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Ensuring a consistent supply of fine-quality raw materials from Italy has been an arduous task over the past couple of years — even for some of fashion’s biggest players. Pandemic disruptions have been followed by inflation, which has squeezed suppliers and hit production. Now, in a rare move, luxury brands are combining forces to acquire suppliers to protect Italian craftsmanship from external forces.
Last week, Prada Group and Ermenegildo Zegna Group announced they will each acquire a 15 per cent stake in the Italian knitwear manufacturer Luigi Fedeli e Figlio. It’s the second time the two companies have teamed up to secure a joint stake in a supplier: in 2021, they jointly acquired a majority stake in wool and cashmere supplier Filati Biagioli Modesto. The aim is to preserve Made in Italy craftsmanship and know-how, and ensure a consistent supply of high-quality materials regardless of economic conditions or global supply chain shocks.
From Prada to LVMH, fashion brands are ramping up their investments in suppliers, bringing benefits on both sides. Experts warn integration can be difficult and costly.
And, on 23 May, Chanel and Brunello Cucinelli announced a joint deal to each acquire a 24.5 per cent stake in Cariaggi Lanificio, an Italian cashmere supplier that, like Luigi Fedeli e Figlio, is known for its fine yarns. Brunello Cucinelli previously held a 43 per cent stake. Similarly, the two brands said the goal was to preserve the Italian industry’s “precious know-how and its jobs”, as well as improve traceability and quality of the raw materials they use.
Experts say these tie-ups bring myriad advantages, both for the brands and the suppliers. However, they warn against allowing a small pool of luxury brands to have a monopoly over the country’s wool and cashmere supply chain.
“There’s definitely a [race] to make sure they secure production before anybody else,” says Rémy Daguillard, founder of supply chain and logistics solutions company Stellae International. “This is only [accessible] to large brands who can really put money into their suppliers to really secure and streamline production.” Both Zegna and Prada say the aim is to jointly protect the Made in Italy supply chain, and avoid all Italian manufacturing and craftsmanship practices in the region being acquired by foreign companies.
An accelerating trend
For years, brands have been trying to navigate delays at all stages of the production process by bringing suppliers in house. Zegna Group, for example, has a largely vertically integrated model — meaning it oversees its products from raw material selection to finishing. It has bolstered its Made in Italy portfolio through the acquisition of wool, cotton, cashmere and leather manufacturer Tessitura Ubertino (2021); knitwear manufacturer Dondi (2019); luxury hat manufacturer Cappellificio Cervo (2018); and fourth-generation textile manufacturer Bonotto (2016), among others.
Like Zegna, Chanel has been verticalising its supply chain, acquiring stakes in Italian luxury knitwear manufacturer Paima (2021); French clothing manufacturer Grandis (2019); and Italian leather goods manufacturer Renato Corti (2019), among others. The house has invested in 13 Métiers d’art and more than 30 manufacturing sites over the last 40 years. However, this is the first time Chanel has partnered with another luxury brand to acquire a stake in its supplier. Prada Group and Brunello Cucinelli have pursued similar strategies.
The trend has accelerated since the pandemic. “After Covid-19, some of these manufacturers didn’t recover and some of them are going under. These are opportunities, and targets, for other brands or competitors to buy them,” says Stellae’s Daguillard. He adds that suppliers are attempting to modernise and remain competitive, including through the use of AI and robotics, and scaling teams — all of which requires investment.
Luxury fashion supply chain consultant Dorcas Payne agrees, adding: “These manufacturers don’t get much investment or attention. They’ve constantly got to look for new clients and find ways to keep themselves afloat.”
More pros than cons
There are a number of upsides to brands using their combined firepower to acquire significant stakes in their suppliers. The deals will give each company a cost advantage and greater control over their supply timelines and processes. With the investment from Prada and Zegna, Luigi Fedeli e Figlio can increase its production capacity — which in turn will strengthen the brands’ access to top-quality Italian wool and yarn.
Chanel echoes this, saying the acquisition of a stake in Cariaggi Lanificio will grant it access to a constant supply of top quality materials, ultimately strengthening core categories such as knitwear. “Our desire is generally to invest with partners that we know, with whom we already work and whose skills and know-how we wish to preserve,” a representative for Chanel says. “Their activities are complementary and allow us to strengthen the sectors of excellence, such as the knitwear sector, which are essential to the activity and creation of our collections.”
The brand can also look at synergies between the suppliers in its portfolio, and whether there are new development opportunities. For example, two of the suppliers it has acquired in recent years, Vimar and Lesage, have worked together to develop eco-responsible tweeds.
Greater oversight of the supply chain is increasingly important for brands, who are under pressure to improve their traceability to comply with a wave of sustainable fashion legislation as well as meet changing consumer expectations. Prada says its strategy is to have control over all stages of the production process, allowing transparency. Similarly, Zegna Group says vertical integration is key to having more control over the production process, from raw material selection to the end product.
The increasing demand for transparency means production companies are diverting more money towards becoming more sustainable. “The push for transparency and traceability does require a large amount of investment,” says consultant Payne. “Sometimes those demands cause a production company to struggle a bit, so for a production company to [meet those demands] the investment is a huge help.”
The risks are limited for major luxury brands as they have the cash and resources to offset any supply chain disruptions such as long lead times and premium prices. Smaller designers, however, may be forced to look elsewhere — to manufacturers with shorter lead times or sourcing regions where raw materials are cheaper and easier to secure (but often lower quality).
In both the latest Prada/Zegna deal and Chanel’s tie-up with Brunello Cucinelli, the family founders of the suppliers in question have retained a majority stake. Payne says this is important: “[They] still need to be able to work with other brands and have a good diverse pool of clients. Otherwise, there is going to be a power struggle,” Payne says, adding that the brands who invested in the manufacturing company could now influence who the business works with and who takes priority in the production flow.
“We need to make sure we don’t get to a place where we’ve taken a few steps backwards and production units become solely owned by a brand, as it doesn’t make economical sense. There still needs to be freedom for multiple brands to work with one manufacturing unit independently.”
This is a long-term play, says Payne. “These brands are definitely thinking long term, and are making sure they are keeping their manufacturers alive and putting their resources together. To keep a production unit up and running is not a cheap thing — it’s quite expensive. Ultimately, it’s a good thing for the manufacturer because they’ve got some investment from the brands they work with as they could be [facing financial difficulty]. For me, there’s more pros than cons.”
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