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Italian luxury brands facing challenge of generational turnover in near future

by Monica d’Ascenzo

Revenue of €11.2 billion and net profit of €550 million. That's the total value of the Italian fashion and luxury industries that in the near future will have to face the difficult challenge of the generational turnover. As a result, luxury and fashion, and the tug of war between France and Italy, are subjects of particular interest these days.

Historically, Italy has usually ended up seeing its brands “taken over” by French giants. Kering owns Italian brands Gucci, Brioni, Bottega Veneta and Pomellato. Lvmh, which ended 2016 with record revenue of €37.6 million (+5%), controls Fendi, Emilio Pucci, Bulgari and Loro Piana. The closing of the last two acquisitions reignited controversy about Italy losing its iconic brands to foreign groups.

Bulgari's CEO Francesco Trapani described from personal experience just how hard it is to create a luxury conglomerate in Italy.

“We wanted an Italian hub, but no one responded. I tried every way I could: we were publicly-traded and one of Europe's premier companies,” he said. “I proposed exploring alliances with wonderful Italian fashion and brands. But the response was always negative. Everyone preferred to keep control of their companies, even when that was problematic. I offered to remove myself from consideration for the top management role. But the response was always negative. Everyone preferred to keep things as they were even with their debt.”

Like Prada, which opted instead for a public listing on the Hong Kong stock exchange in June of 2011. Versace sold a 20% stake to the U.S. fund Blackstone in February of 2014. But these are more temporary fixes rather than definitive solutions to the generational change that these companies must face.

The future of Giorgio Armani became clearer last July when the firm announced the creation of the Giorgio Armani Foundation. Its heirs, three nieces and nephews, are already on the board of directors of the company, where revenues rose to €2.66 billion in 2015. Gross operating margin was €518 million, net profit was €241 million and net liquidity stood at €654 million.

Renzo Rosso, class of 1955, has managed to put together a group of various Italian brands and plans to continue acquiring others. His OTB (Only the Brave) saw revenue of €1.59 billion in 2015, with an operating margin of €74 million and profit of €3.5 million. OTB controls Diesel and a portfolio of brands including Marni, Maison Margiela, Viktor&Rolf and Paula Cademartori. The founder is already thinking of the future, of his children and of how to ensure a smooth transition in management, and one of the options taken into consideration includes a possible public listing sometime over the next few years.

The Maramotti family's Max Mara empire has well over €1 billion in revenue. The three children of the founder diversified out of fashion into finance. The family is particularly reserved and its companies are controlled through trustees. However it is possible to get a glimpse of how things might be handled in the future from how their company Union is currently set up. The business is in fact split evenly among the three branches of the family, that of Ignazio, Luigi and Maria Ludovica, who have a total of nine children of their own (Sebastiano, Maria Giulia, Edoardo, Costanza, Alice, Luca, Fabia, Caterina and Elia).

The futures of two other famous brands, Ermenegildo Zegna and Dolce&Gabbana, are also of particular interest. The former has revenue of €1.2 billion, cash flow of €146 million (11.6% of sales) and net profit of €45 million. The latter boasts revenue of €1.18 billion and a cash flow margin of 12%. Zegna redistributed the ownership stakes among the grandchildren, heirs to the company, in 2014.

The fact remains that these are businesses with broad appeal, to private equity funds and to international investment firms. Not to mention the heavy courting they receive from international stock markets. There's no lack of options. The main thing for these companies is to remain attractive by continuing to show steady growth.


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