decisions closer to the season they are about to produce. We’re trying to build a structure that will enable us to give quick answers.”

There are several areas of concern, including the survival of smaller, often family-run third-party suppliers that have little to no access to credit and liquidity.

“If each company will keep focusing on its own balance sheet, it’s only a matter of time before the consequences knock at the door,” said Botto Poala, urging mutual support throughout the supply chain.

To this end, Barberis Canonico voiced concerns for its suppliers, noting “orders will decrease even upon recovery and I’m afraid that during the season’s peak, which is not going to happen this year, we will be unable to provide them with [enough] work.”

He added that the Italian government’s measures issued with the March decree are not enough to support those businesses. Vitale Barberis Canonico itself applied to the “cassa integrazione” wage support measure for some of its employees, but it is currently bearing its costs for the time being. “Generally speaking, the measures are right but probably not enough, and we also need to understand how they will be implemented, as smaller enterprises are already suffering,” he said.

Similarly Andrea Crespi, managing director of Italian high-performance fabrics company Eurojersey, called for European intervention “to directly inject cash flow and offset the costs during this two- to three-month shutdown period, if we want to prevent half of the companies to cease operations.” He praised the lobbying activity carried out by Confindustria and Sistema Moda Italia as the country’s pipeline cannot succeed on its own.

“If we don’t want to lay off our employees, and in order to avoid recession and sustain exports, which have always boosted our industry, Europe must work to secure access to credit…and avoid a liquidity crisis,” echoed Albini.

Andrea Cavicchi, president of the fashion section of Confindustria Toscana Nord, which represents textile firms based in the manufacturing hub of Prato, in Tuscany, issued a statement warning of “a serious lack of liquidity that might impact the entire pipeline, with ruinous effects especially for third-party suppliers.” The association already set up a post-coronavirus roundtable aiming to ask several entities, including local and national institutions, as well as banks, to support the sector once the emergency is over.

Urging the European Union to act rapidly, Botto Poala underscored that “the fact that the emergency occurred at a moment when populist parties are so strong in Europe did not help to set up a shared outlook and view.”

“We should all work more sustainably, also from a financial standpoint.…If we keep disregarding our suppliers and delaying payments throughout the pipeline, the companies at the top of it will disappear. Historically firms at the bottom have absorbed most of the margins, leaving suppliers in weaker condition,” Botto Poala continued, calling also on clients to do the same and support textile firms “if they want us to be creative, innovative and proactive.”

To this end, Vitale Barberis Canonico is allowing its clients to postpone payments given its solid financial situation. Crespi said the company has always been “self-financed” and “steady”; however, he’s worried about future market trends as “those businesses that are not able to cope with the crisis might postpone payments.” Crespi forecast orders to decrease roughly by 20 percent and sales to start dropping in March “also because the lockdown in the rest of Europe might stretch beyond April 6 and we risk operating in a stagnating market,” he said.

Although sales for the spring and fall 2020 seasons were not directly impacted, as textile firms usually develop their collections a year ahead of the season’s fashion retail debut, spring 2021 will be significantly reduced, according to entrepreneurs. Barberis Canonico forecast that, as the warehouses of the firm’s apparel clients are now packed with potentially unsold spring 2020 fashion items, merchandise for spring 2021 will be reduced, while, he said, “seasonal, more fashion-y products that usually push sales will be less impacted, albeit scaled back.”

So, too, believes Albini, noting the current retail slowdown is already “escalating to the top end of the supply chain and we’re experiencing a decrease of orders.” The company is based on the outskirts of Bergamo, one of the areas most severely hit by COVID-19. “[The crisis] will be followed by a period of expansion, I think, if supported by a [global] ‘Marshall Plan.’ We will probably restart with lower revenues but I expect that the upswing will be faster and ‘healthier.’”

Botto Paola made optimistic projections for the fall 2021 season, now being developed and representing the bulk of revenues, hoping the health emergency will be over by then.

