REPORT ON LARGE ITALIAN AND EUROPEAN FASHION COMPANIES

February 2020

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RICERCHE E STUDI S.p.A.

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Copyright 2020 by Ricerche e Studi – R. & S. Foro Buonaparte 10, Milano, Italy - Tel. 02-86462348/94

Internet: www.mbres.it

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Index

1 Large European fashion companies ................................................................................................................... 3

2 Large Italian fashion companies ...................................................................................................................... 14

3 Perspectives, international market and web strategy (source: Prometeia) ........................................... 19

4 Annex .................................................................................................................................................................. 25

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1 Large European fashion companies

For comparative purposes, the report combines figures concerning Italian companies with those of a selection of major European operators. The selection includes 46 major European operators in the fashion business, with a minimum limit on turnover of €900m in 2018; their nationality is established on the basis of the country in which the parent company has its head offices.1 The survey cannot consider the financial statements of non-listed groups located in countries where partial disclosure is allowed, as this means financial statements are unavailable. Reference is made in this connection to certain important operators in particular, such as the Swiss watch-making groups Rolex, with an estimated turnover of almost €5bn, and Patek Philippe, whose estimated sales amount to more than €1bn, and also Swarovski Crystal Business (Austrian jewellery), whose turnover is around €2.7bn. Further important exclusions include the Lacoste company, which reports sales of a total of €2bn,2 and the Bata Shoe Organization which considers itself as “the world’s largest manufacturer and marketer of footwear operating across the globe”. Today the Bata Shoe Organization is a “sprawling geo-centric company encompassing operations in more than 70 countries around the world, employs approx. 35,000 people and runs 23 production facilities across 20 countries”. The Bata family owns the group established in Czechoslovakia in 1894 (now in its eighth generation); it is hard to value their turnover due to a lack of information and the inter-related nature of the joint and associated companies.3 The survey also does not include Primark (British clothing), with turnover of €8.4bn, consolidated by the multinational ABF-Associated British Foods.4

The selection therefore covers the following 46 operators (14 of which are located in Italy, 10 in the United Kingdom, 8 in France, 2 in Spain, 4 in Germany, 2 in Denmark and Switzerland and 1 in Finland, Luxembourg, Poland and Sweden), sorted by 2018 net sales:

LVMH (FR): its origins date back to 1854, when Louis Vuitton established his leatherwear maison in Paris. In 1987 Moët Hennessy and Louis Vuitton merged and the LVMH Group was established. Today, LVMH is the largest luxury group worldwide, and operates in five sectors (fashion and leather, perfumes and cosmetics, watches and jewellery, wines and spirits and selective retailing) with around 70 brands. The company is listed in Paris and the major shareholder is the Arnault family through Christian Dior. In November 2019 LVMH and Tiffany, the American luxury jeweller, announced that the companies have entered into a definitive agreement whereby LVMH will acquire Tiffany for an equity value of approximately €14.7 billion. The acquisition of Tiffany will strengthen LVMH’s position in jewellery and further increase its presence in the United States.

Inditex (ES): established in La Coruna (ES) in 1963 as a modest workshop making dresses and quilt dressing gowns for distribution, its first shop under the “Zara” label was opened in 1975. Inditex is the second European fashion group; it does not manufacture directly. It’s the world leader in fast fashion industry. Listed in Madrid, its main shareholder is Amancio Ortega Gaona.

Adidas and Puma (DE): their origins date back to 1924, when Adolf (Adi) Dassler, the son of a shoemaker, started manufacturing shoes in his mother’s laundry. Together with his brother Rudolf, he established the Gebrüder Dassler Schuhfabrik which produced the outfit for Jesse

1 The nationality of the groups is established on the basis of the country in which the parent company has its head offices as at the year-end. Some

groups base the head office of their parent company in countries such as Luxembourg or the Netherlands, where there are tax benefits. Financial aggregates have been translated into Euros at the exchange rates ruling at the end of 2018.

2 Lacoste Holding employs around 10,000 people worldwide; along with Gant, Devanlay and Manor is part of the Swiss family-controlled Maus Frères Group.

3 Two of the main companies (ultimate owners) of the Bata universe are Bata Brands S.A. (based in Switzerland) and Compass Ltd. (based in Bermuda) whose financial statements are unavailable.

4 The following groups have also been excluded due to their 2018 Annual Reports or the entire historical series of financial statements for the 2014-2018 five-year period not being available in early January 2020: Decathlon (FR), C&A Mode (DE), Tendam Retail (ES), and Varner Holding (NO).

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Owens, winner of a gold medal at the Olympic Games in Berlin. After the war, the two brothers parted company. Adi continued with this activity under the new name of Adidas, whereas Rudolf established a new company called Ruda (made up of the first two letters of his first name, “Ru”, and surname, “Da”), later renamed as Puma (Puma Schuhfabrik Rudolf Dassler).

In 2005 Adidas acquired Reebok. The production is mostly provided by suppliers. Adidas is listed in Frankfurt and is a public company.

Puma was acquired in 2007 by French group Kering, which spun the company off to its own shareholders in May 2018. Puma is listed in Frankfurt, and its leading shareholder is the Pinault family who own 44%.

H & M Hennes & Mauritz (SE): Erling Persson founded the company in 1947 and opened the first women’s wear store “Hennes” (Swedish for “her”). Thereafter, in 1968 he acquired Mauritz Widforss’ business, a hunting apparel and fishing equipment retailer, and changed the name to Hennes & Mauritz. A menswear and children’s clothing trade was also started. It does not manufacture directly. Listed in Stockholm, its main shareholder is the Persson family.

EssilorLuxottica (FR): in October 2018, the French company Essilor merged with Italian Luxottica and the new holding company EssilorLuxottica was set up and based in Paris. Luxottica was delisted from Milan stock market on 5 March 2019. EssilorLuxottica’s majority share is owned by the Del Vecchio family and is listed in Paris.

Essilor was set up in 1972 from the merger of Essel and Silor, leaders in the ophthalmic lenses sector. Essel was established in 1849 in Paris, initially as an association of spectacle-frame makers under the name of Société des Lunetiers (SL, which became Essel in 1962); in 1861, it acquired glass-cutting expertise with the ambition “to be one of the leading lens manufacturers in Paris”. In 1955, with Nylor, SL introduced an innovative system that is still used today: a lens held in the upper section of the frame by a nylon thread inserted into a groove running all around the lens. In 1959, SL developed and patented Varilux, the first progressive lens, a revolutionary concept compared to the bifocal lenses invented in the eighteenth century by Benjamin Franklin. Silor, set up in 1969 from a combination of Société Industrielle de Lunetterie (SIL) with associate company LOR (specializing in plastic lenses), launched operations as a retail seller of ophthalmic lenses and frames, before moving on to become a lens manufacturer itself through Lissac Brothers Company, a company founded in 1931 at the initiative of French optician Georges Lissac.

Luxottica Group was established by Leonardo Del Vecchio in 1961. The name combines “lux” (light) with “ottica” (optics); at the outset the company only produced components for the eyewear industry and in 1971 it started manufacturing finished products, i.e. spectacles, sold under its own brand. Over the time the company reached its present size through acquisitions, acquiring numerous sector operators in all parts of the globe. In the United States in particular it acquired The U.S. Shoe Corp. (owner of the “LensCrafters” retail distribution chain) in 1995, the Bausch & Lomb sunglasses frame division (“Ray-Ban” brand and others) in 1999, and Oakley in 2007 (sports eyewear).

Compagnie Financière Richemont (CH): established in 1988 after the spinoff of the international assets of the Rembrandt Group Ltd. of South Africa (set up by Anton Rupert in 1940 and operating in the business of tobacco, finance, wines and spirit, gold and diamond mining, luxury goods investments, including investments in Cartier and Rothmans). In 1993 the luxury goods activities were carved out from the tobacco operations (which were then sold to British American Tobacco). Since 1-3-2019, after takeover offer, it consolidated the Italian online retailer Yoox Net-a-Porter (YNAP) which was de-listed from the stock market on 20-6-

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2018. Focused on manufacturing of haute horlogerie and luxury goods, the company is listed in Zurich and the main shareholder is the Rupert family.

Kering (FR): established by Francois Pinault in 1963 as a wood and building materials business, the group repositioned itself in the distribution sector after the acquisition of Conforama. In 1999 it entered the luxury goods sector, with the acquisition of 42% of Gucci (increased to 100% in 2000); in 1999 it acquired Yves Saint Laurent and Boucheron too and in 2001 Bottega Veneta and Balenciaga, followed by the acquisitions of Girard-Perregaux (in 2011), Brioni (in 2012) and Pomellato (in 2013). Listed in Paris, its main shareholder is the Pinault family.

Chanel (UK): the founder was Gabrielle “Coco” Chanel, who opened her first boutique in Paris in 1910; she started clothing production in 1915, then she further developed her activities, entering the perfumes sector with “Chanel No. 5” in 1921, and the leather goods sector with the 2.55 bag in 1955. Karl Lagerfeld has been the creative director since 1983. The main shareholder is the Wertheimer family, whose founder Pierre co-operated with Chanel in the 1920s to distribute perfumes, before eventually becoming the maison’s owner.

The Swatch Group (CH): its origin dates back to 1930, when Omega and Tissot merged, and the new company SSIH-Société Suisse pour l’Industrie Horlogère was set up. In 1983 the company was merged with the Swiss watchmaker ASUAG to create the Swatch Group (“second watch”: quality watch at a reasonable price). The company manufactures and sells watches and finished jewellery, mechanisms and components included. It is listed in Zurich, and the main shareholder is the Hayek family, the founder Nicolas Hayek’s heirs.

