Napoleone: «The crisis in Russia to strengthen the US»

Investing in the US, a market which was growing significantly already in 2021, and encouraging synergies between companies. These are the two key actions to be taken to face the changing scenario related to the Russia-Ukraine crisis. Raffaello Napoleone, CEO of Pitti immagine —waiting for the next edition of Pitti uomo, scheduled from June 14 to 17— talked about this with MFF. «Compared to the past, when these days we had the framework of the event absolutely defined, the time for confirmations will be extended but we are confident,» Napoleone explained to MFF, adding that: «The reality is complex but there are great resilience and a lot of motivation to react in the industry. Fashion has an extraordinary capacity to react». Although exports to Russia account for around 1% of the total value of Italian fashion sales abroad, factors such as the price increases of raw materials, energy and logistics, as well as inflation, make the scenario critical. Factors that are going to affect the cost of the finished product. Criticalities that could be contained through investments in the verticalization of the supply chain by those who have the resources to do so or through greater synergies between SMEs, as Raffaello Napoleone pointed out.

How much will the conflict impact on the Italian fashion industry?

The Russia effect will be resounding in some respects. For example, it will contribute to giving a significant boost to consumption in the US, a market that is already recording a good increase in orders, driven by formal wear. Certainly, in such a complex situation with rising costs of energy, raw materials and logistics, there are difficulties that are affecting finished products and that will have a sensitive impact on consumption in the coming months. It is a changing scenario, in which those who have established brands and are well positioned with direct distribution and, often, independently managed production will be able to keep costs under control.

How important is Russia for Italian fashion?

Last year, Italian fashion (including jewelry, costume jewelry, eyewear and perfumes) exported about 1.4 billion euros to Russia. Compared to the total value of the industry’s exports, this is a rather small percentage, accounting for about 1%, even though Russia is still an important market.

This unstable situation is going to add to the pandemic-related challenges...

As far as we are concerned, thinking about data on menswear, 2021 performed well, recovering over 2020 and with significant rebounds for some markets. Other markets, however, such as Italy or France, suffered due to the decline in tourism while England lost about 30% because of Brexit.

You mentioned acquisitions along the supply chain. Do you think that having a vertical structure behind you can really help companies?

Those who have the liquidity to do so invest in order to guarantee deliveries and keep prices stable. It is undoubtedly a complex situation, but for those with strong shoulders it can also be a fantastic opportunity.

Will it create an even stronger rift between big and small companies?

I do not think so. We are talking about brands that already have a remarkably high market positioning. If anything, it will be the small ones who will have to try to sign more territorial agreements, to lean on associations, on the government, on Confindustria. These bodies will, in turn, have to work in order to address this critical issue. However, there is one trend that has emerged: a resumption of consumption, of wanting to return to travel, to buy...

So, will fashion be able to react?

In spite of this dramatic situation, in front of which fashion has already intervened with great commitment through donations to the Ukrainian population or with the block of distribution in Russia, companies are showing how vital the sector is. I define it as "neurotic", an equestrian term for horses with a lot of blood in their veins and a strong ability to react. This is why I see the future of the sector positively, with the difficulties linked to the need to restructure it, optimize the production and distribution chain and reduce costs. Fashion has an extraordinary capacity to react.

How much will inflation affect the cost of the finished product?

It will affect it depending on what the percentage of inflation will be which, on the one hand, helps to make the debt less heavy, while on the other hand it must be kept under control and must not exceed certain percentages. Today, we are talking about 4%. However, small companies must be supported. I am talking about the contractors or those that have their own line which they used to sell to stores that have since closed down, realities that today are not receiving financing from banks.

What should the government do for them?

There are rules linked to Europe. We have to find solutions to support these realities that are losing the possibility to stay on the market, with guarantees of a certain type... We need to look at Italian SMEs with greater flexibility on the rules to support them.

What are you doing about Pitti?

Certainly, there is some fear with respect to the current international situation. Compared to before, when we had the framework of the event absolutely defined, the time for confirmations will be extended but we are confident. I repeat, the situation is complex but there are great resilience and a lot of motivation to react in the industry. (All rights reserved)