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By
AFP
Translated by
Nicola Mira
Published
May 22, 2020
Reading time
3 minutes
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Luxury industry restarts production as sub-contractors risk being wiped out

By
AFP
Translated by
Nicola Mira
Published
May 22, 2020

After being forced to halt production for weeks, the luxury industry's supply chain is slowly starting up again in Italy and France. The economic eco-system has been greatly weakened by the Covid-19 pandemic, and many sub-contractors are struggling.


The Louis Vuitton factory at Beaulieu-sur-Layon, in western France, was inaugurated in September 2019 - Olivier Guyot - FashionNetwork.com Archives


Since March, small workshops and major fashion and fragrance houses alike have been busy producing tons of masks and hydro-alcoholic gel to help fight the pandemic, a genuine “war effort” which also enabled businesses to keep at least a part of their employees active.

The recent end of lockdown in China - a key market accounting for 35% of the total value of luxury goods purchases worldwide - and then in Europe, where consumption is picking up again as stores gradually reopen, has allowed leading luxury groups to crank up their output machine again. “We restarted gradually at the end of April. But, for the time being, it's impossible to predict,” when normal operations will be resumed, said Micaela Le Divelec Lemmi, general manager of Salvatore Ferragamo, talking to the AFP agency.

“Both because production sites need to comply with specific social distancing measures, and because a large number of our stores are still shut,” she added.

Italian luxury label Prada indicated that about 65% of its production sites’ staff has gone back to work. Restarting “should enable [us] to deliver the Fall/Winter collections to our stores between the end of July and early August, one month later than usual,” the Prada group's CEO, Patrizio Bertelli, told Italian daily paper La Repubblica recently.

Bertelli acknowledged that 2020 will be a tough year for Prada and other leading luxury labels, but he thinks that “those who will suffer most are small artisans.” Luxury industry giants are therefore “faced with a dilemma: whether to allow some of their suppliers to disappear, or to invest” in these small businesses to save them, said consultancy firm Bernstein.

According to Luca Solca, luxury industry analyst at Bernstein, “[some of these sub-contractors] will probably consolidate to a greater degree. Major groups cannot afford to allow their suppliers to default,” especially in Italy, where small sub-contractors abound.

Huge inventory surpluses



“Government aid is available, but major groups need to help the supply chain safeguard its know-how, for example through financial assistance or advances on future orders,” said Arnaud Cadart, portfolio manager at French asset management firm Flornoy & Associés.

The situation varies depending on the type of product: “Leather goods stocks were not excessive. On the other hand, it’s a disaster for fashion labels, whose summer collections were about to reach the stores; there are huge inventory surpluses,” said Cadart.

In France, the leather goods industry has restarted, “but the outlook is still uninspiring, because demand has slumped significantly: 46% of France’s leather goods exports are absorbed by Asia, where the market is very disrupted,” said Franck Boehly, president of the French leather industry association (CNC), a sector comprising 9,000 companies, from animal farmers to finished goods distributors.

He added that “while leather goods may be able to weather the storm, there is far greater concern for the footwear sector and its 5,000 jobs. Exports account for only 30% of its output, which is destined chiefly to French retailers, whose stores have remained closed for two months and whose stocks are overflowing.”

The global luxury market is expected to shrink by between 20% and 35% in 2020, according to consulting firm Bain and Co. In Q1, sales for Kering (owner of Gucci, Saint Laurent and Bottega Veneta) and LVMH (owner of Louis Vuitton, Fendi and Christian Dior) fell by about 15%, while Ferragamo lost 30.1%, and Tod's lost 29.4%.

In the short term, it is especially difficult to anticipate what post-lockdown consumption will look like, and how it will vary by country. “Consumers will react in different ways: in Asia, there is a genuine desire to consume. The population is young and China is probably going to start growing strongly again. The USA are also well-placed in terms of recovery, but Europe less so,” said Cadart.

By Katia DOLMADJIAN, Céline CORNU in Milan

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