Hermès International (FR): in 1837, Thierry Hermès began working as saddler in Paris. The first bag was manufactured in the early twentieth century, whereas the first line of leather goods appeared on the market in 1918. In the 1950s new activities were developed in the fields of clothing, jewellery and watch-making. The “Kelly” bag (designed in the 1930s) was launched in 1956 and the “Birkin” bag in 1981 (Mr Dumas, who was at that time CEO and a family heir as well, got the idea for this product during a flight when he sat next to the English actress of the same name). In 1993 it acquired the silverware manufacturer Puiforcat (already shareholders since the 1940s), and in 1995 the crystal manufactory Saint-Louis. The company has full control of the production chain, in part due to the large number of tanneries and leatherwear manufacturers they own. The company is listed in Paris and the main shareholder is the Bauer family, Hermès family’s heir.

Capri Holdings (ex Michael Kors Holdings) (UK): established in 1981 by the designer Michael Kors. The company bought Jimmy Choo in November 2017 and Versace in December 2018. In this last transaction, the Company’s trade name was changed to Capri Holdings. It is listed in New York and is a public company.

Samsonite International (LU): the company was established in Denver (US) by Jesse Shwayder and his brothers in 1910 to manufacture wooden trunks; in the 1940s it started up luggage production. In 1974 it created the first suitcase on wheels, in 1986 the first one with a three-point lock system. In 1993 the company acquired American Tourister, and Tumi Holdings in 2016. It is listed in Hong Kong and is a public company.

Prada (IT): the group’s origins date back to the craftsmen’s activity for manufacturing leather bags, trunks and accessories started in Milan by Mario Prada in 1913. The activity was expanded in 1983 with the industrial production of shoes; further diversification took place in 1989 with the opening of the women’s clothes department, followed in 1995 by the menswear department. In 1999 the Group acquired UK company Church. It is listed in Hong Kong and the main shareholders are Patrizio Bertelli and the Prada family.

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Bestseller (DK): formed in Ringkobing (DK) by the Povlsen family in 1975, it belongs to the Danish Group Heartland, of which Bestseller is the core business; besides fashion, this group operates in other fields. It does not manufacture directly. Anders Holch Povlsen is the only shareholder.

Pandora (DK): Pandora was established by Per and Winnie Enevoldsen in Copenhagen in 1982 as a small jeweller’s shop. Initially the company operated as a wholesaler of products imported from Thailand; since 1987 it has traded its own products. The company specializes in the manufacture of rings, necklaces and bracelets which can be customized on demand. In 2008, 60% of the share capital, which at that time was held by the family, was acquired by the Axcel Group (this share was later reduced to less than 5%). It is listed in Copenhagen and is a public company.

Burberry Group (UK): in 1856 the company was formed by Thomas Burberry, who created the gabardine fabric in 1879; from the end of nineteenth century, this fabric was welcomed by explorers who wore it on their expeditions. In 1912 Burberry made the first trench coat, and during the Second World War it supplied the British Army with a range of military clothing and accessories. In 1955 Burberry was acquired by the UK Great Universal Stores group (GUS), from which it demerged in 2005. It is listed in London and is a public company.

Hugo Boss (DE): established by Hugo Ferdinand Boss in Metzingen (DE) in 1924, the company started its activity by manufacturing hand-made clothes and becoming the supplier of wholesaler Rudolf Born, who was a textiles distributor of the National Socialist Party. In 1931 it was facing bankruptcy; the financial troubles were overcome through the supply of uniforms for the Party first of all and for the army thereafter. At the end of Second World War, and in spite of the sanctions handed down by the Allied Forces, the activity continued with the manufacturing, among other things, of uniforms for the French occupation forces and the Red Cross. The first men’s suit was made in 1950. In 1991 the Marzotto family became the controlling shareholder. In 2007, following an IPO, Permira investment fund reached 75% of the capital; this was gradually reduced (the remaining 7% was sold to the Marzotto family again in 2014). It is listed in Frankfurt and is a public company.

Asos (UK): the company was incorporated in London in 2000 and operates via the website ASOS.com. It offers items of clothing, footwear, accessories and cosmetics mainly for the youth fashion market via proprietary and third-party brands. Sales were initially to the United Kingdom, but since then have gradually extended to the United States, European Union and the rest of the world. ASOS is listed on the London Stock Exchange and its largest shareholder is Bestseller (DK) with 26% of the company’s share capital in January 2020.

Amer Sports (FI): established in 1950 as Amer Tobacco, it started its activity as a shipping-line company (the last ship was sold in 1981). In the 1970s the activity was enlarged to include the paper and publishing and printing businesses (gradually sold in the 1990s) and the manufacturing of sport articles (mainly for hockey). In the 1980s the company commenced operations in the plastics market and in import/distribution of cars (sold in the early 1990s); from around the mid-1980s, the group focused on the textile and sports outfits business (acquisition of Wilson in 1989, Atomic in 1994, Suunto in 1999, Precor in 2002 and Salomon in 2005). More than 60% of the production is made by suppliers. In March 2019 a consortium led by China’s leading manufacturer of sportswear Anta Sports purchased all the shares of the Finnish Amer Sports which was delisted from Helsinki Stock Exchange on 4th September 2019.

Calzedonia Holding (IT): Sandro Veronesi founded this company in 1986, as commercial network for the retail sale of hosiery and beachwear for women, men and children. The production of corsetry, knitwear and beachwear commenced in 1998. In 2009, acquisition of Falconeri’s majority share enabled the company to penetrate the both the cashmere and high quality knitted goods markets, and later on, in 2012, to enter the wholesale trade with

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the “Signorvino” wine and restaurant chain; in 2014 the company acquired Atelier-Emé and broke into the wedding dress and dress-coat market. The owner is the Veronesi family.

Mango MNG Holding (ES): established by Isak Andic in 1984 with the opening of the first point of sale in Barcelona; it does not manufacture directly. The owner is the Andic family.

Giorgio Armani (IT): established by Giorgio Armani and Sergio Galeotti in 1975, the company deals in clothes and accessories. The owner is Giorgio Armani.

Arcadia Group (UK): in the early years of the twentieth century Montague Burton set up his menswear business in Chesterfield (UK); in a few years he established a chain of Burton stores selling ready-to-wear and bespoke suits. In 1946, acquisition of the Peter Robinson chain enabled him to start the women’s wear line; in 1970 the group acquired Evans and Dorothy Perkins and at the end of the 1990s, Wallis, Miss Selfridge and Outfit. Since 2002 it is part of the Taveta Investments Group, whose owner is the Green family.

LPP (PL): in 1991 Marek Piechocki and Jerzy Lubianiec established Mistral, which later in 1955 became LPP (Lubianiec and Piechocki Partners). In 2008 the company acquired Artman, House and Mohito brands’ owner. The production is completely outsourced, but internally designed. Listed in Warsaw, Piechocki and Lubianiec are the main shareholders through two Foundations.

C. & J. Clark (UK): the group’s origins date back to 1825, when Cyrus and James Clark made a slipper from sheepskin offcuts. In 1950 the desert boot was launched. The company outsources the majority of manufacturing of its products. The main shareholder is the Clark family.

Max Mara Fashion Group (IT): grounded in 1951 by Achille Maramotti, the group took its first steps in the high fashion business and then turned towards a younger and more diversified target. The Maramotti family is the main shareholder.

Fielmann (DE): set up in 1972 by Günther Fielmann, and headquartered in Hamburg, the eyewear company manufactures low-cost frames with certified lenses and free eye checks, and this has been the basis of its success in Germany, where it covers half the market in terms of units sold. By creating fashionable eyewear at no cost (“Nulltarif”) in 1981, Günther Fielmann ended the discrimination against people wearing statutory health insurance frames, democratized the world of fashion for glasses, and made them socially acceptable; “Nulltarif” replaced the eight unattractive health insurance frames with many fashionable and high-quality metal and plastic frames. Fielmann is designer, manufacturer (the main manufacturing plant is located in Rathenow, Germany), distributor and optician, and it covers the entire value chain in its industry. It is now the only family-run business whose shares are listed on the Frankfurt stock market.

Moncler (IT): established in 1952 by two craftsmen named René Ramillon and André Vincent who lived in the mountains at Monestier de Clermont (FR) (shortened in the trademark to “Moncler”). The first nylon down jacket was manufactured in 1954; in 1992 the company was acquired by Pepper (subsequently merged into Fin.Part in 1998). From 2003 to 2011 the shareholder structure changed continuously: Ruffini’s share remained stable, while Carlyle fund and Eurazeo Group alternated among the main shareholders. Listed in Milan, the main shareholder is Ruffini Partecipazioni s.r.l. owned by Remo Ruffini.

Novartex (FR): in 1896 Albert and Jérôme Levy founded the André Group in Nancy (FR). In 1981 the activity commenced under the trade name “La Halle”. Following a number of acquisitions between 1987 and 2000 (including Kookai, Besson, San Marina and Cosmoparis), the company’s trade name was changed to Vivarte whose holding is Novartex. In 2007 it

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acquired Naf Naf, Chevignon and other companies. As from 2017, the company started selling many brands (Kookai, Naf Naf, André shoes and Besson Chaussures). The company is not a direct manufacturer. The owner is Novartex Holding II Luxembourg SCA.

