Italy, from a luxury powerhouse to third party manufacturer (part1)

Hermes, Chanel, Dior, Louis Vuitton, Ralph Lauren, Tom Ford – are among the many top international luxury who make part of their products in Italy, most of them through third party suppliers or, with their own manufacturing facilities such as Louis Vuitton and more recently Berluti. However, none of these brands are Italian and for them, Made in Italy is not the key driver for their continued success.

On the other hand, Italian brands such as Gucci or Ferragamo attribute their resilience to the crisis, in great part to Made in Italy. Their communications strategies in the past 5 years had been focusing on Made in Italy, from the point of craftsmanship. This topic was also one debated at last week’s 5th edition of the annual Luxury Summit organized by Il Sole 24 Group – the most prestigious luxury business event in Italy. This year, it hosted as main speakers the CEOs of Prada Group, Valentino,  Brioni, La Rinascente and luxury industry analysts from Pwc and BCG.

The highlight of the one day event in Milan, was certainly the monologue of Patrizio Bertelli, CEO of Prada Group who probably took the summit for a political gathering and a press conference for announcing a list (entirely negative) of issues, which some of them sounded as an ultimatum to the current government, which he openly criticized for no longer considering Prada as being Italian since its IPO on the Hong Kong stock exchange. His rhetoric was harsh saing he found this attitude offensive for the company and especially its employees in Italy.

Bertelli, then, addressed issues such as taxation, lack of subsidies to motivate companies to hire youngsters, the lack of tourism infrastructure, expressing his frustration that Milan is not an airline hub and the poor connectivity between major cities. He also condemned authorities for not investing in diversifying the tourism offerings both in cities like Milan (he mentioned as being ugly) but even Venice which does host high profile events such as the ongoing Biennale but only attracts the wealthy for up to 3 days.

Patrizio Bertelli’s speech comes only a week after his fellow Milanese Giorgio Armani, at the opening of his new mega store in Rome with a lavish event for 1.000 high profile guests, said: ‘Basta Milano’ (‘Milan is finished) adding that ’Milan is a dirty city, full of graffitti’. Armani’s ‘war’ against Milan started a month ago when he refused to join Camera della Moda, thus being excluded from the official Milano Moda calendar. In a defiant speech, he said that as long as major Italian companies continue to show their collections in Milan (Miu Miu, Valentino etc), he will not join the calendar. In the middle of an going trial which may end up with a huge fine and prison conviction for tax evasion, Dolce & Gabbana announce it will not show its menswear in Milan, but in Paris.

Also present at the event, Stefano Sassi, CEO Valentino (owned since last year by a Qatar entity) ruled out showing in Rome, for heritage reasons (Valentino’s long connection with Paris) but also for the lack of a convergent and coherent system. However, he did highlight that the company is investing further in its haute couture atelier in Rome, which makes 500-600 dresses per year.

But is Made in Italy about where a house presents its seasonal collections or the nationality of the owners? Or is Made in Italy a defining factor when it comes to craftsmanship? Most certainly not! The top three luxury fashion houses worldwide, in terms of turnover only outsource to Italy.

Made in Italy is mostly about the creative talent, the innovation and showing catwalk collections in a certain city is about the roots of the company, about the cities where these major Italian brands were born. While walking down on Via Montenapoleone, I was contemplating what was the latest IT bag that Prada or Armani produced and whether any particular designs have stood out in the past years. And then, I realized how busy these owners/designers/marketers are with their loaded political agendas and, who all hold ‘dictatorially’ in their hands any major strategic decision – they know everything.

Ironically, during the very same days, the house of Chanel chose Venice for a preview of its latest high jewellery collection, which pays tribute to Venice and showing gratefulness about the immense inspiration that the city provides to Mme Chanel. Chanel did not come to say that Venice is maybe crowded and complain, but also to annouce they will make a donation to restore some of the frescos and paintings in the Basilica San Marco.

Instead of focusing their investments on opening larger and larger stores worldwide, endangering the exclusivity and the luxury positioning of the brand, why wouldn’t Armani and Prada join forces to ‘restore’ the airport of Malpensa. Last month, Miuccia Prada, the wife of Patrizio Bertelli endulged herself acquiring a painting at an auction for a reported 15 million euros… It’s not much, but with this amount alone, Milan’s second international airport could be certainly renovated and updated with a much needed run way and additional facilities.

If Milan today, is losing ground to Paris and London, is not because of its airport and how ugly the city is. It is because, these giants have left no space for young designers or have completely eliminated niche brands with a small atelier. Milan, today, is suffocated by ‘over standardized luxury retail’ and of course, with the slow down in sales, the situation will get even worse.

Under the current economic context, opening this summer alone stores downtown Milan of 5.000 sqm (Prada), 2.000 sqm (Gucci), 1.200 sqm (Bottega Veneta) is insane and proves once again ego and grandeur has prevailed over market research. The luxury hotel segment is over-supplied and due to the crisis but also major fluctuations in occupancy, investments in much needed renovations are rightfully postponed. From airlines to restaurants and hotels, all runs in circles and are interconnected.

Speaking to the Concierges of Milan top three ranked luxury hotels, I was shocked to hear that the wealthy leisur guests such as Middle Eastern or Asia Pacific, they get easily bored with the shopping in Milan – they can find the exact same brands, with the latest retail concept and collections. So what they do is they rent a limousine with chauffer for the day (which comes at around 1.400 euros) and go to the outlet malls, the favourite one being Foxtown. But ironically, they do not go there for bargains, they go there to find the familiarity of their lifestyle - entertaining, dining and shopping in a mall. Sadly for the brands, they may even come empty handed. This is where Milan has lost its identity – there are no more small independent bespoke shoe, hats or umbrellas makers – not to mention independent perfumers.

But what should really worry the big players of Italian fashion and accessories is the fact that none of the Italian creative schools have produced successful young designers (which all come London and New York) and more importantly, that the craftsmanship can be perfectly replicated. One such experiment is a 600 million dollar ‘incubator facility’ by Qatar Luxury Group which has recreated the traditional ateliers, from couture, hand made shoes, leather bags, and even jewellery – using the exact same machines, techniques and materials (even the processing of leather) and all performed, by the finest Italian and French craftsmen who have chosen to move to Doha for this project. Of course, in the case of QLG, which has been set up and supported by Sheikha Mozah, First Lady of Qatar, the purpose is to teach youngsters in the Middle East the crafts, nurturing talent.  But the day such ‘incubators’ will be set up somewhere in Asia is not so distant.

In part 2, coming up next week – about why big brands are craving for bigger stores and more new openings, and how things can go wrong for Prada in the next 2 years, unless major changes are applied to strategy

Oliver Petcu in Milan

Ralph Lauren Purple Label, all Made in Italy