Analyzing the Challenges and Opportunities in the Italian Fashion Industry

The Evolution of the Italian Fashion Industry

McKinsey: How has the Italian fashion industry changed since you became CNMI chairman, and where do you see it heading in the next decade?

Carlo Capasa: There has been an evolution within CNMI. Originally, we were an association that mainly focused on managing Milan Fashion Week and handling international relations with other fashion weeks. Today, the association carries out many activities. We implement many programs for young people and new brands, many educational programs, programs on inclusion, diversity, and so on.

In the past, there was a perception that brands were separate from the supply chain. Today, there is a different awareness. CNMI today represents almost every part of the fashion supply chain. Our 101 members represent more than 200 brands. But the largest 15 members generate 35 percent of the sales of the entire Italian fashion industry, so this means that our members determine Italian fashion and its entire supply chain.

A big change has also happened in our board. Fifteen years ago, it was essentially composed of communication directors. Today, the CEOs of the major fashion houses sit on it and participate personally. Even important brands that are not on the board are involved in the association’s decisions and processes, because it has become clear that it is important to work together. In Italy, this is not a given. For example, fashion—the second-largest industry in Italy—had little voice in Italian and European politics.

As for the sector, fashion has certainly continued to change since the influx of private equity in the 2000s. Brands have become retailers. Let’s not forget that at the end of the last century, brands sold a lot of their products wholesale—and so the organizational structure, the mentality, the approach to the product, logistics, and distribution were different. The transformation of brands into retailers was a quantum leap.

Today, we are in a transitional period where it is not clear what will happen to midsize brands—those that don’t have the scale to be retailers—in a world where multibrand retail has become increasingly weaker. This process of “retailization” was greatly accelerated by the growth of the middle class in China. Today, many department stores are in crisis and are renting out spaces under various types of agreements. Italian multibrand boutiques have faced significant difficulties in the last two years. Multibrand e-commerce is also in crisis because large brands want to retain full control of how their products are marketed and sold.

Reviving pride in ‘Made in Italy’

McKinsey: In the first three quarters of 2024, more than 2,000 factories in Italy specializing in clothing, textiles, and leather goods closed, highlighting a critical challenge within the industry. How does this affect the future of “Made in Italy,” the initiative to protect Italian craftsmanship? How can luxury brands safeguard this distinction in the current downturn?

Carlo Capasa: What’s missing is a plan, based on strategies, not tactics. We also need to become more aware of the issues in our supply chain and find ways to overcome them.

Our supply chain is made up of districts, where very small, medium, and large entities work together. The advantage of this system is that it generates a lot of creativity—because the small ones have to work hard to survive and they also have greater operational speed—a lot of flexibility, and a lot of efficiency. This system can respond to the specific requests of the customer very quickly. And our Italian research and taste can make the difference.

What is the weakness of this system? The micro and medium-size businesses are undercapitalized and often not properly equipped. We need to reach a certain scale without sacrificing the creativity of the smaller businesses. This can be done through mergers, and there are already examples of this happening. As an association, we proposed a digitalization plan for districts that even the smallest businesses can benefit from, generating positive impacts on the entire system.

In the short term, we need to help businesses and give them some breathing room in terms of payment extensions, incentives, funding, and better access to credit. However, this short-term approach must be part of a long-term strategic industrial project; otherwise, it remains just emergency management, which won’t take us far.

Italian fashion leaders also need to be more aware and prouder of the value of “Made in Italy.” We often take it for granted. We need to be more ambitious. There is still little awareness of the value of this industry and of international storytelling, which is the foundation of our industry.

McKinsey: Why do you think businesses in Italy often struggle to work together as a system?

Carlo Capasa: Many of our companies are first-generation. These businesses often have the advantage of being perceived by consumers as very authentic, but they can be very insular.

In France, the two major groups we know were founded by two financiers, and this situation is much simpler because the financier builds a structure and a portfolio of brands with more distance from the founder, compared with companies where the founder is still alive and exercises control over the business.

We are in a different development phase compared with France when it comes to creating multibrand groups, although in Italy, some are trying—for example, OTB by Renzo Rosso, Prada, or Zegna. I don’t rule out that in the coming years we could see the creation of an Italian group, or even a couple of Italian groups, that will become true multibrand groups. The French also started out like this. Italian fashion and entrepreneurship may lose a step, but then they catch up.

How to win back consumer trust

McKinsey: When we conducted consumer surveys for our State of Luxury report, we found that luxury consumers lost trust in some brands because they were seeing luxury products that seemingly hadn’t changed and yet had become more expensive. They felt there was a discrepancy between the product’s quality and its price. What are your thoughts on that, and how do you think brands can regain trust?