OTB (IT): Renzo Rosso created this brand in 1978 and established a company bearing the same name in 1985. In 2002 Only The Brave s.r.l. (then OTB) took over, and at the same time acquired the French company Neuf (Maison Margiela brand’s owner); thereafter Viktor&Rolf in 2008, Marni Group in 2013 and the Paula Cademartori brand in 2016. There are no important production sites. The ownership is the Rosso family.

New Look Retail Group (UK): established in 1969 by Tom Singh, with the opening of the first store in Taunton (UK). It does not manufacture directly. The owner is the holding company Top Gun Bidco Ltd, which is controlled, in turn, by the investment holding company Brait whose shares are listed on the Luxembourg Stock Exchange and also on the Johannesburg Stock Exchange.

D & G (IT): in 1982 Domenico Dolce and Stefano Gabbana created their own style centre; in 1985 the first catwalk took place; in 1986 they launched their first self-produced collection. The ownership is equally shared between the two stylists.

Salvatore Ferragamo (IT): Salvatore Ferragamo established the company in 1927; it was a small workshop for shoes manufacturing; the activity was then enlarged to include leather goods, printed silk accessories, suits and dresses and jewellery. Since 1997 perfumes have been included as well. Towards the end of the 1990s the company acquired the French group Emanuel Ungaro, and then sold it in 2005. It is listed in Milan, and the main shareholder is the Ferragamo family.

Missouri Topco (UK): its origins date back to 1985, when John Hargreaves established Matalan in Knowsley (UK). Clothing and homeware are not manufactured directly. The Hargreaves family owns Missouri Topco’s, which is Matalan’s owner.

Valentino (IT): Valentino was formed in 1960 by Valentino Garavani and Giancarlo Giammetti. In 1998 it was taken over by the HdP group, and merged into the Marzotto group in 2002. Acquired by the Permira fund in 2007, it was sold to the Mayhoola for Investments, a fund located in Qatar, in 2012. The owner is MFI Luxury s.r.l..; its parent company is Mayhoola for Investments.

Ermenegildo Zegna Holditalia (IT): Ermenegildo Zegna is a leading global luxury menswear brand founded in 1910 in Trivero, Italy, by the young entrepreneur Ermenegildo, whose pioneering vision continues to inspire the company business development in a sustainable way: to use resources for the good of others; to give back to people and to employees; to take care of the territory and communities from which the brand comes. The company is today managed by Ermenegildo Zegna as CEO, grandson of the founder and third generation of the Zegna family. Throughout the years the company has evolved from high quality textile production to the artisan commercialization of sartorial expertise and onto the affirmation of a luxury worldwide lifestyle brand with a retail network covering over 100 countries. Over the years, the Group has carefully expanded its scope of activities, acquiring the luxury women’s fashion brand Agnona, the controlling share of Bonotto SpA, a textile manufacturing company, a majority share of Dondi Group, the global leader in high-quality jersey fabrics made exclusively in Italy. In August 2018, Ermenegildo Zegna Group self-financed the landmark acquisition of an 85% share in Thom Browne, Inc.

Kiabi Europe (FR): the first store was opened by Patrick Mulliez at Rocq (FR) in 1978, to offer “trendy articles at low prices for the whole family”. It does not manufacture directly. The

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ownership belongs to the French group Bunsha International S.A., owned by the French Mulliez family.

River Island (UK): it is a London-headquartered fashion company set up in 1948 when Bernard Lewis decided to try his hand at starting a business. However, it wasn’t clothing that he first tried to sell. Back then, he opted for fruit and vegetables which he sold to local people in London. Not long after, he changed his products entirely and he started a fresh business selling wool for knitting. This business idea took off quicker than the fruit and vegetable stall, and Bernard Lewis’s three brothers decided to join him and expand the company. In the 1960s, since Chelsea was rapidly becoming the centre of pop culture and fashion, the business was renamed Chelsea Girl and it was the first fashion boutique chain to open in the U.K., focused solely on items that would appeal to females. In 1988 Chelsea Girl was branded River Island and started selling clothing, footwear, and accessories also for men. Nowadays River Island is engaged in the design and retailing of clothing and accessories all over the world. Almost all of its products are designed inhouse. River Island is a private company owned by the Lewis family.

SMCP (FR): the origin of the company, which was founded in 2010 by two investments funds run by the Arnault and Louis-Dreyfus families, dates back to 1984, when Evelyne Chétrite created the “Sandro” brand. This was followed by the “Maje” brand (created by her sister Judith Milgrom) in 1998 and by the “Claudie Pierlot” brand bought in 2009. In 2013 the US investment fund KKR became the controlling shareholder; later in 2016 it was sold to the Chinese group Shandong Ruyi who is the actual main shareholder. Seen by many as the “LVMH of China”, Chinese group Shandong Ruyi over the years has acquired many top-end griffes, including the UK brand Aquascutum, as well as French accessible luxury group SMCP, listed in Paris.

Lir (IT): the group’s origins date back to 1992, when Mario Moretti Polegato established Geox at Biadene di Montebelluna in the province of Treviso. The manufacturing of shoes under the Geox brand started at an industrial level in 1995. In the following years the activity expanded and included clothing as well. In 2009 the company bought the Diadora brand, which had filed for bankruptcy. Lir is a holding company, whose single owner is the Moretti Polegato family; it is the controlling shareholder of Geox, a company listed in Milan.

Superdry (UK): in 1985 Julian Dunkerton and Ian Hibbs opened the Cult Clothing store at Cheltenham (UK). In 2003 Dunkerton and James Holder set up the Superdry brand, which since 2004, has been sold in the Cult Clothing stores; together with Theo Karpathios, they founded SuperGroup (now Superdry). It is not a direct manufacturer. Listed in London, the main shareholder is Julian Dunkerton.

Safilo Group (IT): the production of lenses and spectacles was commenced by the Frescura brothers and Angelo Lozza at Calalzo di Cadore in the province of Belluno in 1878; in 1934 the business was bought out by the Tabacchi family’s company Safilo. In 1984 the company started production of licence glasses collections. Since 1986 the company has taken over several companies operating in the fields of sale and distribution of spectacles. In 1986 it acquired the assets of Carrera Optyl; during the same year it took over the American Smith Sport Optics and, in 2012, Polaroid Eyewear. Listed in Milan, since 2009 the main shareholder has been the Dutch company HAL Holding N.V. through Multibrands Italy B.V.

Benetton Group (IT): the group’s origins date back to 1965, when Luciano Benetton decided to update the classic woollen pullover (at that time available only in the basic colours) and to offer it in many colours and at reduced prices; with his brothers he established the Maglificio di Ponzano Veneto dei F.lli Benetton (subsequently Benetton). Since 1972 he enlarged the range of products and in 1974 he acquired the rights for the exclusive use of the Sisley brand. From 1982 to 2000 Oliviero Toscani co-operated in the advertising campaigns (which

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originated the “United Colors of Benetton” concept). In 1986 the Formula 1 team was set up (then sold in 2001 to Renault). From 1989 to 1991 the group progressively took over Nordica (ski-boots), Prince (tennis rackets), and Asolo (footwear), and acquired a 50% stake in Rollerblade. In 1998 Asolo was sold to Zanatta’s family; in 2003 Nordica and Rollerblade were sold to Tecnica Group and Prince to American Lincolnshire Equity Fund II. Consequently Benetton Group focused its activities on apparel. The owner is Edizione s.r.l., the Benetton family’s holding company.

Tod’s (IT): the origin of the industrial activity dates back to the early years of the twentieth century, when Filippo Della Valle set up a small slipper factory. In 1979 the company started manufacturing shoes, to begin with only for women, whereas the first clothing line came into production in the mid-1980s. In 2016 it acquired Roger Vivier (licensing since 2001). Listed in Milan, the main shareholder is Diego Della Valle, Filippo della Valle’s grandson.

Etam Developpement (FR): the company’s origins date back to 1916, when Max Lindemann, manager of Mayer, opened a store in Berlin under the Etam brand to sell synthetic stockings. Later on some branches were opened in Argentina and Europe, and one in Paris in 1928. In 1963, Elan, the parent company of Etam France, merged with Pierre Milchior’s Sétamil (a Dutch wholesaler of underwear since 1925), and as a result the Etam Group was set up. It is not a direct manufacturer. The equity is shared between the Milchior and Lindemann families (the founders’ families and controlling shareholders).

In 2018, the 46 leading European fashion groups reported aggregate revenues of €251.5bn (up 33.6% on 2014 and 6.3% on 2017; see the annex for further details).5 Between 2014 and 2018 they grew at a CAGR of 7.5%. Italy, with 14 fashion groups, is the most represented European country; conversely, in terms of revenues, France is comfortably the leader, as it accounts for 34.6% of total net sales, followed by Germany (12.2%) and Spain and United Kingdom (11.3% both). The 14 Italian companies’ aggregate share of the net sales is 8.3% in 2018, lower than the 12.8% in 2017, mostly due to the merger between Luxottica and Essilor and the fact that the new holding company EssilorLuxottica is based in Paris.

