One of the biggest twists in the storied history of mergers and acquisitions between Europe’s fashion houses is the moment in 1999 when Gucci narrowly missed being swallowed by LVMH.
The Italian couturier had gone through a rocky patch after the death in 1983 of Rodolfo Gucci, who co-led the company with his brother. Rodolfo’s son, Maurizio, inherited 50 per cent of Gucci, sparking years of bitter family acrimony, and as chief executive he steered the business towards near-bankruptcy.
Domenico De Sole, the Gucci family’s former lawyer and head of its US business, was appointed CEO in 1993. With the help of lead designer Tom Ford, he transformed Gucci from a lossmaking company to a profitable group whose womenswear designs were global hits.
But by 1999, a power struggle that had been brewing for years spilled into the open. Bernard Arnault, the French billionaire founder of luxury group LVMH, had been quietly building a stake in Gucci and when he owned close to 35 per cent of the company he sought to take control.
Desperate to avoid a takeover under LVMH’s terms, De Sole arranged talks with several other Italian fashion companies. He hoped to draw up an alternative investment plan. “But nobody stepped up,” De Sole tells the FT. “There was fierce competition [between the brands at the time] and no real attempt to create an Italian group.”
Eventually De Sole found a white knight investor in François-Henri Pinault, the French founder of what is now luxury group Kering. “Pinault was quick. We were introduced by Morgan Stanley bankers in London, I told him the story of the house of Gucci, we shook hands and it was done,” De Sole says. Pinault bought a 42 per cent stake for €3bn, diluting LVMH to around 20 per cent.
Decades on from Gucci’s succession drama and the fraught sale that paved the French conglomerates’ way into Italy, a number of Italian houses still dominated by their visionary founders are now facing succession dilemmas of their own.
While Hong Kong-listed Prada this year announced that scion Lorenzo Bertelli is due to take over, Armani and Dolce & Gabbana — the only two big Milanese names that are still privately owned — are holding on tight to their empires, for now.
“In many cases these are first-generation fashion founders who are viscerally attached to their business,” says Marco De Benedetti, co-head of Europe at Carlyle, the private equity firm.
The personalities and creative vision of founders such as Giorgio Armani, Miuccia Prada and husband Maurizio Bertelli, and Domenico Dolce and Stefano Gabbana, have deeply shaped the aesthetics and public perception of their brands.
The degree to which the founders underpin the brands’ commercial and critical success is a consideration for investors and insiders who question whether the brands will be as popular once they are gone.
“It really varies from brand to brand, but a lot has to do with how prepared a company is for succession,” says De Sole. “The creative director role is critical for brands, but management is also key,” he adds.
But the questions of succession facing these firms also have industry-wide implications. While Italy is rich in heritage and craftsmanship, it has lacked domestic investors with the will and the financial power to protect its industry from foreign takeovers. “The mentality in Italy has always been that small is beautiful,” says De Benedetti.
Now, according to analysts and insiders, the biggest threat to Italian high fashion is that the remaining jewels could be bagged by French giants such as Kering and LVMH.
Following its near-miss with Gucci, LVMH, which owns more than 70 luxury brands, has added multiple Italian companies to its portfolio, including Rome-based Fendi, Loro Piana, famous for using rare raw materials for its garments, and high-end jeweller Bulgari.
Gucci-owner Kering has been on a similar spree. It acquired accessories maker Bottega Veneta, known for its woven leather designs, in 2001, and it later bought formal menswear group Brioni and Pomellato, a luxury jewellery company.
“Traditionally, Italian fashion entrepreneurs were extremely competitive with their closest neighbours [in Italy] which ultimately meant they would rather sell to the French than to domestic competitors, which helped Kering and LVMH develop in scale,” says Riccardo Mulone, head of Italy at UBS. LVMH, Europe’s most valuable company, has a market capitalisation of €422bn, while Kering is valued at €63bn.
In contrast Prada and Moncler, Italy’s two largest luxury groups, are each worth between €18-19bn.
In recent years there has been a dawning awareness among Italy’s political class of the benefits the fashion industry brings both to the domestic economy and the country’s soft power abroad.
But retaining Italy’s most prized brands is not guaranteed, analysts say. To do so there will need to be a wholesale shift in the way historical rival brands deal with each other.
“We must have the courage to imagine a future where Italian brands also own what they do,” said the late Giusi Ferré, a distinguished fashion writer, in an upcoming documentary, Milano: the Inside Story of Italian Fashion.
Ferré added: “Maybe Italy is too small or we aren’t bold enough?”
