Study Finds Italy’s Fashion Industry Well Capitalized and Thriving
These were some of the conclusions of Mediobanca’s annual fashion industry focus research.
MILAN — Italy’s fashion industry remains in rude health, rich in cash, financially solid, ever-more export-oriented and — on average — highly profitable, even if slightly less than a few years ago. And fashion companies continue to keep the stock market at arm’s length — especially since they remain able to finance themselves through their operations.
These were some of the conclusions of Mediobanca’s annual fashion industry focus research, presented Wednesday by the Italian merchant bank in Milan on the first day of Milan Fashion Week.
Introducing the research, which covers the period 2011 to 2015 (full year 2016 data is not yet available for all companies), Gabriele Barbaresco, head of the bank’s research unit, pointed out that Italy’s fashion industry continues to have strong appeal — both domestically and internationally.
“The success of Italian fashion is very much tied to the positive image Italy manages to project internationally, which acts as a flywheel for the industry,” Barbaresco said.
This appeal is particularly strong among Chinese consumers who — according to Mediobanca — make up 33 percent of luxury goods shoppers in Italy, by far the leading foreign nationality.
According to Mediobanca (the complete research can be viewed, in Italian only, at mbres.it), globally the personal luxury goods industry grew by some 12 percent in 2015, reaching 251 billion euros, or $263.6 billion at current exchange. For the just ended full year, the bank forecasts no growth.
But — barring any disasters (man-made or other) — the future looks rosy for Made in Italy. “Fashion loves openness and outside influences” and rejects barriers and obstacles to the free movement of people, Barbaresco said.
Furthermore, thanks to its reliance on multiple retail channels — from bricks-and-mortar to online — the industry benefits from a diversification that allows for “a certain optimism looking ahead,” even if the geopolitical climate were to worsen.
As in previous years, the Mediobanca study breaks out a group of top 15 Italian fashion and luxury goods-makers from the total group of 140 “Aziende Moda Italia” firms it examines (the threshold for inclusion in the study was annual sales of 100 million euros, or $105 million).
In 2015, the top 15 group, which includes powerhouses Luxottica, Prada, Armani, Ferragamo and Tod’s, accounted for half of “Aziende Moda” total revenues of some 60 billion euros, or $63 billion, with sales up almost nine percent on 2014 and up just over 30 percent on 2011. (Luxottica alone leads the pack with some 8.8 billion euros, or $9.2 billion, in revenues in 2015.) Overall, the 140 firms represent some 4 percent of Italy’s GDP — up from 3 percent in 2011, although this has also to do with the fact that Italy’s GDP growth has slowed over the period.
The fastest growth came at Valentino (its initial public offering-eyeing parent, Qatar-based Mayhoola, must be happy), where revenues in the period grew 102 percent. Rounding out the top five are Moncler (sales growth of just over 70 percent in the period); Calzedonia (up 55 percent); Armani (up 47 percent), and Ferragamo (up 45 percent). On average, the top 15 put in 30 percent revenue growth over the period, compared to an only slightly more modest 28 percent growth for the whole 140 firm sample (and to just over 7 percent growth for Italian manufacturing in general). Of the top 15, only Benetton, which has undergone a major restructuring, saw sales decrease — a not insignificant 26 percent — over the period.
While the top 15 group usually outperforms the overall sample — including in jobs creation — the same can’t be said for profitability growth: while operating margins in this select group increased by 14 percent over the five-year period, they increased 15 percent for the total 140 sample group (and by 13 percent at Italy’s large manufacturing overall). But operating margins themselves remain noticeably higher at the top 15 group, on average 12 percent, compared to 9 percent at the 140 “Aziende Moda” group (and 4.2 percent at Italy’s large manufacturing groups), even as they have decreased slightly compared to 2011 (when they were an average 13.7 percent).
The industry — especially the top 15 — is very “solid and varied,” said Mediobanca analyst Nadia Portioli, who presented the research. Italy’s luxury goods firms are highly capitalized and very under-leveraged, which may explain their reluctance — for lack of need — to list on the stock market. According to the research, the top 15 group is sitting on some 5.5 billion euros, or $5.8 billion, in cash, up some 26 percent over the five-year period, with Max Mara and Armani leading the pack.
Too much capital is not necessarily a good thing, for — among others — it could be put to good use in value creating actions like M&A activities. But here Barbaresco said, on the contrary to less risk-averse French luxe goods makers, Italian firms are not necessarily avoiding consolidation, they are just waiting for the right opportunity.
Speaking of French firms, for the second year in a row, Mediobanca included a comparison with France’s luxury goods industry. Overall things are broadly the same as in last year’s research: The French industry’s revenues in 2015 were slightly higher than Italy’s, at just over 70 billion euros, or $73.5 billion, and their average profitability, at 17.8 percent in 2015, was also higher — perhaps an indicator that size does indeed make a difference.
Comparing both countries’ top 15 players, Italian firms’ revenues grew faster in 2011 to 2015 than France’s top 15 (up 30 percent, compared to 27.2 percent), although the trend reversed over the 2014 to 2015 period, when France’s top 15’s sales grew an average 10.2 percent compared to 8.9 percent for the Italian group.
As always, the French industry remains highly concentrated, with two groups — LVMH-Moët Hennessy Louis Vuitton and Kering — representing over half of industry sales (in Italy Luxottica and number two Prada represent less than one-fifth of overall industry revenues). But Italy’s top players are more capitalized and liquid, which is no bad thing if the industry’s prospects should suddenly tank.
In a final slide, titled “And if we were in the same family?” Mediobanca created a combined top 15 of the two countries’ largest players (always in terms of sales). While there is no prize for guessing who comes in first place (LVMH), nine out of the 15 were Italian compared with “only” six from France — something that may change soon if French firms keep on buying up their Italian peers, and not vice versa.