Of the leading groups, French giant LVMH confirms its position as the outright leader by size (with sales of €46.8bn); it is widely diversified across the following divisions: Fashion & Leather €18.5bn, Wines & Spirits €5.1bn, Perfumes & Cosmetics €6.1bn, Watches & Jewellery €4.1bn, and the remainder mainly distribution.6 Much further behind are Spanish group Inditex (€26.1bn), German company Adidas (€21.9bn), H&M of Sweden (€20.5bn), EssilorLuxottica (€16.2bn), the Swiss group Richemont (€14.0bn) and the French company Kering (€13.7bn, of which €8.3bn Gucci, €1.7bn Yves Saint Laurent, €1.1bn Bottega Veneta). Some 52.3% of the total aggregate net sales is generated by these first five players. Prada (€3.1bn), the highest-ranking of the Italian operators, came in fourteenth. The CAGR in revenues in the 2014-2018 saw UK-based ASOS in first place (up 25.5%), followed by the Italian company Moncler (up 19.6%); French SMCP, which went public on the Paris stock market in October 2017, was in third place (up 18.9%), and Danish company Pandora (up 17.6%) came fourth in the rankings.

It is worth noting that the European fashion industry has a higher growth rate than the global manufacturing companies (sales CAGR 2014-18: +7.5% for the former and +3.1% for the latter), is more profitable (Ebit margin of 15.5% for the former, 11.7% for the latter), better capitalized (leverage ratio:7 26.3% vs 75.9%), and more “liquid” (disponibility as a percentage of borrowings: 100.8%, vs 41.6%).

5 Constant exchange rates. 6 In january 2020, the LVMH announced it was opening cafés and restaurants, under the Louis Vuitton and Dior brands. The fashion-food combination is

now part of some fashion companies’ strategies. 7 Borrowings as % of net equity.

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It is worth comparing the performance of the top 14 Italian fashion industry companies to those of the rest of European groups. On the one hand, the Italian groups show a slower growth rate (sales CAGR 2014-18: +0.9%, vs +8.2%), and are less profitable (Ebit margin: 9.0%, vs 16.1%). Conversely, the Italian firms are better capitalized (leverage ratio: 20.6% vs 26.9%) and comfortably more “liquid” (disponibility as a percentage of borrowings: 168.0%, vs 95.2%).

In 2018, the 46 European operators created jobs for almost 1,140,000 people, some 190,000 more than in 2014. The Spanish groups distinguished themselves by increasing their workforce by almost 47,000 employees in the 2014-18 period (due mostly to the Inditex group), followed by the French firms which expanded their headcount to include a further 43,000 staff. The fourteen largest Italian groups increased their workforce by around 11,200 employees.

Global players

It should be noted that regardless of the country in which the parent company has its head offices, the 46 groups are fully global operators in terms of work force, sales and production. On average 76% of their work force is spread worldwide, and while only 24% of the employees work in the country where the parent company has its head offices.

With reference to sales, a distinctive feature of these largest European fashion groups is their international dimension: an average of 84.5% of sales is generated outside the respective country of origin, with the listed companies recording slightly higher readings (88.6%) and the public companies8 reaching 93.5%. In terms of large geographical areas, net sales outside Europe account on average for 57.1% of the groups’ total net sales, with the listed companies again recording slightly higher levels (59.5%) and the public companies as much as 68.7%. Thus it is the listed groups and in particular the public companies which appear to be the most international.

With reference to production, 44% of these groups are defined as no-factory companies, i.e. companies which do not have material production sites of their own, do not manufacture inhouse but outsource the majority of their production activities to external laboratories. They exert supervision over the production filière themselves, create, design and develop the prototypes inhouse, and manage the distribution network (directly and indirectly). The other 56% have opted for a strategy whereby they themselves control the entire production filière: these groups manufacture inhouse via production facilities of their own, complementing direct production with the use of select external laboratories. The role of the supply chain is evident in both cases. For the globalized groups, the supply chain extends worldwide: on average, 35% of the suppliers are located in Europe, 59% in Asia (which ranges from lows of 1% to highs of 98%), and the other 6% in the rest of the world (Americas and Africa). On average 27% of the suppliers are located in Italy (which ranges from lows of 0.1% to highs of 90%), emphasizing the role that “made in Italy” has in the fashion industry, second-to-none at the top end of the range in particular.9

For these fashion groups intangible assets have a more substantial role than that demonstrated by the global average, bearing out the sector in which they operate (importance of creativity and brands which are intangible assets) and the no-factory strategic choices. Indeed, intangible assets account for 32.6% of the total assets for fashion companies,10 higher than the 25.9% reported for manufacturing multinationals worldwide.

8 Companies with widespread shareholder base. 9 Of the groups that report figures in this area, the highest percentages were for Tod’s (which said that 90% of its suppliers are located in Italy), Kering

(88%) and Prada (80%); at the opposite end of the spectrum were Mango (0.1%), Missouri Topco (0.3%) and New Look Retail Group (1.0%). The high percentages reported by Tod’s, Kering and Prada are also influenced by the high quality levels associated with “made in Italy” in top-end leatherwear, as recognized worldwide.

10 Intangible assets as % of the total assets: 39.6% for integrated companies and 9.8% for no-factory companies. ROI is 16.8% for integrated companies and 22.8% for no-factory companies and 18.1% for total fashion groups. Most of no-factory companies operate in fast fashion industry (Inditex, H&M, Bestseller, ASOS...).

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Ownership

As for ownership, as at year-end 2018, 34 companies out of 46 were family-run businesses, 7 public companies and 5 controlled by private equity funds and/or investment holding companies. Only 27 out of 46 were listed companies; of these, 27 were quoted companies, 18 had families as main shareholders, 7 were public companies and 2 had private equity funds and/or investment holding companies as their principal shareholders.

Excluding the strictly non-fashion divisions of the giant LVMH,11 the aggregate of the 46 groups reported aggregate revenues of €227.3bn (up 32.8% on 2014), with an Ebit margin at 15.7% in 2018. As much as 83.3% of the aggregate turnover (€189.4bn) was produced by the 27 listed companies (family-owned or not, as the case may be), and the other 16.7% (€37.9bn) by the 19 non-listed companies, most of which are family-owned, or in a few cases owned by funds. The listed companies also posted higher Ebit margins than the non-listed companies, at 16.7% versus 11.0%. They have also grown quicker: the growth in sales during 2014-18 was 39.7% for the listed companies, compared with 6.4% for the non-listed companies. Hence despite not being especially numerous compared to the total, the listed companies are larger in size, more profitable and grow quicker than the unlisted ones. It would appear, then, that opening the ownership up to the stock markets is an effective boost for the companies’ growth and profitability. If we go to a deeper level of detail in terms of the ownership and split the macro-set of the listed companies further, it emerges that family-owned listed companies are more profitable than the public companies (with an Ebit margin of 17.8% as compared with 13.2%) and grow slightly faster (by 40.1%, as against 39.7%); the set of listed companies is completed by those in which the leading shareholders are funds: these companies report an Ebit margin of 4.1% and a growth rate of 17.3%. The best combination in terms of profitability and growth there appears to be family-owned companies which open the shareholder structure up to the capital markets.

Sustainability reports

In 2018, 83% of the fashion companies (38 out of 46) compiled a Sustainability Report, also known as a Social Responsibility Report or Non-Financial Statement.12 For 66% of the companies (25 out of 38) this report is an independent document, for the others it is added to the Annual Report as a separate section, along with the financial data. The main issues analysed in these reports are ESG (Environment, Social and Governance) criteria adopted in the companies’ strategies. Indeed, environmental and social issues are increasingly critical for these companies’ operations, impacting more and more on their strategic and management rationale, production choices and innovation processes.

As far as regards social issues and employment, the most common aspect is the age of the workers employed by the largest European fashion groups: on average, 39% of the total employees are under 30 years of age, 49% are aged between 30 and 50, and the other 12% are over 50. If we take the subset of most dynamic companies,13 the composition by age is basically very similar: on average 39% are aged under 30, 48% are aged between 30 and 50,

11 If we consider only the fashion divisions (“Fashion & Leather” and “Watches & Jewellery”), in 2018 LVMH net sales were €22.6bn and Ebit margin 29.4%. 12 For Italy, Italian Legislative Decree 254/2016 of 30 December 2016, implementing Directive 2014/95/EU (the “Barnier Directive”), introduced an

obligation on entities in the public interest and large entities to draw up and publish non-financial statements. 13 Dynamic companies are defined as those in the panel with above average profitability and growth in the five-year period under review.

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and the other 13% are over 50. The age of a company’s staff thus does not appear to affect its earnings performance, but mixing different ages together is positive.

With reference to the issue of diversity in the workforce and governance, for the largest European fashion groups, women on average account for 69.7% of the total, while the number of women employed in management positions declines to 54.2% and those represented on the Boards of Directors reduces further to 24.0% (in other words, on average only one out of every four Board members is a woman). If we take the subset of most dynamic companies, female representation is higher on average, especially in management roles and Board positions: on average women account for 72.6% of the total in such companies, for 65.3% of management and 37.7% of directors (on average one out of every three Board members is a woman). It would therefore seem that the presence of women is a significant boost for the companies’ growth and profitability.

With regard to environmental issues, the most important themes regard emissions, energy and waste. On average the CO2 emissions by these large groups rose by 5.5% between 2017 and 2018, with a substantial divergence between the different companies included in the panel, which ranged from a 22.1% reduction to a 61.0% increase. On average the waste produced by the large groups also rose by 5.0% between 2017 and 2018, here too with a substantial divergence between the panel companies, ranging from a 36.5% reduction to 30.6% growth. It should in any case be noted that net sales also grew between 2017 and 2018 (up 6.3%, in value and volume both). On the environmental front, and with reference to these two variables at least, there seems to be considerable room for improvement in the future if the emissions and waste figures in particular are to go downwards. To reduce its environmental impact, the fashion industry has to do more than simply put out “green” communications; it has to adopt a sustainability of process to lengthen the life-cycle of its products by investing in recycling strategies. However, many “green” initiatives are extremely recent and have only just been launched, so we are optimistic that the data from the sustainability reporting in the coming years will be positive. The issue is especially relevant to ESG consumers/investors of the future, i.e. the so-called “Alpha” generation (those born since 2010), far beyond generation Z and the millennials.

