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Opportunity beckons for Italian design in U.S. and Asia


Milan, April 2 - With the Salone del Mobile -
Milan's annual design extravaganza - just around the corner
(April 14-19), many of Italy's iconic design brand owners
gathered in Milan Wednesday/April 1 for a seminar on the
prospects for their industry.
Hosted by Italy's luxury goods association Altagamma -
whose design members include Alessi, Boffi, Flos and Kartell,
among others - experts and entrepreneurs discussed strengths and
weaknesses, as well as challenges and opportunities facing their
version of "made in Italy".
In a presentation on the sector Claudia D'Arpizio, a Bain &
Company partner, pointed out that Italy has the largest slice of
the global market for design, thanks to its firms' innovative
products, technology and production knowhow.
Another key Italian strength is its design firms' high
level of "vertical integration", or control over the whole value
chain, from design concept to production.
Italian design companies rank first in the world in terms
of exports as percent of overall sales and they are also the
most profitable. And demand for design, she said, is strong,
especially in the so-called contract sector (hotels, airports
and the like) and in economically strong markets like America
and Asia.
However, D'Arpizio warned that the country's industry
suffers from a common Italian malaise: too many small players in
an industry where scale is important.
Italian companies account for just over one third of the
almost 30 billion euro global market for design (and almost 40
percent at the premium level), broadly split into the five
"core" categories of living & bedroom, kitchen, bathroom,
lighting and outdoor.
However Italian firms are relative minnows compared to
their international peers, generating - on average - some 45
million euros in annual sales, compared with - for example - 230
million euros at their Japanese competitors and 180 million
euros at their American ones.
Not only does this limit growth, but it also drags on
potential profitability. Design firms on average have a profit
margin of around eight percent - "good, but not excellent and
less than the double-digit profitability at many luxury goods
makers," D'Arpizio said.
But perhaps the greatest challenge faced by Italian design
firms is how to get their products into consumers' hands. The
current wholesale-heavy business model leaves designers in the
hands of multi-brand store networks they don't control - a bad
proposition in a context in which many multi-brand retailers are
themselves in financial straights.
Yet creating a wholly-owned and profitable retail network
isn't economically possible for most design firms, for it
requires lots of capital and a certain type of knowhow - ask the
luxury world - that design brands don't have. A direct result of
this difficulty is that most design firms don't have a strong
presence in those markets - like the US, emerging markets and
Asia - where demand is strong.
During a panel discussion following D'Arpizio's
presentation, industry entrepreneurs shared some insights on
their prospects.
"This is a sector where there is no brain drain. On the
contrary, in terms of design, Italy is a net importer of
creative talents from all over the world, while other industries
are exporters," commented Claudio De Albertis, president of La
Fondazione Triennale, which manages Milan's world-famous design
museum and which hosted the event.
Claudio Luti, chief executive of Kartell, said that Italy's
design value chain is "unique in the world", but - echoing
D'Arpizio's analysis of the distribution challenge - he said
that in order for Italian firms to prosper, "they need to
develop a new, open and multichannel approach to the market
without losing their ability to be innovative."
Piero Gandini, chief executive of design lighting firm Flos
pointed out that his industry suffered from a lack of
competences in many areas other than design.
"Product excellence is what we all obsess about and it is
our excellence. But the level of competence within our
companies, design aside, is still too low.
"If we're still alive it's because our products are so
good. But this is a challenge".
Commenting on the need to make a broader push into foreign
markets, he said: "Before we talk about where to go, we need to
equip ourselves with the right skills. Fashion companies know 50
times as much as we do in this".
Efforts are underway to create such skills, Roberto
Gavazzi, chief executive of high-end kitchen and bathroom maker
Boffi said.
"We have an internal school to train our employees, to help
make up for the skills shortage Gandini referred to." Gavazzi
also pointed out that his firm - perhaps one of the few of its
kind - has a strong mono-brand retail network and it works.
"Sales in our owned mono-brand stores are growing at twice the
rate of other channels."
Rounding out the panel discussion was Stefano Core, chief
executive of design furniture and interior decor firm Driade.
While pointing out that "passion, distinctiveness and uniqueness
are the success factors of our industry," Core also said that
the average firm's small size is increasingly a limit.
As an example he pointed out that if a firm wants to expand
sales, it needs a qualified sales manager. But with fairly slim
profit margins, "basically, your net profit is going to be
paying your sales director's salary".
Funds are even more lacking for important growth drivers,
like investment in distribution and customer base building.

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