Can ‘Made in Italy’ survive its scattered supply chains?

The coveted ‘Made in Italy’ label faces increasing scrutiny and existential challenges, from supply chain scrutiny and evolving EU regulations to climate change and threats to heritage craft. This article is part of a new series where we unpack what these pressures mean for the future, and sustainability, of luxury fashion. Read more here. ‘Made in Italy’ is one of fashion’s most prestigious labels, synonymous with quality, craftsmanship and tradition. But recent labour rights scandals have rocked this image to its core, exposing the opaque practices that underpin Italian supply chains — even in luxury. Earlier this month, I spent two weeks visiting fashion and textile suppliers across Italy, hoping to understand the system propping up Made in Italy and the existential challenges threatening to topple it. I found a country where division runs deep: efforts to unify Italy in the 19th century were fraught and never entirely successful. Still today, each region has its own brand of patriotism and — when it comes to textiles — its own special ‘know-how’. Biella is known for processing noble fibres such as cashmere and wool. Como prides itself on silk production, and Florence on leather goods. Few have good things to say about the others. Yet almost everyone I meet claims similar values. The country is built on family-owned SMEs (small and medium-sized enterprises) — at least 60,000 of them at last count, with some 80 per cent classified as “microentrepreneurs” with 10 employees or less. Most are motivated to future-proof their businesses, if only for the sake of preserving their past. When asked about sustainability, they immediately jump to social security, talking about their employees as an “extended family” and emphasising the need to protect the local environment because it is — first and foremost — their home. When I go to meet them in their factories, interviews are often conducted over lunch with the various family members working in the business. Several of the founding families — including Candiani Denim in Biella and Bonotto in the Veneto countryside — live on their production sites. Supply chains that depend on small, family-run businesses sound romantic, but experts say it is the biggest threat to Made in Italy’s survival. Fragmentation makes it harder for brands to gain visibility over their supply chains, which is a problem in the age of traceability regulation, explains Andrea Sianesi, professor of operations and supply chain management at Italian university Politecnico di Milano, who is part of an expert task force assembled by the prefecture of Milan to clean up Italy’s supply chains in light of recent probes. Fragmentation also creates an imbalance of power, which allows poor practices to fester, and increases the likelihood of subcontracting, he continues. “When there is a negotiation over reducing costs, the brands are very strong and the suppliers are very weak. In this environment, bad behaviour can happen, because suppliers might cut costs by overlooking the legal frameworks regarding the health, safety, security and salaries of workers. Small does not equal bad behaviour, but it’s much easier to audit one big company than 10,000 smaller ones.” The probe into Armani and Dior’s suppliers — led by local prosecutors — found evidence of poor working conditions and low pay. Both brands said they are working with the authorities to resolve the situation. The issues are systemic, says Dr Hakan Karaosman, associate professor at Cardiff University and co-founder of Fashion’s Responsible Supply Chain Hub (FReSCH), an EU-backed action research project. “We cannot fix this problem with the same mentality that created it. We have to challenge the governance structure and the culture around it — these problems are baked into the fashion business model.” Strength in numbers In recent years, luxury brands and fledgling investment groups have been spearheading a quiet-but-dramatic shift towards the consolidation of suppliers in Italy, intended to drive efficiency and traceability, and to protect the know-how buried in struggling small businesses. Gruppo Florence, founded by former Bulgari CEO Francesco Trapani in 2020 and backed by private equity firm Permira, has acquired 39 suppliers in just four years, spanning from Turin to Lecce — with the highest concentration in Florence, as its name suggests. By acquiring strong (not struggling) family businesses, CEO Attila Kiss says the group intends to offer a “complete range of services” across different price points, increasing brand trust in the suppliers (the founders typically remain involved post-acquisition) and allowing small businesses to retain their value without compromising on their viability. Though private equity firms are driven by the need to make a profit from their investments, Kiss says Permira isn’t taking a short-term view. “Small businesses have always had to