Better news emerges with regard to use of energy from renewable sources: on average this improved by 2.8 percentage points from 2017 and 2018, with the average used by these groups worldwide increasing from 26.4% to 29.2%. Here again the panel reflects a substantial divergence, ranging from an increase of 22.2 p.p. in one case to a decrease of 7.0 p.p. in another. Another note of optimism in the energy area regards the fact that roughly half of the Italian companies states that, for Italy itself, all of the energy used (i.e. 100%) in 2019 came from renewable sources.

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2 Large Italian fashion companies

The survey is based on information gleaned from the large Italian Fashion Companies’ financial statements. It covers 173 companies located in Italy, operating in the Fashion business and with a turnover of more than €100m in 2018,14 156 of which are manufacturing companies and 17 perform retail business. They mostly operate in Northern Italy (73 in North-West and 51 in North-East), and the remaining 49 in Central, Southern Italy and Sicily/Sardinia. As for ownership, 103 companies are Italian and 70 belong to non-Italian shareholders (28 are French, 13 of which are part of Kering Group and 9 of LVMH Group); 15 are listed companies. Each manufacturing company has been attributed a sector, according to its main activity: clothing industry (72 companies), leather goods and footwear (42), jewellery (20), textiles (17), eyewear (5).

Value added by the aggregated Italian fashion industry companies contributes 1.2% of national GDP (versus 1.1% in 2014). In the 2014-18 period, the Italian fashion industry recorded higher rates than those reported by GDP.15

It is instructive to compare the performance of the Italian manufacturing fashion industry to that of the Italian manufacturing companies:16 overall the former grows faster (sales CAGR 2014-18: 4.5% for the former and 3.6% for the latter), is much more profitable (Ebit margin of 9.4%, against 5.9% for the other companies) and better capitalized than the latter (leverage ratio: 33.8% vs 79.0%).

In 2018 the Italian fashion companies’ aggregate sales amounted to €71.7bn,17 up 22.5% on 2014 and 3.4% on 2017. The most important segment is clothing (42.6% of total revenues in 2018), followed by leatherwear (23.1%) and eyewear (15.6%). The highest annual changes in aggregate sales for the 2014-2018 period date back to 2015 (up 9.4%); the growth rate in the last years was slower but still significant (up 3.5% in 2016, up 4.6% in 2017 and up 3.4% in 2018). With regard to the CAGR in aggregate sales in 2014-2018 (up 5.2%), the jewellery segment posted the highest growth rate (up 10.9%), followed by leatherwear (up 6.2%), textiles (up 5.7%), distribution industry (up 4.9%), clothing (up 4.5%) and eyewear (up 3.7%). In 2018 the aggregate Ebit margin was 8.2% (9.2% in 2014); although eyewear and leatherwear proved to be more profitable in 2018 (both an Ebit margin of 12.0% and 10.2% respectively), jewellery and textile companies stood out as the only segments with a growth in Ebit margin between 2014 and 2018 (up 3.9 p.p. and up 0.6 respectively).

In 2018, 34.7% of total sales of Italian fashion companies is accounted for by companies controlled by foreign shareholders (French in particular, 14.2%, mainly due to luxury conglomerates such as LVMH and Kering, 5.4% both). In 2014 this percentage was lower, at 23.9%:18 the share of sales by Italian companies attributable to non-Italian shareholders has increased by 10.8 percentage points in five years (2014-18),19 mostly because non-Italian companies grew much faster than Italian ones (+42.9% net sales increase in 2018-2014 for the former and +11.6% for the latter).20

14 Eight companies have been excluded due to their 2018 Annual Reports not being available in early January 2020. 15 Source for GDP data: Istat – National Accounts. Online data updated to September 2019. CAGR 2014-2018 GDP: +2.1%, CAGR value added by the

aggregated Italian fashion industry: +4.0%. 16 Source for Italian manufacturing companies: Leading Italian Companies (2019 ed.) - Manufacturing companies with net sales > 100 mln (fashion

companies excluded) - Mediobanca Research Area. 17 Based on the total revenues of €95.5bn in this sector (Confindustria Moda), this figure represents some 75% of the broad fashion system, also known as

TMA (Textile, Fashion, Accessories). 18 In 2014: French 9.8%, mainly due to luxury conglomerates such as LVMH, 3.9% and Kering, 2.9%. 19 Seven out of the 173 Italian fashion companies came under non-Italian ownership between 2014 and 2018 (of which four are now parts of international

groups and three are controlled by foreign funds). From acquisition date these companies increased their share of non-domestic sales by 1.3 p.p. per year. 33 out of 70 companies are Italian branches of international groups, the remain 37 are acquisitions made in the past years.

20 Data calculated excluding outliers, i.e. companies for which the 2014 and 2018 data are not comparable.

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In terms of openness to the stock market, as much as 29% of the aggregate turnover in 2018 (€20.8bn) was produced by the fifteen listed companies (family-owned or not, as the case may be) and the other 71% (€50.9bn) by the 158 non-listed companies. The listed companies posted higher Ebit margins than the non-listed companies, at 11.7% versus 6.8%; in particular, the highest Ebit margin reported by the panel (13.4%) was posted by the listed companies in which a family has the controlling interest. Hence the best combination in terms of profitability appears to be family-owned companies which open the shareholder structure up to the capital markets.

At the opposite side of the spectrum, the companies owned by funds were the ones which had the lowest Ebit margin, at 5.0%. The companies owned by the large international groups ranked in the middle between these extremes (Ebit margin 7.2%), but stood out above all others in that they reported the fastest growth of all in the five-year period as a whole, with sales increasing by 52.5% between 2014 and 2018.21

The share of total non-domestic of fashion manufacturing companies amounted to 72.2% in 2018, much higher than the share of Italian manufacturing companies (58.3%).22 The sectors most geared towards international markets are eyewear (89.6%), textiles (72.8%) and leatherwear (68.2%). If we subdivide the entire panel of the 173 companies into listed and unlisted, it emerges that the listed companies posted higher share of total non-domestic sales, at 79.4% versus 47.9%; in particular the highest share of total non-domestic sales (86.1%) is recorded by the listed companies in which a family has the controlling interest.23 Hence the best combination in terms of globalization appears to be family-owned companies which open the shareholder structure up to the capital markets.

Good performances in the fashion sector in Italy and elsewhere have driven an increase in employment levels as well, with a workforce which in 2018, with 45,300 new staff (up 14.1% on 2014 and up 1.7% on 2017), now numbers almost 366,000 employees. The segments which have increased their headcounts the most in 2014-2018 period are jewellery (up 32.7%), leatherwear (up 24.6%) and distribution (up 22.6%).

As for profits, cumulative net profits earned by the Italian companies in 2014-18 totalled €17.5bn; in 2017 record profits of €3.8bn were posted, with net daily average profits per company of almost €61,000.

The low leverage ratio (34.0% in 2018) makes the Italian fashion sector companies solid, with eyewear and leatherwear reflecting the best indicators (of 31.2% and 31.4% respectively). In terms of liquidity, the disponibility-to-borrowings ratio stood at 79.4% with clothing reflecting the highest indicators (104.9%).

In terms of credit scoring,24 the default average probability of Italian fashion companies was 0.71%. In 2018 the share of investment-grade companies was 67.7% (default score: 0.13%), the share of intermediate companies was 27.2% (default score: 0.97%) and the remaining 5.1% were fragile companies (default score: 6.74%).

Of the 173 Italian fashion companies, 101 are controlled by Italian private shareholders, mainly families. These companies can be divided into two subsets, based on the size of their

21 Companies controlled by foreign funds increased their sales by 17.8% between 2014 and 2018. 22 Source for Italian manufacturing companies: Leading Italian Companies (2019 ed.) - Manufacturing companies with net sales > 100 mln (fashion

companies excluded) - Mediobanca Research Area. 23 Versus 55.6% which is the share of non-domestic sales posted by non-listed Italian family companies. 24 R&S-Unioncamere scoring model.

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turnover: medium-sized and medium-large companies.25 Comparison between the medium-large companies and the medium-sized firms, generally smaller but more dynamic, provides some interesting data. First, there is a significant difference between the growth rates in sales of the two subsets between 2014 and 2018: up 34.1% for the medium-sized firms and 10.5% for the medium-large, hence the medium-sized companies are growing almost three times as fast as the medium-large ones. Second, in terms of profitability, there is no difference between the two groups, as the Ebit margins are equal to 9.3% for both in 2018. Third, however, the medium-large firms show higher export levels than those of the medium-sized companies: 68.2% for the former and 59.2% for the latter.

Different governance structures and their effects on performance

Italian family businesses are generally small, privately-owned and led through very concentrated power in the hand of few people. In Italy the separation between ownership and control is very often not very explicit.26 The Italian fashion companies analysed in this panel are no exception.

We have tried to differentiate the effects of the governance structure on firm performance and to analyse how individual characteristics of the Board, in particular their age and sex, influence the financial performance of the firm they run and lead. We analysed the Board members of the 173 Italian fashion companies, and in particular, the subset of 101 firms controlled by Italian private shareholders, mainly families. Overall information was collected on 792 directors, consisting of general data such as date and place of birth and gender (as shown by the individuals’ tax identification code).

