Italy’s luxury manufacturers have been open for a little more than a month now, but they are still “playing it by ear”, says Andrea Calistri, CEO of family-run leather company Sapaf in Scandicci, Tuscany.
Italian manufacturers supporting Italy’s biggest luxury brands like Gucci, Prada and Giorgio Armani are already under strain after a month and a half of forced closures caused by Covid-19, and fewer orders as brands’ sales dropped globally. Now that’s been compounded by a generalised delay in the payment of state social security (the “cassa integrazione” unemployment benefits) and government-backed loans, putting at risk the production of 40 per cent of global luxury goods, 580,000 jobs and €63.4 billion of Italian exports, one of the country's biggest.
“Even companies that didn’t have problems before think they can manage to get to June or July in these conditions,” says Stefania Saviolo, lecturer at Milan’s Bocconi University.
According to Italy’s National Social Security Institute, as of 4 June companies have requested unemployment benefits for 8.4 million workers. Of these, 3.2 million have been paid by the institute while 4.3 million have been paid by their employers, which have advanced the money on behalf of INPS. This leaves more than 820,000 workers without benefits. INPS president Pasquale Tridico told newspaper La Repubblica that INPS will pay all the outstanding requests by 12 June.
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Similarly, requests for Covid-19 state-backed loans are lagging behind with only 301,777 of 607,391 requests for assistance granted as of 20 May, according to a report by Italy’s bicameral investigative commission. (An accepted request doesn’t mean a loan has actually been dispensed.) While 52 per cent of requests for loans under €25,000 have been accepted, only 24 per cent of requests for loans for more than €25,000 have.
For loans and unemployment benefits alike, a rapid increase in requests over a short period of time and burdensome bureaucracy have stretched the system, leaving institutions, workers and companies frustrated. “It’s definitely the biggest challenge that the state, already weak, has faced since World War II,” says Alessandro Graziano, president of the association of labour consultants, who have supported companies in filing unemployment benefit requests to INPS.
Supply chain solidarity
Alessandro Iliprandi, CEO and president of leather manufacturer Bonaudo, says the situation is “of great embarrassment”. Iliprandi says the company has advanced unemployment benefits, but stresses that companies with less available cash wouldn’t be able to do the same. “The help is on paper, but it doesn’t exist in practice.” Brands, on the other hand, have mostly come through with payments or, in the case of cancelled orders, paid for the textiles manufacturers had already bought.
“Everyone is paying us on time,” says Marco Angeloni, CEO of Fabbrica Sartoriale Italiana, which produces menswear and womenswear for established companies including Richemont and Ralph Lauren and independent labels like Matthew Williams’s 1017 Alyx 9SM. That’s helped the manufacturer avoid further cash damage in the wake of Covid-19.
According to Saviolo, this model of supply chain solidarity, where those at the top of the chain support suppliers at the source, pre-dates Covid-19 and is typical of made in Italy, a system built on collaboration and support. “If you lose these suppliers you lose skills that can no longer be found,” she adds. “No supply chain leader benefits from the disappearance of this fragile and unique ecosystem of small suppliers and laboratories.”
Luxury brands and conglomerates have begun integrating suppliers directly into their businesses to maximise their protection and support, while also maintaining control over operations. Burberry bought part of luxury leather goods maker CF&P, based in Italy’s Scandicci, in 2018; Capri Holdings, owner of Michael Kors, Versace and Jimmy Choo, acquired footwear factory Alberto Gozzi in 2019; LVMH acquired a minority stake in tannery Masoni Industria Conciaria in January 2020. Gucci, which in 2018 already owned 10 local suppliers and said it was planning to buy 10 more, signed an agreement with the bank Intesa Sanpaolo in May, which allows its Italian suppliers to enjoy the same financing conditions enjoyed by the brand itself, simplifying access to credit.
At least three negative seasons ahead
Future prospects, both short and long-term, remain uncertain. Fabbrica Sartoriale Italiana registered 30 to 40 per cent fewer orders for Autumn/Winter 2020, and expects a negative Spring/Summer 2021 and an uncertain Autumn/Winter 2021. Pelletterie Toscane, a leather company working with Louis Vuitton, Hermès and Gucci, says orders are coming in, but more limited, and production times are slower as the industry as a whole slowly restarts.
Bonaudo and Serica 1870, a silk manufacturer that works with Kering among other luxury companies, are looking with apprehension at the second half of the year as many brands have skipped pre-collections and are being conservative with sampling for SS21. “In the last four months of the year we usually make 50 per cent of our revenue,” says Serica 1870 CEO Filippo Baldazzi. “The orders that we have in now are enough to keep us going until the end of July, after that there is a big question mark.”
Ratti, a fabric manufacturer that has signed licensing agreements with brands including Givenchy and Elie Saab, says order flow in the four weeks from reopening has been extremely low, with some clients dropping off the radar. “Many maisons are still in an observation phase as of today,” says Fabbrica Sartoriale Italiana’s Angeloni, adding that only one brand has sent in orders for its pre-collection. Angeloni declined to name the brand, but said it is greatly exposed to the Chinese market.
Manufacturers and suppliers are looking positively at the changes in the fashion calendar advocated by a number of brands including Gucci, Saint Laurent and Armani, which would allow for longer production times and a more manageable schedule. Not many, however, think the change is possible, given the turnover brands need to survive with their current retail footprint. “The cost of these retail cathedrals with 40 employees and 3,500 square metres of space remains, so brands will keep trying to attract customers as many times as possible throughout the year,” says Ratti CEO Sergio Tamborini.
Recovery of the end consumer
The way the end consumer recovers from the current economic and health crisis is a central preoccupation for manufacturers and suppliers, as their spending reverberates through the supply chain. Sapaf’s Calistri thinks that niche luxury, like made-to-order for selected clients, will recover faster than general luxury, which depends on greater spending from a larger demographic. “Returning to consumptions pre-Covid-19 requires a psychological state that is far from customers right now,” he says.
A central point for many will be the international promotion of Italy both as a tourist destination and as the heartland of luxury manufacturing, as made-in-Italy products make up 60 per cent of total tourism spend. “Italy on its own can’t support industrial structures aimed at much larger audiences,” says Tamborini. “We need to keep up the image of the country or we are dead.”
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