think about how to create the best product, which they are very good at,” he explains, “but now they also have to think about how to deliver it quicker, be more reliable, control the quality, manage digitalisation and communication, comply with sustainability regulations and certifications, and pass on skills to the next generation. When they become part of the group, we can protect them where they are weak, and allow them to focus where they are strong.” Many of the companies invest or expand upon joining Gruppo Florence: Antica Valserchio recently opened a new weaving facility near Prato, and hat maker Facopel held the opening party for its new factory on the outskirts of Pistoia the week before I visited. Similarly, Veneto’s Marzotto Group, which started as a wool weaving mill in Valdagno in 1836, has built up a 13-pronged vertical supply chain. This includes Como-based silk production specialist Ratti Group, and Bergamo-based linen producer Linificio e Canapificio Nazionale. Smaller, family-owned companies are also consolidating. Piacenza Group (the company behind cashmere producer Piacenza 1733) acquired its Biella neighbour Lanificio Fratelli Cerruti and Varese-based jacquard specialist Arte Tessile in 2022, following its acquisition of local wool manufacturer Lanificio Piemontese in 2020. In 2023, it also acquired its long-time supplier, the carded spinning mill Filatura Cardata Lanefil, which specialises in noble fibres. “After the pandemic, we realised that the supply chain was dying,” says the group’s 14th-generation family owner Piacenza. “Precious mills that make up the different steps in our process were disappearing, so we decided to buy them and preserve this production.” This isn’t necessarily a new phenomenon, but it has been gaining pace. Ermenegildo Zegna Group has been building out its “filiera” (network) of specialist suppliers since 2009. It says consolidation allows for greater synergies between suppliers, something brands struggle with when producing more sophisticated items that combine specialisms. Verticalisation can also help to shorten lead times (the group says its integrated model has halved the turnaround time on its made-to-measure service), which benefits both brand relationships and sustainability efforts, as products don’t travel as far. Whether they officially join a group or remain independent, Italian suppliers — and the sustainability priorities that many are working towards — have a lot to gain from collaboration. “Streamlining processes and sharing resources works very well,” says fair fashion ambassador and Fashion Revolution Italy coordinator Marina Spadafora, pointing to a consortium of leather suppliers in Tuscany who banded together to clean up their water supply. This spirit of “co-opetition” — whereby competitors work together for mutual benefit — should be encouraged, agrees Karaosman. This applies to regulation, too, which many suppliers highlighted as another significant risk to Made in Italy moving forward. If Italian entrepreneurs can’t collaborate, they won’t be able to lobby policymakers effectively. “Many Italian companies take more care over their local area than the rest of the world. We have too many districts and we are not able to work together to protect our interests,” says Ercole Botto Poala, CEO of Merino wool textile specialist Reda, adding that this is true of Europe more broadly. “If Italy thinks as many separate districts and Europe thinks as 27 separate members, we cannot compete with China.” Consolidation versus culture Not all consolidation strategies are created equal. Speaking at the inaugural Venice Sustainable Fashion Forum in 2022, OTB Group founder and chairman Renzo Rosso cautioned against buying suppliers in whole, advocating for partial ownership or close partnerships instead: “If you buy it up, the craftspeople will leave and you remain with nothing. But if they have a stake, they will be incentivised to stay and make it work.” Many business owners in Italy are wary of “predatory” private equity firms for this reason, and see consolidation as a threat to Italy’s heritage. When Piacenza Group bought Lanificio Fratelli Cerruti, the company had been run into the ground by a private equity fund, says Piacenza. “Family businesses have a long-term vision, but funds want high margins and a sale within three or four years. They put different people from outside the industry in key positions and basically destroyed the culture.” It’s a hot topic. “My daily job is trying to find the balance between preserving the identity of our small laboratories and moving them to a different level, where they are compliant with regulations and can survive,” says Claudio Rovere, founder and president of Holding Moda, which has acquired 18 suppliers in the last four years. That’s why the group is keen to keep the entrepreneurs involved post-deal (which it has done for 90 per cent of them). Gruppo Florence has a similar approach. It buys