With reference to the age, in 2019 the average age of Board members for the aggregate of Italian fashion firms was 57 years of age, rising to 60 among the apical figures, compared to the relatively young age of those who hold non-apical roles (55). If we take the subset of most dynamic companies,27 the average age of Board is very similar (56), and here too higher among apical figures (60) than those with non-apical roles who are on average younger than those for the panel as a whole (52). Hence it would seem that a large age difference between Board members can influence a firm’s performance.

With reference to the issue of diversity, for the Italian fashion groups, the percentage of women represented in the Boards of Directors is 17.9%, which reduces to 14.5% at apical level but rises again at non-apical level (20.4%). If we take the subset of most dynamic companies, female representation is higher on average: women account for 22.0% of directors, which here once again is lower at apical level (19.3%) and higher at non-apical level (23.9%). It would therefore seem that the presence of women can be a boost for the companies’ growth and profitability.

If we take the subset of 101 firms controlled by Italian private shareholders, mainly families, we repeated and deepen the analysis of above after filtering the dataset according to three main leadership models. The following findings emerged:

in family-owned medium-sized companies, the average number of directors is 3, 72.4% of whom are members of the family which is the leading shareholder (rising to 85.0% for the apical members) and 27.6% are non-family members;

25 Medium-sized firms have average total sales of between €100m and €370m, while medium-large companies have turnover of above €370m. 26 Corbetta, G. (1995). Patterns of development of family businesses in Italy. Family Business Review, 8(4), 255-265. Molinari, M., Giannangeli, S., & Fagiolo,

G. (2016). Financial structure and corporate growth: evidence from Italian panel data. Economic Notes: Review of Banking, Finance and Monetary Economics, 45(3), 303-325. Bianchi, M., Bianco, M., & Enriques, L. (2001). Pyramidal groups and the separation between ownership and control in Italy.

27 Dynamic companies are defined as those in the panel with above average profitability and growth in the five-year period under review.

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in medium-large managerial companies, the average number of directors rises to 4, 55.8% of whom are members of the leading shareholder family (rising to 73.9% for the apical members) and 44.2% are non-family members;

in listed companies, the average number of directors rises considerably to reach 9 members, 29.3% of whom are members of the leading shareholder family (rising to 66.7% for the apical members) and 30.2% are non-family members, while 40.5% are independent directors.

If we take the subset of most dynamic Italian family companies, their Boards are made up as follows: the average number of directors is 4, 54.1% of whom are members of the family which is the leading shareholder (rising to 83.0% for the apical members) and 28.8% are non-family members, while the other 17.1% are independent members.28

Thus it would seem that the most efficient Board composition consists of a “hard core” of family members in apical roles, but also a wealth of diversity in terms of age, gender and ownership: if the family simply opens to external managers or opens up ownership to other shareholders, even only minorities, the Board is enriched by other members from outside the family and/or independent directors. Such diversification can, it seems, have a positive impact on the firm’s performance.

Economic value distributed

With reference to the Italian listed companies only, the firm’s earnings accounts are presented in their sustainability reports based on economic value generated and distributed criteria as required by the GRI 201 Disclosure (GRI Standards).29 Economic value generated and distributed represents a company’s capability to generate wealth and share it between its own stakeholders defined broadly:30 suppliers, employees, shareholders, public administration, lenders and the community in the area where the company predominantly operates.31

In 2018, the economic value distributed to stakeholders as defined above was on average divided up as follows: 70.0% to suppliers, 23.4% to staff, 2.7% to shareholders, 2.6% to the public administration, 1.1% lenders and 0.2% to the community. In absolute terms, with reference to the community, in 2018 the aggregate of companies reporting such data32 returned some €45m to their communities, €22m of which was by Prada and €14m by Luxottica; all the other companies donated less than €3m each to support social, artistic, cultural, sporting and educational projects in their own areas.

28 The number of independent directors in the most dynamic firms is underestimated, as it includes only listed companies; no data on independent

directors is available for unlisted companies. 29 The GRI Standards are the first global standards for sustainability reporting. They represent the global best practice for reporting on a range of

economic, environmental and social impacts. 30 Stakeholders defined broadly are distinguished between internal (shareholders and employees) and external (suppliers, public administration, lenders

and community). 31 Defined respectively as follows: remuneration to suppliers in return for the goods and services provided by them, compensation to employees in return

for their work, shareholder remuneration in the form of dividends, remuneration to the public administration through payment of local taxes and duties, repayment to lenders in the form of interest due on amounts borrowed, and remuneration to the community in the form of social, artistic, cultural, sporting and educational projects, etc.

32 Some 80% of the total of listed companies.

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3 Perspectives, international market and web strategy (source: Prometeia)

Growth and profitability

Company sales in the Italian fashion Industry have been steadily growing, demonstrating resilience through tough economic times. Estimates for the period 2019-2021 show that turnover across all segments is expected to grow to a total value of €80bn, with cumulative growth rates ranging from 6% to 10.4%, in the textile and retail sector respectively. These growth rates stick out like a sore thumb among the general expectations for the near future, once again validating the unique features of these companies. The economic performance of this sample of companies has been compared with the expected results of their benchmark segments33. Figure 3.1 shows how the sampled Italian fashion industry companies compare with their peers in the same sector. Overall, the positive gap between our sampled companies and their benchmark amounts to 3.7 percentage points.

Figure 3.1 Percentage change in aggregate sales (2019-‘21, cumulative growth)

Figure 3.2 EBIT margin 2021 (% of net sales)

33 Benchmark sectors refer to Italian companies operating in the same industries.

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Source: Prometeia forecasts on company data

Growth rate premium is accompanied by profitability gains. Figure 3.2 shows 2021 predictions for EBIT margins. The aggregate gap stands at 5.7 percentage points, with leather goods and eyewear experiencing the widest variations. In these segments, higher profitability might be explained by the strong and powerful brands these companies hold, which provide more visibility and reputation. In a virtuous cycle, higher returns ensured by brands allow greater investments, and one of the areas where sampled Italian fashion industry companies have been constantly and successfully investing is their branding strategy, a key asset for their competitive positioning. The 173 companies in our sample collectively hold 559 brands, including some of the most recognizable and valuable, cumulatively gathering over 300 million internet searches monthly, with the top 57 brands crossing the one million mark each. Figure 3.3 presents a snapshot of the monthly average search volume by segment. Leading the chart, the 302 clothing brands are the most searched on the web, with almost 180 million queries per month. This segment is globally dominated by Fast Fashion giants and exclusive luxury brands, which feature in the Italian fashion landscape through their local branches.

Figure 3.3 Brands on the web

Monthly average search volume*

Brands - number Search volume per brand

Clothing 179 468 750 302 594 267 Leather goods 58 083 730 119 488 099 Jewellery 36 238 690 58 624 805 Retail 25 813 020 14 1 843 787 Eyewear 11 567 130 36 321 309 Textile 231 570 30 7 719

* In the last 12 months Source: Google

Figure 3.4 Top Ten of the most searched brands on the web in

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2019

Source: Google

International markets and digital strategy

In the fast moving and global world of fashion, the competitive arena cannot be bound by national borders. Thus, assessing one brand’s strength and growth potential requires looking at its global reach. Turning our focus to the most representative brands of Made in Italy, we identified locations where Italian fashion industry companies gather more internet searches. Figure 3.5 depicts volumes of searches by country, highlighting how Made in Italy brands are looked up all across the five continents. Germany and United States34 are Made in Italy’s best “supporters”, closely followed by China and Russia, sketching a map of actual or potential consumers of Made in Italy fashion.

Figure 3.5 Volume of Web searches (2019) Figure 3.6 Changes in Italian fashion export (2019 –‘21, volume)

Source: Prometeia MIO, Google and Baidu data

What happens in the web stays in the web? The internet is not Vegas and figure 3.6, showing the change in volume expected by 2021, tells us that arousing interest on the web often preludes sale opportunities for the most searched brands. Overall, in the next two years, these markets will increase their import from the Made in Italy fashion industry companies by €1.7bn. The growth in demand will come from a mix of traditional and emerging markets: the EU countries and the United States are expected to keep leading in terms of import volumes,

34 Wide heterogeneity can be found within the country: New York and New Jersey alone in 2018 imported two thirds of the whole US import of Made in

Italy fashion, a volume comparable to that of Germany (circa €3.8 bn). Moreover, in these US states Italian exporters hold a higher market share than in Germany (9% of New York and New Jersey combined against 7.4%). On the other hand, Made in Italy positioning results below its potential in some of the other major states (California and Texas).

22

but the highest rates of growth will be experienced in the emerging markets, with countries like India and Brazil showing double digits growth rates.

Comparing web searches and export volumes allow for an overview of the untapped potential of Made in Italy fashion brands (figure 3.7). In particular, Australia, Brazil, India, Poland, Canada, and Mexico show the highest unfulfilled potential, with intense web activity and searches, but moderate volumes of export of Italian fashion brands. In some of these countries, interest in high-quality, aspirational brands is bound by budget constraints that restrain actual demand. Other countries highlight an opposite scenario, with high export volumes and relatively low web searches. Some of them, namely Switzerland, Hong Kong, and Romania, are export or manufacturing hubs, thus hindering an unbiased analysis of the relationship between exports and demonstrated interest. On the other hand, low interest from strategic markets (such as Japan, South Korea, and United Emirates) raises a red flag for Italian fashion companies, hinting at a weak or inadequate digital strategy, potentially hampered by language barriers or slow web pages loading time. The blocks on the bisector of the matrix show more balanced relationships between interest and export, but keeping focus on adequate marketing and digital strategies is critical for Italian fashion companies to preserve their competitive positioning.

