Industry sources told Reuters on Tuesday that global luxury brands, including Louis Vuitton, Parada, and others, have significantly reduced orders with top Italian suppliers as Covid-19 disruptions are seen across the world.
Italy has imposed unprecedented travel restrictions on 60 million of its people to contain the fast-spreading virus, which has so far resulted in 9,172 confirmed cases, with 463 deaths.
Reuters spoke with high-end clothing suppliers in Veneto, an area nearby Tuscany and affected by the new travel restrictions. Suppliers said a perfect storm of factors has been building since late January, as demand for luxury goods from China crashed, and Italian suppliers are suspending operations or running at less than full capacity because of a nationwide lockdown to contain the virus.
“We were producing 800-1,000 handbags a month for Gucci. In February we made 450 and we have no orders for March,” said the operator of a small handbag supplier in Scandicci, an area outside Florence that is home to a major hub for leather goods production. “We don’t have orders for April or May either. The company has been brought to a standstill and we are having to put our workers on temporary redundancy schemes.”
The virus has severely damaged the global luxury goods industry, already dealing with waning demand that started with the Hong Kong riots in the second half of 2019. Then the virus outbreak in China at the start of the year delivered an even larger blow to the industry as the world’s largest consumer was forced into quarantine.
Flavio Cereda, an industry analyst at Jefferies, noted on Monday that he slashed his 2020 sales forecast for the global luxury goods market because of the virus outbreak in China, the Middle East, Europe, and the Americas.
Cereda expects luxury goods sales will decline 3% on the year, as opposed to his earlier forecast of 1% growth.
“Prolonged disruption of economic activity may well result in supply chain issues for most brands,” he said, adding, however, that he had no evidence of that happening yet.
The Scandicci manufacturing hub is an area home to top suppliers for LVMH, Kering, and Prada has had strict travel restrictions go into effect to start the week, which has forced some companies to operate at less than full capacity.
Massimiliano Guerrini is the owner of Almax, a Scandicci-based luxury goods supplier for top luxury brands, said orders noticeably decreased when China started shutting down in late January due to the virus outbreak.
“I thought things were not too bad given the circumstances, but now this new alarm in Italy risks making more casualties among businesses than among people and disrupting the supply chain for the orders that are still in the pipeline,” he said.
“We have 270 employees and have diversified our customers, so we managed to mitigate the impact so far. But some of the smaller suppliers are not going to make it.”
Reuters spoke with an operator of another supplier in Veneto, who reported a 30% slump in orders from Louis Vuitton.
Claudio Marenzi, President of Confindustria Moda, a trade organization in Italy, said the Italian textiles industry could see rapid consolidation this year as the virus crisis across the world is causing severe demand shocks that are also resulting in supply shocks as suppliers in Italy idle plants on a nationwide lockdown.
“Since the virus emerged in China we knew there was going to be a slowdown in the first quarter. But now the whole year risks going up in smoke for us,” Marenzi said.
Italy is Europe’s third-largest economy, and the lockdown across the country could result in a recession.