Inside the lines
Italy has a centuries-long tradition of being a hub for tanners, textile makers and artisans. In the 1950s, Italian alta moda, or high fashion, began to be perceived as a threat by French competitors, who had dominated the fashion scene since the 1800s.
France responded with a state-sponsored “couture plan” aimed at subsidising its textile companies and strengthening its ties with the domestic couture industry.
Italy had no such top-down help. However, an economic boom in the 1970s, along with expanding global markets and rising consumer demand, ultimately propelled the country’s luxury fashion industry on to the world stage.
Assistance came from endorsements when celebrities, from Sophia Loren to Sharon Stone, favoured Italian designers for film premieres and other public appearances. Stone once said her first ever fashion splurge was a “super expensive Armani suit” when she auditioned for the leading role in Basic Instinct in the early 1990s.
Today, 78 per cent of global luxury fashion is made in Italy, according to a Pambianco-PwC report. In 2021, in spite of the pandemic, Italy’s fashion and textile industry had a total turnover of €93bn. The sector is made up of more than 60,000 small and medium-sized businesses, according to Confindustria Moda, the trade body.
“Fashion is the country’s second-largest industry and it employs millions of people directly and indirectly,” says Carlo Capasa, the head of Italy’s national fashion chamber, Camera della Moda, the organiser of Milan Fashion Week.
In recent decades, growth has led to stock market listings. While some brands including Moncler, Ferragamo, Brunello Cucinelli and Tod’s went public in Milan, Prada opted for Hong Kong in 2013 as its Chinese market boomed, and Zegna listed in New York in 2021.
De Sole says that going public changes the nature of the business, with executives and founders suddenly having to cater to investors’ interests. For Italy’s fashion houses, there has been an advantage. “This has pressured the groups to come up with succession plans and be more rigorous in running their companies,” he says.
Milan-based Prada Group, for example, appointed a new management team to supervise the generational transition that will see Lorenzo Bertelli eventually take over the company from his parents Miuccia Prada and Maurizio Bertelli.
Belgian designer Raf Simons, who is Miuccia’s co-creative director, shut down his own brand a few months ago to devote himself entirely to Prada — a sign he is likely to take the creative helm of the label once Miuccia retires.
Domenico Dolce and Stefano Gabbana recently updated their succession plans, which originally envisaged Dolce & Gabbana shutting down after their departure. Now they want the Dolce family to take over instead.
Giorgio Armani, who at 88 is still the chief executive and creative director of his eponymous company, intends to transfer part of his empire to his charitable foundation in an effort to prevent takeovers or break-ups of the group.
“The future of the [company] Giorgio Armani is linked to me and I know I am not eternal,” said Armani in a rare on-screen appearance in the documentary Milano. “But my commitment is to manage the company for as long as I have left to live.”
A reluctance to open to outside investment has held back Italy’s fashion houses, Carlye’s De Benedetti believes. “It’s largely been a cultural thing, because the funds and willing investors were there,” he says. “But if the founder wants to keep control of the business at all costs, it doesn’t work out.”
Being part of a larger group has benefits. It gives companies opportunities to invest in technology and attract outside talent, which can lead to a brand’s revitalisation. Fendi, for example, is currently one of the most profitable brands in LVMH’s portfolio.
When the fashion designer Valentino Garavani retired in 2007 following the sale of his company to London-based private equity group Permira, he anticipated “things would change”. But he hoped Valentino’s creative team would “do [him] proud”. Maria Grazia Chiuri (who has since moved on to Dior) and Pierpaolo Piccioli, the brand’s current creative director, are considered two of the most visionary minds in the modern fashion industry; Valentino was the fastest growing luxury company from 2013 to 2018.
Since Pinault bought Gucci, funds have flown into Italy’s luxury sector from around the world, with conglomerates and private equity companies buying dozens of brands and suppliers. Analysts say such investments have ultimately been beneficial to the domestic industry.
Brands such as Valentino, now owned by the Qatari royal family, Michael Kors’ Versace, Gucci and Fendi continue to be strongly associated with Italy and their founders’ heritage in spite of their foreign ownership.
Beyond the scale of the luxury conglomerates, the “revolution” brought by owners such as Kering and LVMH has been the shift in the balance of power away from the founding families and on to the creative directors, says Sofia Gnoli, a fashion professor at Milan’s IULM University. “To sell a brand doesn’t mean it will automatically decline. If you get the creative directors choice right, a brand can thrive,” she says.
