According to the latest report published by Bain & Co. in collaboration with Altagamma, the global luxury sector, which includes fashion, leather goods, jewellery, watchmaking and beauty products, is expected to generate a revenue of €362 billion in 2023, growing by 4% – well below the 22% growth it posted in 2022. In 2023, the US market has slowed down, China’s expected rebound did not materialise, and local consumption expenditure has slumped worldwide. On top of this, the geopolitical tensions triggered by two ongoing conflicts are severely denting consumer confidence. At the same time, luxury groups are having to deal with higher and higher operating costs, notably for raw materials and manufacturing, costs that are burgeoning as luxury groups transition to sustainability. For medium and small-sized independent labels, it has become almost impossible to grow without significant investment. “Joining forces has become indispensable. [Alliances] make it possible to achieve a certain critical mass, to generate synergies in terms of logistics, manufacturing, R&D, and operational structure, and to find ideal positions for stores,” said Renzo Rosso, speaking at the summit organised on November 14 in Milan by Altagamma, the association of Italy’s top luxury labels.

Rosso is one of the rare Italian entrepreneurs who has managed to set up his group, OTB, as a luxury conglomerate, bringing together labels such as Jil Sander, Marni, Maison Margiela, Viktor & Rolf and Diesel. “Luxury giants like LVMH and Kering are snapping up all the prime locations in new shopping malls, especially in Asia. If you’re an individual label, you have no chance. It has become almost impossible for small labels to open a store. So it’s better to have several labels. Companies must team up, especially in the high-end segment, because luxury is the only sector where margins can be generated to finance sustainable development and investments. Nowadays, if you don’t invest in technology, you’re dead,” said Rosso. His words echoed those of Alessandra Gritti, managing director of private equity firm Tamburi Investment Partners, speaking at the Milano Fashion Global Summit 2023, on October 23: “We know that operating independently in the retail channel has become a problem for brands. Unless you belong to one of the two major French luxury groups. From a retail point of view, this means playing in the Champions League right off. It gives [a label] great visibility and facilitates finding the right positions for [its] stores, at a time when retail distribution has become the key element to focus on.” But why is it so difficult to create a large luxury conglomerate in Italy? “In [Italy], there is a very strong family company tradition, which is an asset, but this goes hand in hand with fierce individualism, which is a drawback. The owners of these small family businesses find it very hard to sell off their companies. In addition, another element not to be overlooked, the issue of inheritance tax is a major one in France, unlike in Italy,” said Gritti. 

“Clearly, with regards to retail, there are barriers to entry for independent labels. The top French groups are in the process of snatching all the best locations,” said Alessandro Binello, managing director and co-founder of Quadrivio Group, an Italian asset management firm that has invested in the GCDS and Dondup labels. Binello believes that ‘small is beautiful’, a tag that applied so well to Italy’s manufacturing structure and its mighty minnows, is no longer relevant. “This message must be broadcast loudly and clearly to entrepreneurs. We need major infrastructure and funding [in Italy], otherwise we’ll get gobbled up,” added Binello. The benefits of clustering together are even more evident in luxury goods manufacturing, as illustrated by Attila Kiss, the CEO of Gruppo Florence, a collection of very high-end producers that, since its creation in 2020, has brought together 30 companies from 12 Italian regions. “Working together means some issues can be tackled across the board, while letting each of our companies do what they specialise in. SMEs are currently facing multiple challenges, sustainable development and generational handover among them, all so difficult to deal with for a highly fragmented industry made up of small entities. Teaming up is a way of becoming stronger. Those who remain independent will become weaker and more at risk,” said Kiss. The producers belonging to Gruppo Florence have for example been able to benefit from a joint digital upgrade that they could not have achieved individually. “By digitizing the entire system, everyone has become more efficient, and this has enabled companies which were lagging in this area to raise their game. Operating together has also made it possible to cut production time, and to deal with staff training in a more structured way,” added Kiss. Partnerships between labels are also set to multiply. “Especially through mergers and acquisitions. Demand for experiences is very strong, and luxury labels will have to broaden their range to integrate the most diverse domains, including the hotel and restaurant business,” said Claudia D’Arpizio, partner at Bain & Co. Luxury groups will make a comprehensive effort to enter all possible segments, according to D’Arpizio. “Mergers generate visibility and enable the partners, by scaling up their operations, to gather more consumer data. On the one hand, brand strength will be reinforced, which is of more significant value than the business itself. On the other, mergers and acquisitions are turning into a fundamental growth driver for the sector,” she concluded.