Luxury manufacturing are in crisis: Bain calls for acquisitions

Luxury manufacturing is in crisis: Bain calls for acquisitions

What about big brands? Well, they have shoulders wide enough to handle the Coronavirus hit. Manufacturers of luxury goods, on the other hand, are in crisis: that’s the Made-In-Italy cluster, made of micro, small and medium companies that supply global luxury brands. They are the ones at risk. According to Bain & Co. total turnover for the segment is likely to decrease by 40%. That’s why analysts expect a sequence of vertical integration operations within the value chain. Acquisitions are the only tool available to brands to ensure continuity across the supply chain.

Luxury manufacturers are in crisis

Claudia D’Arpizio, partner at Bain, explained to the New York Times that “it is a very worrying situation. “The big brands are enduring tough times but generally have some liquidity and a strong consumer profile”, she continues “however, they all have networks of small suppliers scattered all over Italy. Those are the businesses more likely to disappear”. The luxury industry cannot just watch its backbone disappear: it would mean forgetting about the know-how and quality of Made-in Italy goods. That’s why Ms. D’Arpizio expects “a flurry of acquisitions”, as defined by the NYT, to save industry operators and their employees.

Common problem

It must be said that analysts don’t just expect vertical acquisitions along the chain, but also horizontal ones. In summary, the luxury market, conditioned by the impacts of Covid-19, is polarized among the few winners of this crisis, meaning the companies that are the most solid and better positioned within the segment. Losers will be pushed on the sidelines more than ever. “We expect those companies with the most financial reserves to gain an advantage from the crisis – stated Guia Saraceni (Boston Consulting Group) to MFF at the start of May -, as they may be able to enlarge their portfolios with new acquisitions. Companies that, on the contrary, are less ready to react to quickly change and adapt to the sudden changes of the moment, will have complications”.

Image from La Conceria’s archive

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