China: Catastrophe for creativity or luxury opportunity?

Suzy Menkes – The International Herald Tribune

MILAN On Wednesday, Italian fashion tries to answer the burning question about the upcoming generation. “Who’s Next?” – a show of three finalists out of 300 nationwide sweep – aims to nurture the future.
It is, above all, an attempt to support creativity at a time when the “Made in Italy” era is literally going out of fashion.
Even as the new talents take to the runway, under the auspices of Franca Sozzani, editor of French Vogue and of Rome’s Alta Moda organization, yet another small Italian company will be going out of business.
The threat of China has become a scourge in this country which has been the manufacturing hub of European design for 30 years – and consequently the greatest supporter of emerging talent.
But the happy days of the Italian industrial colossus buttressing innovative fashion are over – just at the moment when creativity, know-how and deeply felt luxury are the only weapons to fight the onslaught of the Chinese.
Domenico Dolce and Stefano Gabbana celebrate this season the 20th anniversary of the vibrant company they founded from scratch, yet fashion folk are aware that this is the last of Italy’s titans. Since they emerged, building up first a designer line, then an affordable range, with myriad accessories and ancillary products, there has been no one in Italy to challenge them.
The emergence of China as a manufacturing force has had much the same trajectory as a start-up designer company: a small nibble at the market, followed by a solid business and increasing export success. But the growth of China since the global trade regulations were lifted in January has become colossal, causing such a worldwide flood of shirts, pants, underwear, socks and shoes that the European Union finally took action. This month’s crisis meetings, blocking an excess of Chinese exports to Europe, has led to so-called “bra wars,” resulting in a shortage of low-cost underwear on the European market and pictures of containers of clothing banked up at ports.
What is the connection between Chinese-manufactured T-shirts and the high fashion on the Milan runways? Ultra-cheap clothes, welcomed by consumers and retailers, undermine the fashion manufacturers, already challenged by the arrival of fast-fashion chains such as H&M and Zara, whose products are often also made in the Far East. As Li Edelkoort, the respected fashion forecaster, warns, the Chinese whirlwind will flatten the fashion world as we know it and change radically its familiar landscape.
“I am afraid that we are seeing the genocide of the culture of textiles,” says Edelkoort. “Everyone is putting eggs in one basket – China – and that is potentially devastating for our cultural heritage.”
“We are already taking away work from Morocco, Turkey and Greece, betraying our former partners.”
“The day a T-shirt is cheaper than a croissant, we are arriving at indecent prices,” she continues. “We know what goes into making a croissant, but when you bring the price of clothes down so dramatically, all other things like newspapers and coffee seem overvalued. It becomes a moral problem.”
Edelkoort’s concern is not so much with clothing – since “we already know that the Far East copies Western design” – but with textiles.
“The day we radically want to renew fabrics, we will need traditional skills,” she says.
“And people don’t realize that if we don’t get textile ideas out of Italy, Spain and maybe Scotland and Ireland, Asia is not ready to pick up the culture.”
Others see a less apocalyptic scenario, believing that small Italian companies have the ability to be flexible.
Raffaello Napoleone, chief executive of Florence’s Pitti Imagine exhibitions, even sees a ray of hope for Europe in its attempt to tame the Chinese dragon.
“The industrial system of the south of Europe (Italy included) is changing structurally, becoming more aggressive and difficult to govern,” Napoleone says. “At the same time, it is a big opportunity for the companies of the textile and apparel industry. The Italian industry is made of small companies and this gives them the opportunity to react with agility and intervene speedily, thinking over and updating the industrial districts. Beside this, the countries overlooking the Mediterranean offer an excellent opportunity in terms of competitiveness against China.”
China as a consumer also offers hope on the horizon. Ever since the nation swapped Mao jackets for designer sunglasses, it has been perceived as an opportunity by Italy’s luxury companies – particularly those such as Ermenegildo Zegna or Salvatore Ferragamo, which entered the country in 1991 and 1992 respectively and which have already gained brand recognition. Vogue China, which was launched in Milan on Monday, is about to hit the stands in Shanghai.
“China is – and will be – an opportunity for many other brands,” says Ferruccio Ferragamo, the company’s chief executive. Ferragamo will celebrate next month a decade in Beijing, where it has refurbished its store.
“Thanks to an early start, we are in good position – and we have to make sure we maintain it,” says Ferragamo. “At the top end of the market, they appreciate especially things that are not made in China. And we are 100 percent made in Italy.”
