External financial support accelerates Italy’s luxury growth abroad

31/05/2017
Not just creativity and successful runway shows. The future of Italian fashion, especially for small and medium-sized companies or for the younger ones, also depends on financial know-how and the identification of clear growth strategies on international markets.

The importance of external financial support as an accelerator for medium-sized companies that do not have strong brands -- and having a 20-30% revenue share of foreign sales is not enough anymore -- will be the main theme of KPMG advisory partner Maurizio Castello’s keynote speech at the Sole 24 Ore’s ninth annual Luxury Summit that starts today.

Foreign investors have long been attracted by the Made in Italy production chain: from 2014 to April of this year there have been 40 foreign acquisitions of Italian companies, while foreign companies bought by Italians were only 26.

“Italy’s presence abroad is slowly growing,” said Castello, who for example quotes some of the most prestigious foreign prey “captured”in recent years: Net-a-Porter, Roger Vivier and Woolrich, which were bought by Yoox, Tod’s and WP Work in progress.

Compared with other sectors, Italian fashion is still an industry where EBITDA  multiples are higher, as evidenced by the value of the brands and their potential attributed by investors.

KMPG’s Castello warns, however, that with the end of acquisitions in Italy by the French luxury groups LVMH and Kering, the average multiples have dropped (from 14.7 times in 2011 to 9.5 in 2016).

The market today is paying more attention to potential and concrete value creation over the long term. Private equity funds are now the most active investors, and they are looking closely at smaller brands with potential growth in distribution and with opportunities for international expansion.

And now we come to a point strongly emphasized by Castello: “It is not true that companies don’t grow because of lacking of financing. It’s because they are often unclear what the growth strategy is and how to pursue it. As a result, it is difficult to attract external investors or to borrow to finance expansion.”

Private equity investors interviewed by KPMG complain in many cases the lack of a clear vision of business development, said Castello.

“Fashion is a very strong sector in terms of product and style,” Castello insists, “but less so in terms of the ability to develop sustainable and robust business plans based on planned revenues, the priority markets for its product, and expected financial impacts.”

A solid business model needs to find the right balance between brand, creativity and management team, to have a great focus on new consumers (who have new needs and tastes different from country to country) and present a viable expansion plan.

KMPG recommendations of these guidelines for the entrepreneur: avoid overlapping with management and delegate day-to-day decisions; respect roles and autonomy; evaluate the results.

“But the key point is increasingly to have a strong and credible brand development plan,” he said. “The external challenges are many, from international competition to penetration into new markets. So that makes it even more important to win over any cultural resistance within your company.”

by Francesca Padula

Fonte:http://www.italy24.ilsole24ore.com/art/business-and-economy/2017-05-23/fashion-kpmg-report-on-luxury-target-123054.php?uuid=AEBlmWRB

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