Figure 3.7 Map of high potential markets, Italian fashion export and Web searches (2019)

Switzerland

Italian fashion export

Ve

ry L

ow

Singapore, South Africa,

FinlandiaSweden, Czech Rep. South Korea, United Emirates Hong Kong

Very Low Low High Very High

We

b s

ea

rch

es

on

Ita

lia

n b

ran

ds V

ery

hig

h

Australia, Brazil

Low

Denmark, Norway Belgium, Austria, Portugal Japan, Romania

USA, France, UK, Germany,

China, Spain

Hig

h

India Poland, Canada, Mexico Turkey, Netherlands, Russia

Source: Prometeia MIO, Google and Baidu data

Figure 3.8 Keywords associated with Made in Italy brands

23

Source: Google

Digital marketing strategies might leverage on the intrinsic values associated with Made in Italy brands. We looked into the keywords that web surfers associate with Italian brands. Figure 3.8 gives a hint of what potential consumers expect from a Made in Italy fashion product: quality, authenticity, reliability are some of the most looked up words, which are traditionally associated with Italian manufacture and are acknowledged added values to Italian products. Simultaneously, in the cloud we find new trends, such as sustainability, online shopping, cruelty and conflict free, that symbolize a greater awareness that consumers expect to find in Made in Italy products.

While attention to detail, reliability, and quality have been successfully leveraged by Made in Italy brands, which traditionally appeal sophisticated and demanding customers, new consciousness and new demands require flexibility and responsiveness, crucial to succeed across new trends and generations.

Indeed, an analysis performed on the American audience showed how Made in Italy fashion brands have a different appeal across generations. Comparing interest in fashion to interest in Italian brands across all groups we find a “fatter tail” in the oldest cohorts, and a significant gap in the youngest (figure 3.9). In other words, while the younger Americans are generally highly interested in fashion, they turn to Italian brands much less than their parents (or grandparents). Once again, a young generation interested in fashion but less in Made in Italy brands rings the bell of the untapped potential already observed in the country analysis.

However, new generations and new trends do not undermine the foundations of Made in Italy. Considering the most searched brands across our age groups, we find some reassuring news. Iconic and evocative names of Made in Italy fashion lead the rankings across all age cohorts, signaling their ability to speak to all generations and reinvent themselves. New demand and expectations require new response but do not rule out the possibility that existing, strong brands already have the means and the ability to fulfill new needs, quite the opposite.

Figure 3.9 USA Consumers' web searches, % breakdown by age, 2019

24

Source: Google

Figure 3.10 USA Consumers, top Ten Made in Italy brands searched on the web by age, 2019

Source: Google

25

4 Annex

Tables

Table 1 – Profit and loss accounts of large European fashion companies (2014-2018)

EUR m EUR m EUR m EUR m EUR m

Net sales ………………………………………………………………………………………………….... 188.232 100,0 207.916 100,0 219.779 100,0 236.731 100,0 251.532 100,0

Purchases and sundry operating expense …………………………………………………… -115.613 -61,4 -129.967 -62,5 -138.440 -63,0 -147.718 -62,4 -155.749 -61,9

Value added ……………………………………………………………………. 72.619 38,6 77.948 37,5 81.338 37,0 89.013 37,6 95.782 38,1

Labour cost ………………………………………………………………………… -34.169 -18,2 -37.558 -18,1 -40.350 -18,4 -43.187 -18,2 -45.673 -18,2

Gross operating margin (EBITDA) ……………………………………….. 38.450 20,4 40.389 19,4 40.987 18,6 45.825 19,4 50.109 19,9

Depreciation and amortization ………………………………………….. -8.094 -4,3 -8.641 -4,2 -9.405 -4,3 -9.778 -4,1 -11.054 -4,4

Net operating margin (EBIT) ……………………………………………….. 30.356 16,1 31.748 15,3 31.582 14,4 36.047 15,2 39.055 15,5

Interest and financing charges …………………………………………………… -1.355 -0,7 -1.198 -0,6 -1.234 -0,6 -1.264 -0,5 -1.245 -0,5

Interest received and other financial ………………………………………. 1.839 1,0 -346 -0,2 -256 -0,1 -131 -0,1 1.064 0,4

Current pre-tax profit ……………………………………………………………. 30.839 16,4 30.202 14,5 30.090 13,7 34.651 14,6 38.874 15,5

Impairment of goodwill…………………………………………………………. -907 -0,5 -94 0,0 -154 -0,1 -200 -0,1 -445 -0,2

Extraordinary items ………………………………………………………………. -448 -0,2 -1.308 -0,6 -1.358 -0,6 -1.944 -0,8 -198 -0,1

Net profit (loss) before tax ……………………………………………………… 29.483 15,7 28.799 13,9 28.577 13,0 32.506 13,7 38.229 15,2

Taxation ………………………………………………………………………………. -8.201 -4,4 -8.317 -4,0 -7.928 -3,6 -8.925 -3,8 -9.349 -3,7

Profit attributable to minorities ………………………………………………………… -634 -0,3 -578 -0,3 -561 -0,3 -528 -0,2 -758 -0,3

Net profit (loss) attributable to parent company …………………………….. 20.647 11,0 19.903 9,6 20.087 9,1 23.052 9,7 28.121 11,2

Number of employees ……………………………………………………………. 946.309 994.214 1.044.385 1.087.493 1.135.883

Some column totals may not correspond owing to figures being rounded up or down.

2014 2015 2016 20182017

26

Table 2 – Financial statements of large European fashion companies (2014-2018)

EUR m EUR m EUR m EUR m EUR m

Cash and cash equivalents ……………………………………………………… 31.802 13,7 28.473 11,8 28.596 11,1 38.482 13,8 37.477 11,8

Marketable securities ……………………………………………………………… 5.440 2,3 7.114 2,9 7.902 3,1 9.808 3,5 9.083 2,9

Other current assets ……………………………………………………………… 70.943 30,6 73.619 30,4 78.291 30,4 80.644 28,9 87.099 27,4

Current assets …………………………….…………………….… (a) 108.187 46,7 109.207 45,1 114.789 44,6 128.935 46,1 133.660 42,0

Gross tangible fixed assets ……………………………………………………………….. 83.086 35,9 90.619 37,4 99.907 38,9 104.765 37,5 110.900 34,9

Accumulated depreciation ……………………………………………………. -39.526 -17,1 -44.142 -18,2 -49.089 -19,1 -51.675 -18,5 -53.106 -16,7

Net tangible fixed assets ……………………………………………………… 43.560 18,8 46.476 19,2 50.817 19,8 53.090 19,0 57.793 18,2

Investments and other assets ………………………………………………. 16.342 7,1 19.470 8,0 21.171 8,2 20.394 7,3 22.777 7,2

Goodwill …………………………………………………………………………………. 26.515 11,4 28.360 11,7 30.476 11,9 36.342 13,0 50.807 16,0

Other intangibles assets …………………………………………………………………. 37.015 16,0 38.610 15,9 39.865 15,5 40.767 14,6 52.936 16,6

Non-current assets …………………………………………..... (b) 123.432 53,3 132.916 54,9 142.329 55,4 150.593 53,9 184.313 58,0

TOTAL ASSETS ……………………...……………………….. (a+b) 231.619 100,0 242.123 100,0 257.118 100,0 279.528 100,0 317.973 100,0

0 0 0 0 0

Short-term borrowings ……………………………………………………………… 15.181 6,6 12.166 5,0 11.886 4,6 15.039 5,4 15.279 4,8

Other current liabilit ies ……………………………………………………………….. 43.786 18,9 46.423 19,2 50.713 19,7 55.059 19,7 62.710 19,7

Current liabilities ………………………………………...….… (a) 58.967 25,5 58.589 24,2 62.599 24,3 70.099 25,1 77.989 24,5

Long-term borrowings …………………………………………………………. 22.787 9,8 22.052 9,1 24.040 9,3 31.099 11,1 30.925 9,7

Other long-term liabilit ies ……………………………………………………. 25.593 11,0 27.649 11,4 29.422 11,4 30.100 10,8 33.200 10,4

Non-current liabilities ………………………..………...…….. (b) 48.380 20,9 49.701 20,5 53.462 20,8 61.199 21,9 64.126 20,2

Shareholders' equity …………………………………………………………… 121.250 52,3 130.485 53,9 137.746 53,6 145.012 51,9 172.745 54,3

Minority interests ……………………………………………………………………. 3.022 1,3 3.349 1,4 3.312 1,3 3.219 1,2 3.113 1,0

Net worth ……………………………………...……………….. (c) 124.273 53,7 133.835 55,3 141.059 54,9 148.231 53,0 175.858 55,3

TOTAL EQUITY AND LIABILITIES ……………..………... (a+b+c) 231.620 100,0 242.125 100,0 257.120 100,0 279.529 100,0 317.973 100,0

Some column totals may not correspond owing to figures being rounded up or down.

