February has been known to be the month of winter fashion weeks. The catwalks are filled with future trends, Milan, Paris, New York and London teem with events and excitement. And it is precisely at this time of year that it is good to make some considerations about this sector, which is a major driver of Made in Italy and which for the first time is flying above 100 billion in turnover (+16% over 2021 and +9% over 2019, data from Confindustria Moda).
Broadly speaking, luxury personal goods, which grew at any level, performed best in 2022; followed by high-end design and wine&spirits. Luxury travel and hotels have not yet reached pre-pandemic levels, but the appetite for travel is certainly high.
Previously, the personal luxury sector was driven by China, with an annual growth rate of around 8 percentage points (the world average stood at 4 percent). The Chinese used to spend only half of their spending in the domestic market; the remaining 50% in Europe, where they were able to find much better prices.
Covid-19 and the long shutdowns associated with it stopped a five-year growth, changing the balance and shifting the center of gravity. While overall luxury goods sales in China contracted by 10% annually in 2022, bringing Asia lower than the average for the total market, the United States is growing, specifically more than twice as fast as China (BCG data).
However, China remains a mainstay for luxury growth, having more middle – and upper – income consumers expected to double by 2030. With the Chinese reopening, therefore, we can expect the situation to gradually return to normal and probably move to a market with two driving forces both running in parallel, thus giving rise to a fairly balanced growth between East and West. But two elements will be determinant: the actual recovery of Chinese consumer travel and the impact of the recession on the average consumer in the U.S. and Europe.
This was the focus of the event held on January 31, Shifting from East to West: the new competitive scenario for Fashion & Luxury industry sponsored by the American Chamber of Commerce in Italy.
But if we zoom out from the macro to the micro, focusing on our country and, even more specifically, we look at the retail industry, we notice many more facets. We are talking about a large segment of the fashion value chain, its end to be precise, which is facing an unclear and uncertain future horizon. We are talking about 178,127 fashion, textile, apparel, footwear, leather, and accessories stores in which 293,497 people work, under Federazione Moda Italia.
It is certain that this stall in the Asian trade has greatly affected our distributors’ sales, and Americans cannot be enough to handle the losses. The Russian-Ukrainian war further exacerbated the situation, blocking trade towards two other regions that accounted for around 14% of total turnover. All this has led, of course, to rising prices for raw materials (in shortage), fuel, and energy, reaching a cost increase of +25%. Retailers, as a result, have found themselves forced to raise the prices of final products. But they have done this in a country where wages do not follow inflation and rising expenses, leading to a significant reduction in the population’s purchasing capacity.
Solutions to an endemic problem may be varied, but certainly not immediate. Top management can be asked for a reduction in taxation, incentives on hiring, a cut in bureaucracy, a price reduction on fuel and energy. But while waiting for all this (perhaps) to happen, how many would be forced to close? How many families would be struggling?
And so, we roll up our sleeves and those who are able to get better structured by developing the online channel (remember that between pre- and post-Covid, Italian retailers with e-commerce have increased from 14.6% to 52%) try to penetrate newly flourishing markets such as the United Arab Emirates, Taiwan and Thailand through targeted campaigns.
Those who have the ability to go a step further can diversify, focusing on other models (such as, for example, those who move from ready-to-wear to the world of sports) or other businesses, perhaps opening a restaurant in the city, an agriturismo in the countryside or a beach resort by the sea.
To do all this, however, you first need managerial skills, or else you risk making things even worse. This is our task, our job, and our passion, and we are proud to be able to recount many successful cases, such as the Italian Fashion towards Dubai project, an integrated training and consulting initiative for SMEs belonging to the fashion sector that aimed to bring Made in Italy companies closer to the UAE market. Or again, the coaching and consulting interventions for efficiency in the company, such as cost management or the construction of the company dashboard, a useful management control tool that offers a detailed and precise view of the progress of processes.
At Roncucci&Partners, we help companies develop themselves and their business, embrace change, and evolve and thrive in a world that is complicated, insidious, and requires a great deal of expertise.
Valentina Gestri Paolucci