the so-called “laboratories” outright, inviting the previous owners to stay onboard as managers and become shareholders in the group. This gives them skin in the game, incentivising them to support and collaborate with the other companies, and retaining the culture of the family business, says Kiss. “We want to protect the know-how in the businesses we acquire, so it’s important that the owners remain involved,” he explains. “A new manager from outside might have experience from different companies and do many things better than the entrepreneur, but the entrepreneur understands the culture and has a personal connection with the employees. You cannot replace that.” Fancy yarn producer Vimar 1991 — described to me as “a Willy Wonka factory for yarns”, thanks to its colourful, fun interior — was acquired by Chanel in 2020. CEO Davide Goria says the company’s other brand clients were hesitant to keep working with them at first. “They worried about how we would prioritise orders and how much attention we would give them,” he explains. “Today, they are happy, because they know the acquisition gave us guidelines and financial stability, but we are free to develop the business ourselves.” Subcontracting is still rife Even with so much consolidation, Italy’s supply chains remain largely fragmented, and subcontracting is widespread. Many suppliers outsource to facilities overseas, as a way to sidestep Italy’s notoriously high labour costs and fulfil bigger orders. Each year, Linificio e Canapificio Nazionale produces around 30 tonnes of linen in Bergamo, but the bulk of its output is made in Lithuania (1,500 tonnes) and Tunisia (3,000 tonnes). Ratti does most of its production in owned facilities in Romania and Tunisia. And Albini Group has production facilities all over the world, from weaving in Egypt to jacquard in the Czech Republic. It happens within Italy, too — either to save time, increase capacity or lean on external specialisms. Accessories producer ACM Dettagli di Moda has exclusive contracts with several metal hardware producers in China, but regularly subcontracts work to both Italian and nearby ‘Chitalia’ factories (Chinese-owned but Italy-based). Project Officina Creativa’s Matteo Lavezzo says the company produces 10 per cent of its garments in-house, and the rest elsewhere in Veneto. Gruppo Florence hatmaker Facopel just moved one of its subcontractors into its old premises after moving to a new facility across the road. And, until recently, when it decided to pursue vertical integration, HModa’s Beste Group worked closely with a Chinese-owned cut-and-sew factory in Prato called Sutura just 15 minutes drive from its headquarters. Whether owned, tightly controlled, or loosely formed, and whether domestic or abroad, these subcontracting relationships show that much of Made in Italy is outsourced. For brands, this poses a challenge because they don’t know who is handling their orders. With caution around counterfeiting at an all-time high, they can’t afford the risk to their intellectual property if branded designs are passed on to unknown subcontractors. “If those fabrics [with logos] make it onto another market, it’s a big problem for us,” says Piacenza. Subcontracting isn’t inherently bad, as Sianesi says; it becomes a problem when suppliers are forced to subcontract to cut costs (and corners). Many subcontractors are simply small entities with incredibly specific know-how and technology. What happens to them when the industry around them consolidates? One potential consequence is that it’s harder for them to attract customers or compete on price, says freelance product developer Masha Bekh. This reflects on emerging brands, too: “Often, when a supplier is bought by a group, they close their doors and only service bigger brands. Or they want higher minimum order quantities, which prices out emerging brands with low budgets and no sales support.” In an ideal world, supply chains would have fewer stages and be as local as possible, says Karaosman. Where this happens — or which ‘Made in’ label is ascribed — doesn’t necessarily matter as much as how it happens. “There should be less distance between supply chain actors, and more transparency around how they fit together. We need to protect the labour, not the label.” This article is part of our Vogue Business membership package. To enjoy unlimited access to our weekly Sustainability Edit, which contains Member-only reporting and analysis, sign up for membership here. Comments, questions or feedback? Email us at feedback@voguebusiness.com. Clarification: This story was updated to more accurately reflect Beste Group's transition towards vertical integration (30/10/24). Correction: The founder and CEO of Project Officina Creativa is called Matteo Lavezzo, not Lavazza, as a previous version of this article suggested (30/10/24).

Make better business decisions

More sustainability stories from Vogue Business

Make better business decisions