The Rupp Report: The Suffering Italian Fashion Industry

Having been in this industry for many decades, it has always been the same: When I was in Italy,
people asked me: “How is it in France? Are they good, are they fashionable?” Vice-versa in France,
same questions: “How is it in Italy? Are they good, are they fashionable?” This ping-pong was going
on and on, though an answer was almost impossible. Two fashion countries at the top, but with
totally different products and a totally different approach to the markets. These times, it seems,
are gone, at least for the near future. Today, it’s more the question, who will survive?

Trouble For Big Labels

As many news agencies report, Italian fashion brands such as Gianfranco Ferré and Malo could
be up for sale as owner IT Holding S.p.A. is in financial trouble and seeks a way out with the
support of special administration. The rumor is that IT will refocus on production licenses through
its Ittierre S.p.A. division. It is not excluded that a sale could be done before the restructuring
plan is final, but that sale would need to be approved by the ministry. It could be done privately,
but the favored method would be an auction. It is said that advisers and banks have already
contacted the commissioners.

IT Holding is in the hands of three administrators appointed by the industry ministry last
month. They have six months to draw up a restructuring plan for the group. IT Holding looked
unsuccessfully for a partner for months. It had net debt of 295.4 million euros at the end of
September and a nine-month net loss of 10.1 million euros. Late in February, it secured a credit
line of 30 million euros.

Ferré, renowned for his special “architectural” style, passed away in 2007 and his eponymous
label is now styled by Tommaso Aquilano and Roberto Rimondi. Their womenswear show in February,
watched by the commissioners, was well-received. Ferré’s revenues were 104 million euros in the
first nine months of 2008, while knitwear brand Malo had 35.7 million euros out of total revenues
of 468 million euros. An offer of 120 million to 140 million euros for Ferre was made by a private
equity firm in December 2008 but was rejected.

Government Support

As the US government has been injecting billions of dollars into banks and car companies, the
Italian government is placing its pennies on the fashion industry and is planning special measures
to support the fashion industry through the crisis. The main support will be a tax credit to ease
the production of apparel samples and collections, and the government also will allow access for
fashion houses to a fund for small and medium-sized enterprises.

The target of the measures is to save the endangered “Made in Italy” fashion sector and
generate the conditions to allow companies to be more competitive on international markets after
the crisis. Last month, Italian apparel and textile companies called on the government to support
their sector, which has been hit by a drying-up of credit and a slump in demand for fashion.

With 800,000 workers in all levels of this industry ready to benefit, the Italian government
may offer full salary to laid-off workers and tax breaks for women. Government subsidies for small
companies also might be included. The government is willing to offer $2 billion to support small
companies overall, and some of that would go to the fashion industry.

Poor(er) Fashion Week In Milan

The catwalks in Italy are also in danger owing to IT’s problems. Just Cavalli, the label of
designer Roberto Cavalli, was absent. He was forced to cancel the show of the company’s younger
range of clothing after its distributor, Ittierre, was put into administration.

The Milan Fashion Week was and is more of a poor event this year, as the Italian apparel
industry struggles with the impact of the global financial crisis. This year, there were fewer
fashion shows, with many firms opting for modest exhibitions, according to the Italian Chamber of
Fashion. At the men’s show in January, there were one-fifth fewer shows than the year before.
Although Italy is known for its international brands such as Giorgio Armani, Versace, and Gucci,
smaller labels dominate the market, and this sector has been devastated more by the global

Last month, the Italian Chamber of Fashion warned revenues for the sector would fall at least
5 percent this year, and now the crisis has claimed its first big fashion victim in Italy, with IT
Holding’s distribution subsidiary, Ittierre, under bankruptcy protection.

March 24, 2009