Even the largest luxury titans have found it difficult to maintain the fashion supply chain in recent years, particularly when it comes to Italian raw materials. Pandemic-related disruptions and the subsequent inflation increased pressure on suppliers and delayed output. With the declared goal of defending Italian craftsmanship from outside pressures, some fashion labels are banding together to acquire supplier shares in reaction to this circumstance with the true intention of verticalizing and controlling their production processes without depending on external causes. The most notable collaboration was when the Zegna Group and the Prada Group announced that they had acquired a 15% stake in the Italian knitwear manufacturer Luigi Fedeli e Figlio together. This is the second time the two companies have worked together after they acquired a majority stake in the wool and cashmere supplier Filati Biagioli Modesto in 2021. Chanel and Brunello Cucinelli recently revealed their joint agreement to buy a 24.5 percent stake each in Cariaggi Lanificio, an Italian cashmere supplier renowned for its fine yarns, in which Brunello Cucinelli already owned a 43 percent stake. This partnership is noteworthy because it is the second time that two high-profile fashion brands have partnered. Similar to one another, both brands stressed their desire to safeguard the expertise and jobs of the Italian industry while also enhancing the traceability and caliber of the raw materials they utilize.
The various advantages of these partnerships, for both brands and suppliers, are well acknowledged by experts. However, they also express concern about the possibility of a small number of upscale companies controlling the supply of Italian wool, cashmere, and other raw materials like cotton and leather. Recently, LVMH purchased the Nuti Ivo tannery, also in Tuscany; Dior even purchased a furniture business to convert it back into a leather goods factory; Fendi established its new environmentally friendly giga-factory; and Armani began an experimental regenerative organic cotton crop in Apuglia. While these factories serve the purpose of maintaining artisanal know-how (often training academies are connected to these factories), in the short term they are having the effect of saturating the actual production space in the region, where there are essentially no longer any “free” tanneries and there is also a shortage of space in which to build new factories. speaking with Vogue Business.
Rémy Daguillard, the founder of the logistics firm Stellae International, noted that there is currently an informal race among brands to secure new production locations in Italy, but that this opportunity is only open to major brands with the financial wherewithal to make investments in their suppliers and guarantee effective production. The concept of vertical integration, however, is not new: practically since the beginning, the Zegna Group has been using it, supervising its products from the selection of the raw materials to the finishing stages. It has since strengthened its portfolio of Italian manufacturers by purchasing Dondi, a company that specializes in knitwear, Cappellificio Cervo, and Bonotto, another firm that produces leather goods. In recent years, Chanel has also embraced vertical integration, purchasing stock in various businesses, including tannery Renato Corti in 2019 and French manufacturer Grandis in 2021. Over the past forty years, Chanel has established more than 30 production facilities.
But because of this, it is telling that Chanel, for the first time in its history, has teamed up with another luxury brand to buy a stake in one of its suppliers. This action reveals an industry-wide sense of urgency to seize control of the major production hubs in the nation. However, it wasn’t until after the pandemic that supplier acquisition fever really took off, in part because many manufacturers were unable to recover financially from the effects of COVID-19. As a result, they were bought out to stay afloat as well as to access the capital they needed to invest in new technologies like implementing robotics and artificial intelligence, as well as to grow their teams. The acquisition by a luxury group with very deep pockets is a suitable solution for continued existence because such upgrades and expansions are frequently nearly impossible for individual manufacturers to implement without a much larger customer base (which, paradoxically, is harder to access without the upgrades). Without even considering the fact that measures to ensure traceability of materials and sustainability of processes, which are almost requirements currently, involve significant costs that the new majority partners can easily afford.
With this push to take over Italian manufacturers, the risks associated with potential supply chain disruptions, which could result in slowed deliveries and higher final costs, are gradually reduced for the large luxury groups. These risks were previously reasonably limited due to their financial capacity and resources. The issue is that, as usual, smaller designers and independent companies are compelled to hunt for manufacturers with shorter lead times or less expensive and simpler to recover raw materials, even at the sacrifice of quality. Strategically, brands allow a manufacturer to continue producing for other brands even though it is obvious that they can still affect (and probably do influence) the dynamics of these partnerships by giving some production lines priority over others. It is obvious that the primary threat is a production monopoly: if a particular majority shareholder wanted to stifle competition, all he had to do was forbid the company from working with a particular brand and ban him from the manufacturing crew. Although this isn’t always the case, it is possible, especially in the fiercely competitive fashion industry where even the biggest spenders are starting to exercise greater restraint.
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