The Italian Fashion Sector Must Embrace Sustainability, Innovation, and Growth to Sustain Global Competitiveness

Sustainability, innovation and dimensional growth. These are the three key elements on which the Italian fashion sector must act to maintain its competitiveness at an international level.

This is what emerges from the new brief entitled The Fashion Sector between Challenges and Opportunities: What Future for Made in Italy? by the Sector Strategies and Impact Department of CDP, which analytically describes how Italian fashion, a sector of primary importance that contributes 5% to the national GDP, is reacting today to recent changes in the global geo-economic context and to the challenges posed by the energy and digital transition.

The study highlights the transformations required today for Italian fashion, including a high capacity to adapt to the changed availability of raw materials and an increased speed of reaction to changes in consumer purchasing behavior, particularly in the luxury segment, leveraging, for example, digitalization and AI that have a high potential to keep the fashion industry up to date.

These factors have recently been joined by further elements of transformation: a greater focus on environmental impact (also combined with the need to adapt to stringent regulatory constraints, especially in the EU) and more generally on ESG performance and an increasingly widespread diffusion of private equity operations in the fashion sector functional to a progressive consolidation of the players in the sector.

“The fashion sector is a segment that has always represented the flagship of Made in Italy”, said Simona Camerano, Head of Economic Scenarios and Sector Strategies, CDP, “it has a long, complex added value chain, the central part of which is represented by the production of textile goods, the manufacturing of clothing and the production of leather goods.

Three segments that alone represent 40% of the entire supply chain” explained Camerano who continues: “Today the sector faces economic and structural challenges that it will have to face by leveraging its strengths, but also by overcoming its main critical issues and vulnerabilities.”

The Italian fashion confirms itself as a sector of primary importance of Made in Italy

CDP’s analysis confirms that the Italian fashion system is a sector of primary importance for Made in Italy. In fact, it contributes 5% to the national GDP and boasts, in addition to manufacturing excellence, a strong cultural identity and the ability to influence global trends.

This is also demonstrated by the preference given by a third of the large European groups in the sector (a figure that rises to two thirds for luxury brands), making the Peninsula the world’s leading producer of high fashion. This is a success that concerns all the components of the “fashion” product, from materials to custom workmanship, with established brands that coexist with smaller companies, focused on innovative collections and linked to the territory of origin: a supply chain industry that produces an added value of 75 billion euros and 65 billion in exports.

Strengths and critical points of the supply chain

The brief shows that the success of the Italian fashion sector is based on some key factors , including the excellence of materials and workmanship , the offer of tailor-made services and the creation of strong brands thanks to talented designers and cutting-edge fashion schools. This positioning allows Italian fashion houses to be highly competitive, enhancing the link between tradition and innovation. Italian products are in fact distinguished by quality and prestige, elements that, in the same destination market, are recognized by higher prices compared to international competitors (a differential of 21% compared to French goods, 52% compared to German ones).

However, the sector faces some critical issues . First, those related to the impact of climate change on production, for example with extreme weather events that are estimated to put at risk – in the absence of mitigation actions – over 65 billion dollars of apparel exports globally. And then, the growing dependence on luxury consumers (in 2022 only 2% of luxury buyers generated 40% of total sales in the sector), the aging of ownership and artisanal workforce , and the difficulties in repositioning global value chains.

The challenges that the Italian fashion sector must face to maintain competitiveness

In this context, to remain competitive, companies in the Italian fashion supply chain are facing important challenges for the future, linked to sustainability, dimensional growth and innovation. These, the study highlights, must be the three development directions on which to act in order to support the strengthening of the national fashion sector.

In fact, on the ESG front, the fashion industry is one of the most environmentally impactful and Europe is introducing stringent regulations, such as the digital passport, eco-design and the ban on destroying unsold goods to which the sector will have to adapt.

In this panorama, the circular economy, through the use of recycled fibres and the reuse of materials, represents a fundamental solution to reduce the environmental impact, while innovative models, such as regenerative agriculture, and the adoption of more responsible consumer behaviour are already taking hold. Among these in particular, second hand, which has reached a global value of 70.8 billion dollars and for which an average annual growth of over 7% is expected in the period 2024-2032.

Furthermore, the fashion sector is currently characterized by a polarization between large luxury brands and low-end operators. In this context, private equity has favored aggregation and acquisition strategies of niches or sales platforms.

“In the last five years, European private equity operators have invested approximately 30 billion euros in 127 operations, exceeding the number of deals in the US market, although on average on smaller dimensions in relation to the individual interventions” reads the brief which reports how 22% of European investments have focused on Italian companies, making Italy the main destination for these funds. Network contracts and collaborations between companies can also offer further development opportunities, although they are still not very widespread.

Finally, digitalization and artificial intelligence represent key levers for the sector, with applications ranging from trend forecasting to supply chain management. Emerging technologies, such as blockchain, NFT and augmented reality, improve the shopping experience and production efficiency, bridging the gap with international competitors. However, it is necessary to invest in training digital skills to make the Italian fashion industry credible from this point of view at a global level.

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(Featured image by Hannah Morgan via Unsplash)

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First published in ESG NEWS. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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