By Elisa Anzolin and Valentina Za
MILAN (Reuters) – Italian businesses discovered the bounds of their ‘small is gorgeous’ motto when competition became global. Nudged by private equity funds, those supplying the booming luxury goods industry are actually finding strength in unity.
With its tradition of sophisticated craftsmanship, Italy is home to hundreds of small manufacturers that cover 50-55% of the worldwide production of luxury clothing and leather goods, consultancy Bain calculates, against 20-25% for the remainder of Europe.
Largely family-owned and small in size, these businesses often struggle to fulfill the changing needs of the luxurious brands they work for.
To deal with luxury shoppers’ growing sustainability concerns while also securing timely deliveries, brands are looking to determine close ties with suppliers, who in turn require hefty investments to trace where they source materials and construct an adequate digital backbone.
Private equity funds, after running out of huge brands to purchase, have now locked on to the challenges of the luxurious industry’s supply chain and turned to a “buy and construct” strategy.
“Luxury brands have been growing exponentially: our customers needed us to grow with them,” said Nicola Giuntini, whose Tuscany-based company makes luxury coats and jackets for brands including Celine, Burberry and Stella McCartney.
The Giuntinis in 2020 sold their company to VAM Investments – controlled by former Bulgari Chief Executive Francesco Trapani – and two other Italian investment firms after they became a part of a hub of luxury clothing manufacturers.
“Working together we are able to guarantee stable production levels and undertake projects that may otherwise be too costly,” said Giuntini.
Private equity has had an enormous say within the shaping of Italy’s fashion industry. It accounts for 40% of transactions over the past decade or so, including the buyouts of Moncler, Versace, Roberto Cavalli and Ermenegildo Zegna, KPMG research showed.
The COVID-19 pandemic, with its aftermath of supply chain disruption, has been central in convincing Italian baby-boomer business owners that the time was right to let outsiders into their closely held corporations.
The Giuntini business is now a part of Gruppo Florence, a hub owned by the funds and the families that sold their businesses and reinvested a part of the proceeds.
The group currently includes 22 corporations with combined revenue of greater than 500 million euros ($542.00 million) and goals to get to 30 before a possible initial public offering.
Meanwhile it has began working with Bank of America and Citi to evaluate strategic options after drawing interest from investment firms including Carlyle and Permira, two people near the matter said. All interested parties declined to comment.
“There aren’t any listed assets that give investors exposure to the luxurious sector’s made-in-Italy supply chain,” VAM CEO Marco Piana told Reuters.
“That is considered one of the few sectors where being Italian is a competitive advantage: there isn’t a other geography where you’ve the identical know-how on the subject of manufacturing soft luxury products.”
Luciano Barbetta, whose clothing company in southern Italy joined Gruppo Florence last 12 months, said hubs may also help producers to make up for delays in deliveries of raw materials.
“There being several corporations we may also help each other fulfil orders right on schedule. And it feels good to know all the burden isn’t just in your shoulders,” Barbetta said.
Italy’s manufacturing sector has also been a hunting ground for large luxury brands keen to secure their supply chain.
Private equity investors and fashion majors could potentially be competitors, but KPMG Partner Stefano Cervo pointed to produce chain niches which are a great fit for funds and fewer appealing to luxury conglomerates.
“For an enormous brand it is sensible to purchase, say, a tannery specialising in rare leather but I struggle to assume they’d have an interest, for instance, within the makers of golden coating for handbag chains or buttons,” he said.
“Yet there may be value to be created in bringing together golden coating makers. Just from a sustainability perspective, scale makes it easier to recycle production waste or reduce the carbon footprint.”
Italian private equity firm XENON International, for instance, has bet on producers of materials and finishes for luxury items which it has grouped together in MinervaHub.
The seven corporations in its portfolio, which include makers of metal accessories or specialising in surface finishes, have aggregate sales of 180 million euros which MinervaHub desires to grow to 300 million because it scrutinises one other six corporations.
MinervaHub provides support to its businesses on legal and financial matters in addition to environmental, social and governance (ESG), said XENON Founding Partner and Managing Director Franco Prestigiacomo.
That is important in an industry which KPMG’s Cervo says has develop into “obsessed” with ESG.
“Suppliers can pose a significant reputational risk for brands,” VAM’s Piana said.
“On the planet of social media it’s too dangerous to not have full visibility in your supply chain.”
(Reporting by Valentina Za and Elisa Anzolin; Editing by Keith Weir and Susan Fenton)
Copyright 2023 Thomson Reuters.