Armando Branchini, the secretary general of the Altagamma clothing federation and also an economist and university professor in Milan, says that how China is perceived depends on the “very articulated and segmented” Italian industry on its different levels.
“Size matters,” Branchini says, referring to the situation of a luxury company with a heritage and reputation versus the small and unknown producer.
“In very short time, the Chinese consumers have become capable of understanding real values,” Branchini says, citing the top tier of 10 million thirty-somethings with money to spend and “a second tier of 90 million, much younger and not as rich, but some of them will become a market.”
On the debit side are the difficulties of exporting, when “if you don’t have any mythical value, you aren’t allowed to sell to the entire China market.” And the impossibility of finding a business partnership if there is no name recognition in other key markets: Japan, Hong Kong and South Korea.
Napoleone even strikes a note of caution about the euphoria over China as luxury’s new Promised Land.
“We have to remember that today only 2.7 percent of the Chinese earns $12,000 and 21 percent of the population has an income between $6,000 and $12,000,” Napoleone says. “Sure these are 350 million people, but a billion Chinese suffer serious health and alimentation problems with an income of less than $2,000. This means that it will certainly take a lot of time before China resolves its profound contradictions.”
The counterfeit problem adds to the general difficulties. Ferragamo says that most of the world’s fakes now come from China or other Asian countries where labor costs are low.
“Fakes are so easy that they grow and grow – and the margins are astronomical,” Ferragamo says.
Matteo Marzotto calls counterfeit “a dirty business” and says that he has issues with China not “playing fair” in terms of giving any support to its workers, compared to the Italian concern for social services, welfare and quality of life, as well as pollution control.
Marzotto, whose family business is in fashion (including Hugo Boss and Valentino) and textiles (which are still one third of its business), encapsulates the tug-of-love in many traditional made-in-Italy companies.
“For me, it’s a personal drama. I grew up in a little village where my parents’ home was identified with Marzotto,” says the young Valentino executive, who has had to share the family decision over the last two years to survive by transferring manufacturing to Lithuania and the Czech Republic, thus shuttering 1,500 Italian jobs.
“How can we manage China as an opportunity?” asks Marzotto, explaining that the “long, long history” of Valentino in China has led to another problem: the Chinese fashion pretenders called “Rudolf Valentino or “Valentyna”.
“China is a big opportunity only if they work clearly and play a fair game,” Marzotto says. “They have one-tenth of our labor costs and in Italy it costs 8,000 just to establish a company. It is not a matter of open markets. Everyone has to play with some rules. To remain competitive, we need a little bit of control.”
Marzotto believes that Italian fashion may have a more subtle and secret weapon than slapping taxes on cheap imports: its heritage and its potential for creativity.
“Prices cannot be the only issue,” he says. “There is also the capacity of Italy to invent something new. When you are talking about knitting yarns, you cannot invent too much. But Italy has its archaeology and historical heritage, even if it has not reserves underground in oil or mining.”
Ferragamo also hopes that Italy can offer intangible plus factors both in selling and manufacturing.
“Everyone is scared about China,” he says. “Potentially we can all have the same machines. But Italians have feeling and perception that you don’t suddenly acquire. There is a tradition here that I hope will be preserved, from one worker to another and from father to son, that the Chinese cannot suddenly implement.”
Ferragamo believes that even the first post-Mao generation of Chinese consumers is already responsive to myth and mystique.
“The Chinese consumers are very quick in understanding,” he says. “They have a deep culture and are much better than five years ago. In very short time, the Chinese consumers have become capable of understanding real values.”
What about a nightmare scenario that the Chinese suppliers, equipped with state-of-the-art machinery, will rebuild their smashed cultural heritage – and draw on it to create garments with the intangible plus factor?
Edelkoort believes that already the downward price spiral is leading to disaster. She believes that Europe will abandon a centuries-old heritage and that the industry will end up with bland clothing, limited varieties of textiles and basic prints.
But Napoleone is more positive.
“I do not believe that in the future there will a sole and dominant culture,” he says. “We will be confronted with different strong cultures which will stay in competition, everyone with its own prevailing identity.”
Copyright © 2005 The International Herald Tribune

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