Creative directors are typically tasked with reinterpreting the heritage of each brand for modern customers, Gnoli adds. “When you can sell a €3,000 handbag by emphasising the brand’s glorious past, what investors do is buy a piece of history rather than spend money to create new brands.”
Creative directors Tom Ford and Alessandro Michele, both formerly at Gucci, were among those who revamped a brand this way.
Ford, who recently sold his eponymous brand and retired from fashion, led Gucci’s successful turnround in the 1990s, rejuvenating its classic designs, such as the leather bucket handbag with the double G monogram logo, and expanding from accessories into womenswear. Michele, who succeeded Frida Giannini in 2015, transformed the brand’s aesthetic through his androgynous collections that revived Gucci’s popularity among younger consumers. He left the maison last year.
Analysts believe it won’t be as easy for foreign buyers to pounce on flagship Italian brands in the future.
Though most agree it is now too late for Italy’s industry to build a group that can compete with the French conglomerates in terms of size, experts see the Italian industry working more closely together — what UBS’s Mulone calls “consolidating cleverly”.
The mentality among fashion families is shifting. “Founders now wear their competitors’ brands, they go to each other’s fashion shows, they consult over important issues,” says Mulone.
Younger generations are likely to take the challenge of consolidation into their own hands, analysts say. Beyond the young Bertelli, the children of Zegna, Cucinelli and Florence-based Ferragamo, as well as Tod’s Diego Della Valle and Moncler’s Remo Ruffini, all work for the fashion houses controlled by their families.
Prada is often floated as the group that might lead a consolidation effort as it is the largest in market cap alongside Moncler. But heir Lorenzo Bertelli told an FT conference last month: “Let’s see what is left to buy when the time comes.”
A degree of consolidation is already occurring in one critical arena: supply chains.
“When it comes to luxury products, supply chain traceability is key, so there’s a push by big names to buy out their suppliers in order to secure the craftsmanship of their products,” says Mulone.
While the Covid pandemic accelerated the trend, several Italian groups, like their French competitors, have been vertically integrating their supply chains for years in order to secure the best raw materials and streamline production.
Zegna and Bertelli of Prada, for example, are on a self-proclaimed “mission” to protect “Made In Italy”, a merchandise mark that indicates that a product is entirely manufactured in Italy, from its design to its packaging. The Zegna and Prada groups announced this month a co-investment in high-end knitwear manufacturer Fedeli, where they acquired a combined 30 per cent stake. In 2021, the two groups bought a majority stake in wool and cashmere supplier Filati Biagioli.
In May, OTB, the Veneto-based group that includes brands like jeans maker Diesel, Jil Sander and Marni, announced the acquisition of a majority stake in Frassineti, a longtime supplier for Jil Sander’s accessories line.
These investments are unlikely to pave the way to broader consolidation of brands, says Citi’s head of global luxury Roberto Costa. “But at the same time we will see partnerships increasing between brands, leading to co-investments in supply companies, which also means acquiring their vital knowhow,” he adds.
De Sole, who sits on Zegna’s board with UBS chief Sergio Ermotti, says the €2.6bn group, like Prada, has the vision to spearhead the creation of Italy’s luxury hub.
Some insiders, however, believe the industry and Italian institutions must be bolder in shielding the country’s fashion houses and its craftsmanship from foreign interest.
The minister for businesses and Made in Italy, Adolfo Urso, has publicly stated that the government will be guided by “national interest” when assessing foreign investments in Italian companies. However, previous governments have stopped short from including the fashion industry and its suppliers in the list of strategic sectors, such as tech, transport and telecommunications, where it has the powers to veto foreign investments.
“What is strategic for Italy if not the fashion industry?” says Capasa. “It’s what we’re known for throughout the world and younger generations want a future in fashion.”
Capasa is putting together a “master plan” for the industry that will be presented to the Italian government in the autumn.
Public institutions have recently stepped up their support of the industry. Italy’s Fondo Strategico Italiano, the publicly backed investment fund, for example, acquired a 40 per cent stake in fashion house Missoni, known for its bright and colourful high end knitwear, in 2018 for €70mn. The government is now mulling the idea of launching a national fund to invest in “Made in Italy”.
But critics say domestic investments have been limited and Italian businesses and governments have lacked the vision to do what the French did to safeguard their flagship industry and historic domestic couturiers.
One industry executive who spoke on condition of anonymity believes Italy “must ramp up its involvement in the fashion industry”.
A report by economic research institute Censis shows that €6bn in public investment in the sector over the next three years would spur production and increase revenues by €20bn.
“If we don’t do anything, the private equities and the foreign conglomerates will,” says the executive.