Made in Italy: The Shift Toward Responsible Luxury

The global economic recession puts into question the growth strategies of Italian fashion and luxury brands. Over the recent years, these have grown enormously through mergers and acquisitions. The worsening economic situation makes ever more apparent the crisis of the model based on "speculative luxury," which has prevailed over the the last decade. At the basis of such a model, is the either conscious or subconscious decision to assign higher priority to new luxury consumers: aspirational middle classes in advanced countries and business oligarchs in emerging economies.

In order to do so, companies have basically focused on mining their brands, with growing communication costs (advertising, PR, events, celebrities, product placement) and heavy investments in retail channels (monobrand shops, both in mature and emerging markets).

The additional financial burden of such immaterial components has ended up penalizing intrinsic quality: few have worried at the progressive cheapening of the product, accentuated by processes of outsourcing and offshoring in order to take advantage of cheaper labor, as long as the growth in the demand for branded goods guaranteed rising prices. This strategy, which bet on the low attention to substantial product value on the part of clients (both trade and end-user customers) proved the most rapid and effective way to achieve sales and profit growth, as well as financial growth, so as to attract financial partners in the equity capital of fashion brands.

This strategy has ended up creating a "luxury bubble" which is now deflating fast. The companies that have heavily pushed this business model are paying the highest price during the current crisis, while those which have kept betting on quality, customer service, high value/price ratio, and on the integrity of their brands, show that they can better weather the storm and possibly strengthen their competitive position.

Looking at the possible trends in the industry, fashion and luxury firms will have to provide valid answers to new emerging values in society: the protection and valorization of environmental resources, the development of renewable forms of energy, total traceability of the product, factors of well-being and ethical certification as key components for selling a product are all emerging areas of innovation which could lead to a new generation of sustainable fashion/luxury products.

There are two assumptions that companies must bear in mindwhen formulating such a new strategy. Firstly, the consumer can no longer be regarded as passive but is in the process of turning into a proactive prosumer, whom you need to listen to in order to satisfy her/his emotional needs. Secondly, a new conception of the firm is emerging where stakeholders – employees, collaborators, non-profits, public agencies – count as much as stockholders. Italian fashion firms are better placed with respect to the competition to pursue the model of "responsible luxury." But in order to do so, Italian luxury brands will need to return to the original causes of the success of Made in Italy: without giving up technological and managerial innovation, they will have to find once again the passion for the ethics of making things, thus building a stronger future for their firms.