The end customers’ spending capacity and habits are yet to be determined and they will eventually affect the ability of textile firms to recover quickly.

“I personally believe that the sun will shine again, but I think a spending euphoria will last very little,” noted Eurojersey’s Crespi.

“I expect a new consciousness, new values coming in…which might go against a consumeristic approach. People will look more at the value of their purchases rather than their prices. I expect we will all be buying less in quantity but also spending more for valuable products,” he said, noting the company’s high-performance man-made fabrics might benefit from the new scenario he forecast.

Thoughts were mixed, though, as some entrepreneurs believe a revenge spending attitude, as first reported in China, will boost the sector’s performance when health concerns are over. Botto Poala predicted a return to tailoring as a reaction to the long period of quarantine, while Barberis Canonico was more cautious, questioning if customers will need formalwear that is primarily linked to social occasions, including work, travel and ceremonies. As Albini put it, “Psychologically it’s hard to tell how [customers] will overcome the whole situation as their preoccupation might last longer than the health emergency.” To this end, he was cautious making year-end forecasts, acknowledging it will depend on the duration of the crisis and the customers’ resilience.

“This emergency has been such a brain washer that our ego and sense of omnipotence will wane down and we will be more conscious about our limits. We will shift our paradigms for sure, focusing less on mundane issues,” noted Crespi.

The Italian textile sector has been increasingly banking on innovation over the past five to 10 years and Baberis Canonico believes the current scenario will call for even more innovative products that can trigger consumption. Albini said the company is committed to “forge ahead with innovation, banking on our peculiarities as I believe that customers will return to shop, looking for engaging products.”

Innovation often comes with sustainability, a topic that will continue to represent a top priority for the textile industry although, according to Barberis Canonico, it will represent “a necessary but not sufficient condition to overcome the crisis.”

Albini underscored that “its relevance is poised to grow further as the forced industrial lockdown is showing how much the environment is benefiting from it,” while Botto Poala noted that “consumers acknowledged they might be impacted by uncontrolled occurrences, so they will be even more cautious with their purchases, aiming to know where products come from.”

Crespi said companies which have genuinely implemented eco-friendly initiatives will continue to do so and stressed Eurojersey will continue to address the issue, focusing on the industry’s environmental costs and aiming to increasingly produce items that can last longer and that have a value to them.

As the COVID-19 crisis is spreading globally, the Chinese market — the first to be impacted by the outbreak — is showing signs of recovery but textile entrepreneurs saw it more as an example of things to come, rather than part of their business rescue plan.

“The outbreak is behaving like a wave, touching down in China, Europe and then the U.S., so we will not overcome the crisis all at the same time. China is already picking up, so the positive side is that we can see how every country will eventually bounce back,” contended Botto Poala, noting the country currently represents the firm’s fourth largest market but might become its top one in a few months.

For Albini Group, China accounts for less than 2 percent of its direct sales but “it’s still an essential indirect market, as the most relevant country for luxury brands,” the company’s president said, explaining that China’s upswing is crucial to avoid the whole world stopping at the same time, also given an expected slowdown in the U.S. market, the cotton specialist’s top priority.

Representing 5 percent of its revenues, Eurojersey’s Crespi hopes China’s recovery will help offset losses in the first two months of the year which amounted to at least 50 percent for luxury brands, he noted.

Barberis Canonico noted China — and the whole Asia-Pacific area accounting for 30 to 35 percent of the company’s revenues — will represent an even greater target in a post-coronavirus scenario, although he expects sales in the region to drop this year. “There’s still a certain psychosis and stores’ sell-through rates are 40 percent lower than before the crisis spread,” he said.

Asked about the upcoming edition of trade show Milano Unica, slated for July 7 to 9, Barberis Canonico said “the fair’s board is looking at the evolution of the situation….We are more worried about the impact that it will have on our clients as they might be still unable to travel.”

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