2014 2015 2016 2017 2018

27

Table 3 – List of large European fashion companies

Net sales Employees

2018 2018

(€ mln) (avg. n.)

ranking

1 LVMH FR 46.826 136.633

2 INDITEX ES 26.145 155.727

3 ADIDAS DE 21.915 49.563

4 H & M HENNES & MAURITZ SE 20.517 123.283

5 ESSILORLUXOTTICA FR 16.160 150.000

6 COMPAGNIE FINANCIERE RICHEMONT CH 13.989 35.640

7 KERING FR 13.665 30.595

8 CHANEL GB 9.711 23.790

9 THE SWATCH GROUP CH 7.521 36.074

10 HERMES INTERNATIONAL FR 5.966 14.284

11 PUMA DE 4.648 12.192

12 CAPRI HOLDINGS GB 4.575 17.797

13 SAMSONITE INTERNATIONAL LU 3.316 14.020

14 PRADA IT 3.142 13.197

15 BESTSELLER DK 3.078 17.936

16 PANDORA DK 3.054 24.030

17 BURBERRY GROUP GB 3.041 9.862

18 HUGO BOSS DE 2.796 14.685

19 ASOS GB 2.702 4.266

20 AMER SPORTS IT 2.678 9.096

21 CALZEDONIA HOLDING IT 2.303 36.653

22 MANGO MNG HOLDING ES 2.233 14.831

23 GIORGIO ARMANI IT 2.109 7.320

24 ARCADIA GROUP GB 2.033 10.382

25 LPP PL 1.871 17.121

26 C. & J. CLARK GB 1.639 13.218

27 MAX MARA FASHION GROUP IT 1.597 5.665

28 FIELMANN DE 1.428 19.379

29 MONCLER IT 1.420 3.502

30 NOVARTEX FR 1.412 9.699

31 OTB IT 1.408 6.249

32 NEW LOOK RETAIL GROUP GB 1.385 15.528

33 D & G IT 1.349 5.246

34 SALVATORE FERRAGAMO IT 1.335 4.026

35 MISSOURI TOPCO GB 1.234 13.378

36 VALENTINO IT 1.224 3.993

37 ERMENEGILDO ZEGNA HOLDITALIA IT 1.159 6.285

38 KIABI EUROPE FR 1.133 5.034

39 RIVER ISLAND HOLDINGS GB 1.028 10.219

40 SMCP FR 1.017 5.476

41 LIR IT 997 5.563

42 SUPERDRY GB 975 3.279

43 SAFILO GROUP IT 963 6.594

44 BENETTON GROUP IT 957 3.723

45 TOD'S IT 940 4.672

46 ETAM DEVELOPPEMENT FR 938 6.178

Total 251.532 1.135.883

Companies Country

28

Table 4 – List of main brands (approx.)

1 Adidas Adidas, Reebok

2 Amer SportsSalomon, Arc’teryx, Peak Performance, Atomic, Suunto, Wilson, Precor,

Armada, DeMarini, Louisv ille Slugger, Enve

3 Arcadia Group Topshop, Topman, Dorothy Perkins, Burton, Wallis, Evans, Miss Selfridge, Outfit

4 ASOS Asos Design, Asos Edit ion, Asos White, Asos Made in Kenya, Asos 4505

5 Benetton Group United Colors of Benetton, Undercolors of Benetton, Sisley

6 Bestseller

Jack & Jones, Junarose, Jacqueline De Yong, LMTD, Mamalicious, Name It,

Noisy May, Object, Only, Only & Sons, Pieces, Produkt, Selected, Vero Moda,

Vila Clothes, Y.A.S.

7 Burberry Group Burberry

8 C. & J. Clark Clarks, Clarks Original

9 Calzedonia Holding Calzedonia, Intimissimi, Tezenis, Falconieri, Atelier Emé, Signorv ino

10 Capri Holdings Ltd (ex-Michael Kors Holdings Ltd) Michael Kors, Jimmy Choo, Versace

11 Chanel Chanel

12 Compagnie Financière Richemont

Jewelry: Cartier, Van Cleef & Arpels, Buccellati

Watchm akers: A. Lange & Söhne, Baume & Mercier, IWC, Jaeger-LeCoultre,

Officine Panerai, Piaget, Roger Dubuis, Vacheron Constantin

Online Distributors: Yoox, Watchfinder & Co.

Others: Dunhill, Alaia, Chloè, Montblanc, Peter Millar, Purdey, Serapian

13 D&G Dolce & Gabbana

14 Ermenegildo Zegna Holditalia

Own brands: Ermenegildo Zegna, Z Zegna, Ermenegildo Zegna Couture, Su

Misura di Ermenegildo Zegna, Agnona, Cervo, Barbisio, Bantam, Thom Browne

Licensed brands: Maserati

15 EssilorLuxottica

Own brands: Ray-Ban, Arnette, Oakley, Vogue Eyewear, Persol, Oliver Peoples,

Alain Mikli, Foster Grant, Essilor, Crizal, Transit ion, Varilux, Eyezen, Xperio, Optifog

Licensed brands: Giorgio Armani, Burberry, Bulgari, Chanel, Dolce&Gabbana,

Ferrari, Michael Kors, Prada, Ralph Lauren, Tiffany & Co., Valentino, Versace

S ign-board: LensCrafters, Pearle Vision, Sunglass Hut, OPSM, Laubman & Pank,

Salmoiraghi e Viganò, GMO, Oakley "O" Stores and Vaults, David Clulow, Sears

Optical, Target Optical, EyeMed Vision Care, Óticas Carol, ILORI Optical,

Optical Shop of Aspen

16 Etam Developpement Etam, Undiz, Maison Cent Vingt Trois, Livy, Ysé

17 Fielmann Fielmann

18 Giorgio Armani Giorgio Armani, Emporio Armani, EA7, Armani Exchange

19 H & M Hennes & Mauritz H&M, COS, Weekday, Monki, H&M Home, & other Stories, ARKET, Afound

20 Hermès International Hermès, Saint-Louis (crystalware), Puiforcat (silversmith), John Lobb

21 Hugo Boss Boss, Hugo, Hugo Boss

22 InditexZara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home,

Uterqüe

23 Kering

Gucci, Bottega Veneta, Brioni, Pomellato and Dodo, Alexander McQueen,

Balenciaga, Yves Saint Laurent, Boucheron, Girard-Perregaux, Ulysse Nardin,

Qeelin24 Kiabi Europe Kiabi

25 Lir Geox, Diadora, Heritage Diadora, Utility

26 LPP Reserved, Cropp, House, Mohito, Sinsay

27 LVMH

Fashion: Christ ian Dior, Céline, Givenchy, Kenzo, Louis Vuitton, Rimowa,

Guerlain, Sephora, Hublot, TAG Heuer, Bulgari, Loro Piana, Fendi, Emilio Pucci,

Fenty, Zenith

Wines and Spirits: Dom Pérignon, Krug, Hennessy, Mercier, Moët & Chandon,

Ruinart, Veuve Clicquot, Château d'Yquem

Publishing: Les Échos and Le Parisien-Aujourd’hui en France

Others: Cova

28 Mango MNG Holding Mango, Violeta by Mango

29 Max Mara Fashion GroupMax Mara, Max & Co., Sportmax, Weekend by Max Mara, Marella, Marina

Rinaldi, i Blues, Penny Black, persona

30 Missouri TopcoFalmer, Papaya, Soon, Souluxe, Morley, Candy Couture, Taylor & Wright, US

Athletic, Easy Black Label

Companies Brands and sign-boards

29

31 Moncler Moncler

32 New Look Retail Group New Look

33 Novartex Caroll, La Halle, Minelli, San Marina, Cosmoparis

34 OTB

Own brands: Diesel, Maison Margiela, Viktor&Rolf, Marni, Amiri

Licensed brands: Dsquared2, John Galliano, Trussardi Junior, Maison

Mariangela, Viv ienne Westwood, Just Cavalli

35 Pandora Pandora

36 Prada Prada, Miu Miu, Church's, Car Shoe, Pasticceria Marchesi 1824

37 Puma Puma, Cobra, Stichd

38 River Island Holdings Limited River Island

39 Safilo Group

Own brands: Safilo, Polaroid, Carrera, Smith

Licensed brands: Dio e Dior Homme, Fendi, Banana Republic, BOSS, David

Beckham, Elie Saab, Fossil, Givenchy, havaianas, HUGO, Jimmy Choo, Juicy

Couture, kate spade new york, Lev i's, Liz Claiborne, Love Moschino, Marc

Jacobs, Max Mara, Max&Co., Missoni e M Missoni, Moschino, Pierre Cardin,

rag&bone, Rebecca Minkoff, Saks Fifth Avenue, Swatch, Tommy Hilfiger, Under

Armour

40 Salvatore FerragamoOwn brands: Salvatore Ferragamo

Licensed brands: Emanuel Ungaro (parfums)

41 Samsonite InternationalSamsonite, Tumi, American Tourister, Hartmann, High Sierra, Gregory, Speck,

Lipault, Kamiliant

42 SMCP Sandro, Maje, Claudie Pierlot, De Fursac

43 Superdry Superdry

44 The Swatch Group

Prestige & Luxury Range: Breguet, Harry Winston, Blancpain, Glashutte original,

James Droz, Léon Hatot, Omega

High Range: Longines, Rado, Union Glashutte

Middle Range: Tissot, Balmain, Certina, Mido, Hamilton, Calv in Klein

Basic Range: Swatch, Flik flak

45 Tod's Tod's, Hogan, Fay, Roger Viv ier

46 Valentino Valentino, Valentino Garavani, RED Valentino

Companies Brands and sign-boards