The Italian fashion and design industry has overtaken France as a world leader, with an estimated 30% of the global market in luxury goods, estimated to be worth more than US$80 billion each year.
Italian fashion exports were valued at US$26 billion during 2000, an increase of nearly 15% over the previous year. Other significant export markets include Germany, France and the UK, with East European nations such as Romania emerging as new customers for the fashion giants of Rome and Milan.
US President George W Bush is reputed to order his shirts from a little-known shirtmaker in Sardinia. The previous president, Bill Clinton, wore ties made especially for him by the Italian men's clothing house Zegna – the family business given the coveted accolade of The Family Business of the Year Award 2000 by the Family Business Network. These facts are good news for Italy and for the family businesses operating in the sector.
Entrepreneurial family influence
The industry has undergone great change since its first emergence as a world force in the 1970s. But 'Moda Italiana' remains synonymous with family business, including familiar great names such as Armani, Versace, Gucci and Prada.
The design sector – ranging from high fashion to luxury goods and furniture – employs hundreds of thousands of people within scores of companies, many of them family-owned. In cities such as Milan, the centre of the Italian industry, the most significant supply chains are populated by a string of family firms who manufacture and supply raw material to the major brand names.
That structure of the industry is changing. While family businesses remain the bedrock of Italian fashion and design, a new trend is emerging. Many of the bigger names have opted for stock market listings in order to fund global expansion. Experts are also anticipating an increased rate of acquisitions as a result of these changes, especially during the current economic downturn.
Some Italian businesses have benefited greatly from stock market flotation, which is always a worrying decision for companies that have been under family control. Many founding families do not relish close scrutiny by analysts in New York and London, or from the many watchful predators of France, led by the acquisitive conglomerate LVMH (formed originally by the merger of Louis Vuitton and Moet Hennessy). The Rome jeweller Bulgari floated successfully in 1995. But sceptics point to the experience of Gucci, once wracked by scandal and tragedy, whose listing led to an unseemly battle for control involving its two major shareholders, LVMH and the French retailer PPR. Gucci is led now by a team of professional managers. Their chief executive officer is Domenico De Sole, a US business school-trained business 'star' who turned the company around. Today De Sole is leading an acquisition strategy aimed at achieving global expansion while also protecting the company's independence. As part of that strategy Gucci took over the French fashion brand Yves Saint Laurent last year.
Bulgari is a prime example of a family business with a rosy future. Founded in the 19th century, Bulgari opened its first retail store in Rome in 1884, but did not begin exporting seriously until more than 80 years later. The last two decades have witnessed the creation of significant global brands, including the Bulgari & Bulgari watch name and later Bulgari Perfumes and the sub-brand, Bulgari Pour Femme.
Today, Bulgari is headed by two of the founder's grandsons, company president Paolo Bulgari and his vice-president brother, Nicola. Francesco Trapani, CEO of Bulgari and the nephew of Paolo Bulgari, has been a key player in the success of the company. They represent a remarkable legacy and a typical family-controlled business.
Several would-be predators want majority control of those brands that have catapulted the Italian design and fashion sector on to the world stage during the last 25 years. Most of the major fashion houses have continued to experience significant growth in world markets, especially in the USA and Japan. Together, these two countries account for more than half of the Italian sector's export trade. Where the big names succeed, the smaller native companies who supply them also benefit.
But the demands of global competition are expected to bring to a head the everpresent tension over whether a successful family-owned business should seek a stock market listing to fund international expansion. The majority of Italy's best-known fashion names remain synonymous with their owners and founders. They risk losing control if they go public, although it is true that for some the risk exists whether or not they remain private. Corporate predators have long arms and deep pockets when it comes to providing the temptation of big money in exchange for control.
Fears of losing family control
There is pressure also from the investment bank community, which is keen to encourage listings at any opportunity. The LVMH and Gucci examples may deter many other fashion houses from listing. Some ambitious family businesses will continue to fund expansion from their own profits, as they are unwilling to risk losing control to anonymous investment banks.
Some have achieved an acceptable compromise. Zegna is now a public company, with sales of US$600 million and a growing franchise. Founded in 1910 by Ermenegildo Zegna, the company's fourth generation continues to hold key roles in the business despite its being listed.
In this sector, as in so many others, the hand-over between generations has remained crucial. "To enter the family business is not an easy decision, "explains Mario Spagnoli, a direct descendant of Luisa Spagnoli, founder of the company with the same name. "It is not enough to be the child of the founder. You need passion and, most of all, you need to have the right DNA. " Not every founder manages to ensure that his or her business is run effectively by descendants.
To float or not to float
Many Italian fashion businesses attempt a compromise by floating a minority share of their company. One example is Tod's, the celebrated footwear designer and manufacturer, which offered 27% in a formal listing. The cash raised from flotation did not guarantee success for Tod's. The company was out-bid for the UK luxury shoe designer Church's by a bigger rival Italian interest, Prada.
Hot on the trail
Prada has been hot on the acquisition trail, having taken over the German fashion house Jill Sander and another similar business, Helmut Lang.
Prada also got together with its longstanding rival, LVMH, to take a controlling stake in Fendi, the Rome fashion house owned previously by five sisters.
Many analysts and commentators expect the takeover trend to continue during the years ahead. During the last four years, Italian and French companies accounted for 84 of the 99 mergers achieved in the sector (41 to Italy, 43 to France), according to The Financial Times.
But it is clear that the Italian fashion and design sector is in robust health, dominated by family businesses whose names have become synonymous with high quality. Stock market or no stock market, most of them will remain privately-owned in what remains a fast-growing global industry.