Carlo Capasa: In my opinion, there was a lack of communication. It’s not that the brands woke up one morning and decided to raise prices to make more money. If that had been the case, the last line of their balance sheet would have been exponentially higher.

So, what happened? There was a very strong indication that pushed brands to think that the competitive market was that of “super luxury.” This strategic push led brands to seek out craftsmanship, quality, processes, and services that represented this extreme luxury. All these investments were made to be not just luxury—which the brands already were—but to be super luxury. This caused the cost of products to rise, both in terms of raw materials and processes, as well as the softer aspects like customer management and so on. This is what created the price increase.

But the changes in the production processes and traceability that led to the price increases were not communicated to the customer. Therefore, the customer only saw the final product. Moreover, not enough importance was given to training the sales staff, who are tasked with explaining to the customer why a product’s price has changed.

There’s a tendency to think that it’s unnecessary to explain to the customer why a certain item has that price. We take for granted that everyone can recognize the value of a product, or that everyone is a fashion connoisseur. Today, more than ever, we need to make a huge effort in communication, to make it clear that the value is real. Because behind that product, there is a real process that ensures that, in the end, the margin of that product is the same as the margin of a product that used to cost the consumer half as much.

McKinsey: Worldwide, purchase intent related to experiences, including cultural trips and gastronomic trips, has grown. Do you think this helps Italian fashion? How can Italian fashion brands position themselves in a world where people may want to consume less?

Carlo Capasa: Fashion is an industry that has always had the ability to reinvent itself. Right now, many external factors have caused fashion to “fall out of fashion” a bit. We’ve lost that sacred fire behind fashion projects. We had a huge advantage with the entry of finance into fashion. However, we must be careful that this advantage doesn’t come at the expense of creativity, which is the basis of high-end products. If we allow marketing to take the place of creativity, we remove that emotional desire to buy, which is what distinguishes the fashion consumer who is passionate about it.

We need to ensure that the strong interest in owning a specific product, whether it’s a bag or a jacket, doesn’t fade. Today, this is becoming increasingly complex because the brand is becoming more of a lifestyle. This also means that brands need to create cultural content, deep narrative content, stories that go beyond the specific product. Brands that rely too heavily on marketing risk losing some of the allure that comes from authenticity and a sense of belonging.

The revolving door of creative directors at fashion houses can also have drawbacks during crises because it throws the brand’s creative identity into question. We need to put creativity back at the center. Fashion must first and foremost create dreams, which later turn into needs. If you satisfy a need without creating a dream, you take away a large portion of fashion’s revenue.

Lessons from yesterday, impact on tomorrow

McKinsey: The fashion industry has struggled to translate its sustainability commitments into action. What is your perspective on how brands should work toward their sustainability goals?

Carlo Capasa: Fashion has a huge impact in terms of environmental and social sustainability. So, we cannot do without placing sustainability at the center. However, when it comes to sustainability, we need to be very careful. In Europe, we must ask ourselves two questions: One, are the rules we are implementing correct, and do they respect the supply chain? Two, are these rules mirroring, meaning do they apply not only to the products we produce but also to those we import?

We are conducting a study to identify an alternative method to the one currently used in Europe to measure the sustainability of a product. This method would take into account not only the durability of the product, which must be measured by the actual longevity of those items on the market, but also its environmental impact and recyclability.

McKinsey: What advice would you give to your younger self?

Carlo Capasa: With Costume National, we changed the approach to fashion. It was a real revolution. However, I realize that I didn’t manage it in the best way because in those years I underestimated the industrial side. I was so attracted to creativity, to everything that was communication, marketing, and product, that I neglected the industrial part. We were excellent at storytelling. We dressed all the celebrities of the world for free. But all of this had an industrial fragility, and if I could go back, I would have managed this part much better.

FAQ

Q: What are the main challenges facing the Italian fashion industry?

A: The Italian fashion industry is grappling with decreased consumer demand, an aging workforce, and supply chain difficulties, among other issues.

Q: How can Italian fashion brands safeguard the “Made in Italy” distinction?

A: Italian fashion brands can safeguard the “Made in Italy” distinction by focusing on innovation, digitalization, and collaborative efforts within the supply chain.

Conclusion

In conclusion, the Italian fashion industry is at a critical juncture, facing both challenges and opportunities. By addressing issues such as supply chain sustainability, consumer trust, and industry collaboration, Italian fashion brands can position themselves for long-term success in a rapidly evolving global market. With strategic planning, innovation, and a renewed focus on creativity, the Italian fashion industry can continue to thrive and maintain its status as a global leader in luxury fashion.