SALES OF BIG, INTERNATIONALLY RENOWNED, LISTED FASHION COMPANIES DECREASED IN 2009 FOR THE FIRST TIME, AS SHOWN BY "FASHION AND LUXURY INSIGHT", THE ANNUAL REPORT BY SDA BOCCONI AND ALTAGAMMA

The luxury industry reached a nadir in financial year 2009, according to the Fashion and Luxury Insight 2010, the international fashion and luxury listed companies annual survey compiled by SDA Bocconi school of management and Altagamma. For the first time in years sales growth was negative (-5.3%) and companies have also been cutting down investments.

The report analyzes the balance sheets of 65 internationally renowned listed companies with sales in excess of € 200 million each and total sales of € 218 billion.

Reinforcing a general negative trend over the last three years, data show declining sales (-5.3%), a declining ROI (8.3% versus 9.9% in 2008) and a slightly improved, but still disappointing ROE (3.7%). The average EBIT and EBITDA margins, at 7% and 11%, are far away from the 2005-2007 levels. The average cash flow generation capacity has increased to 11.6% of sales, mostly thanks to the average decrease in the weight of working capital (now equal to 18.6% of sales, -1.6% from 2008). The average trade debtor days slightly decreased to 39 days.

“If the financial deterioration was to be expected due to the global crisis”, Barbara Rovetta of SDA Bocconi, co-author of the report, said, “the really alarming bell is the reduction in core investments, now equal to 82.3% on depreciation. These figures suggest that, to contrast the sharp reduction in sales, most players in the industry have been dramatically cutting down investments in the development of the core business and in supporting future growth. This way, though, recovery is jeopardized”.

"The negative trend in sales growth is associated to average better control of the operating costs and significant reduction in the level of working capital to sales",  Armando Branchini, executive director of Fondazione Altagamma said. "This suggests that the companies in fashion and luxury have been able to contrast the 2009 deteriorating market trend with stronger focus on efficiency".

Another striking evidence is that the retailing network is not anymore a key growth driver: the average increase in the number of stores has been extremely small (+2%) and even the players that have been opening new stores experienced negative growth.

“The undisputed key performance driver proved to be size”, co-author Giorgio Brandazza of SDA Bocconi said, “to the point of raising doubts on the sustainability of the business models of niche players”.

Among the worst hit companies are Italian ones, in line with the negative evidence of 2008. With sales growth at -11.8% Italy behaves worse than Asia (-7%), US (-5%), Rest of Europe (-2.7%) and France (-1.3%). With respect to profitability Italy is again underperforming: its ROI (0.3%) is largely at the bottom of the ranking, comparing to results ranging from 7.6% for the Rest of Europe to 17.8% for Asia.

Luckily, there’s some good news. Financial data for the first semester of 2010 are available for 28 out of the 65 companies analyzed in the report and they show a robust recovery of sales and profitability.

INDUSTRY FINANCIAL HIGHLIGHTS