Italian Fashion Faces New Challenges Amidst Signs of Recovery and Calls for Strategic Solutions

After enduring two challenging years, the Italian fashion industry is beginning to see signs of recovery, yet new hurdles are emerging that threaten to impede its progress. These challenges range from the escalating influx of low-cost Chinese fashion to a prevailing public narrative that undermines the integrity and value of the "Made in Italy" system. Carlo Capasa, President of the Camera Nazionale della Moda Italiana, has outlined a series of strategic solutions that the association is actively pursuing, including significant political engagement to support the sector through this critical transitional period.

According to Bain’s latest report, the market has stabilized in the most recent quarter, suggesting that the industry has hit its lowest point and is now poised for an upward trajectory. Over the past two years, Italian fashion experienced a substantial loss of €10 billion in revenue from an initial €100 billion, a severe blow that, according to Capasa, was not adequately mitigated by sufficient legislative or support measures.

A notable shift is occurring in the relationship between brands and consumers. Chinese consumers have reduced their luxury purchases by 20 percent, leading companies to respond by raising prices. This strategy was an immediate lever to maintain revenue levels despite a drop in production volumes, though it significantly impacted the supply chain, which suffered a 20 percent loss. Brands are now exploring ways to lower prices while simultaneously introducing innovative products, new projects, and sustainable materials to stimulate demand.

Geographically, new drivers of growth are emerging. Indian consumers, for instance, are primarily purchasing luxury goods abroad, with Dubai solidifying its position as a central hub for Middle Eastern, African, and Indian luxury shoppers. In Africa, growth is concentrated in specific hotspot locations, while South America shows considerable potential if political stability can be achieved; Mexico is already performing well, and there is a strong focus on Brazil as a prospective major market. The U.S. market, which experienced a dip following the introduction of tariffs, has since stabilized and returned to customary levels.

A top priority in the industry's legislative agenda is the extension and enhancement of the creativity tax credit. Among 13 proposals submitted to the government for the budget law, the association is advocating for the current 5 percent tax credit for design and aesthetic creation, which expires at year-end, to be extended for at least five years and raised to 10 percent. Capasa stresses that high-end fashion is predominantly produced in Italy, distinguished by its innate creativity, where designers drive trends, unlike other segments where marketing dictates creative output. He emphasizes that Italian fashion creates "dreams" through applied research and creative processes that underpin everything from fabrics to buttons, making it more expensive but unique. This tax credit, though a "drop in the ocean," supports the entire supply chain by fostering investment in creativity, especially crucial during crises. The government has reportedly promised its inclusion in the budget law, with proposals to fund the €70 million measure through Industry 5.0 funds, pending discussions at the fashion roundtable.

To combat the "invasion" of ultra-fast fashion, Capasa highlights the alarming statistic of 4.5 billion parcels under €150 arriving in Europe annually, nearly 1 billion of which enter Italy. These parcels, 92 percent from China via platforms like Shein and Temu, are untaxed, arrive by post, and bypass standard controls. Collaborating with French counterparts, Italy has proposed a levy of €5 per parcel, escalating to €10, though a softer €2 levy is under consideration, still projected to generate significant revenue (around €900 million) for the industry. While Ecofin has approved a levy, its implementation is deferred to between 2026 and 2028. Beyond taxation, a cultural shift is needed, requiring public education on the low quality, health risks, lack of compliance with standards, and rampant labor exploitation associated with these products. The association advocates for warning labels on parcels and a ban on misleading advertising.

Regarding the anti-gangmaster law, Capasa detailed a supply-chain protocol signed with the Prefecture and Court of Milan, which helps brands work with state-certified suppliers, granting them an annually renewable seal of approval. While the law is progressing in the House, improvements are sought. The industry is not seeking a shield from criminal liability but rather a 90-day consultation period for brands to cooperate in resolving any issues. Brands aim to avoid reputational damage over minor irregularities in comparison to millions of pieces produced ethically. The current law, however, can lead to public prosecutors ordering court-appointed administration without brands having a proper defense. This creates a paradox where administrative liability falls on the lead company, while criminal liability for the offense rests with the workshop, often leaving the intermediary workshop, which illegally subcontracted, unscathed.

Addressing the extent of irregular work in fashion, Capasa clarified that out of 600,000 employees, approximately 30,000 are irregular, including those who haven't paid social contributions for three months. The truly irregular workers are estimated at 15,000, with only half working in the high-end sector. He stressed the importance of correcting irregularities within the system without disproportionately damaging the industry's image, citing the Tod’s case involving 53 irregular workers, contrasting it with the group's over 5,000 legally employed staff.

The shortage of skilled labor contributes to pockets of illegality, making training a crucial area. Many graduates from fashion academies do not necessarily enter the industry. To preserve invaluable knowledge and savoir-faire, the association proposes allowing retiring workers to work a limited number of hours in academies for their first two years post-retirement, without incurring penalties on their pension earnings, thus enabling them to pass on their expertise to new generations.

Wages in Italy are deemed too low, yet the cost of labor remains the highest in Europe. This paradox makes the fashion industry unattractive to young people at the start of their careers. While a head patternmaker might earn more than a J.P. Morgan researcher, Capasa emphasizes the need to ensure higher earnings for entry-level positions and across all intermediate levels to attract and retain talent.

Capasa laments the often-negative public discourse surrounding fashion, despite its significant social and economic contributions, exemplified by companies like Prada and Cucinelli. Fashion contributes a massive €25 billion to state coffers from €100 billion in turnover, demonstrating a gigantic impact in terms of fiscal contribution, international image, and cultural values. To counter negative narratives and better communicate this positive impact, the association has requested government funds.

Consolidation of the supply chain is vital for the survival and modernization of small companies, which have a national average of only 4.5 workers. These small entities struggle to modernize or digitize independently. Years ago, a proposal to digitize districts using Fnr funds was rejected. Now, a regulation is in development to encourage large companies to invest in SMEs through minority partnerships (20 to 50 percent of capital). This strategy aims to inject much-needed capital and expertise while preserving majority control for the founding entrepreneurs, thereby saving small businesses fighting for survival. Capasa warns against repeating past mistakes, such as the loss of the automotive industry, urging for a cohesive, industry-focused voice that transcends partisan politics to safeguard Italy’s invaluable fashion sector.