With a population of roughly 60 million, Italy is the third largest economy in the Eurozone and the fourth largest in Europe. Until recently, Italy was a leading exporter of consumer goods, but, following the arrival of new world competitors – principally the BRIC countries – Italy has lost its manufacturing supremacy, and thus must reconsider its market position. According to CSIL’s Aurelio Volpe, this means larger firms, internationalisation, and significant investment in design, planning and R&D …
Everybody knows that Italy was the cradle of the Renaissance – it is one of the most popular destinations for international tourists and it boasts an extraordinary cultural arsenal. It should also be remembered that in April at Milan’s Salone del Mobile, the visitors included over 194,000 foreign operators from the furniture and lighting sectors.
This means that the number of operators from the US, Germany, Japan and Russia was comparable to the number of visitors to their own national fairs. Thus, it is clear that the crisis does not raise any doubts about Italy’s leadership – at least, in the fields of design, creativity and product innovation.
Is the building sector slowing down?
Construction is traditionally the driving force of the Italian economy. Compared to other nationalities, Italians spend proportionally less on electronics or clothing and more on the home – and Italians set their sights on owning their own homes.
However, between 2006 and 2012, production throughout the construction industry fell by 27%, with new homes suffering most (-53% since 2006), and building renovations once again driving the sector, as they did in the 1990s. Recovery in the sector will be stimulated by technological innovation combined with new legislation in favour of energy-saving interventions (eco-building).
One segment that has witnessed considerable activity is the window segment. CSIL estimated that the Italian market for windows totals about 7.2 million units. This is just less than 10% of the annual window consumption in Europe, which is estimated to be 75 million units. Although the sector is made up of thousands of craftsmen, the recovery will be led by a group of about 30 producers of finished windows or profiles (in PVC, aluminium or wood).
Furniture exports as a safety valve
The contraction in the consumption of furniture in Italy was similar to that of construction – between 2008 and 2012 consumption fell from €12.6b to €8.8b (at factory prices). The Italian market is no longer resistant to imported goods, and their share of total domestic consumption rose from 14% to 18% over the period considered.
A quarter of Italy’s furniture imports come from China, and the second supplier is Germany with 16%. Exports decreased from €9b to €8b, affecting the turnover of the firms, since exports usually accounts for over 50% of sales. France, Germany and the UK together absorb over a third of Italy’s furniture exports, but Italian firms are looking further afield for growth – to Russia (currently claiming 8% of Italian exports), and also the USs, the Asia-Pacific region, the Gulf countries and North Africa.
A focus on profitability
CSIL has recently analysed the balance sheets for the last five years of around a hundred of the larger Italian furniture manufacturers, which are firms with an average turnover of around €70m. The average turnover per employee is roughly 20% higher than the European average, confirming a good level of productivity – but the cost of labour is also about 10% higher.
Generally speaking, these firms have recorded stagnation in sales and a reduction in profits. Average EBITDA was 8.3% in the starting year 2006 and 5.8% in 2011. While the ratio for 2007 was approximately the same as that for the European furniture industry (8.6%), the 2011 value was 1.3% (while the EU average was 7.1%).
However, a more accurate analysis shows examples of excellence. Italian companies to watch in terms of profitability include Kartell (designer plastic furniture), Arper (contract furniture), Pedrali (tables and chairs), Lago (home furniture), Minotti and Flexform (upper-end upholstery).
“The Italian market is no longer resistant to imported goods, and their share of total domestic consumption rose from 14% to 18%”
EBITDA ranges from 18% (Flexform) to 32% (Kartell). ROE (return on equity) exceeds 40% for the Italian Arper, active in the contract seating sector.
B&B is one of the leading Italian players in the upper-end market, both in retail and contract, with upholstery as the main product of a wide range. Its EBITDA is around 12%, and turnover and employment are both falling. Cassina – upper-end upholstery and contract furniture – is controlled by Poltrona Frau, and in turn by the Charme fund (Montezemolo family).
Lighting – the year of Flos
In the lighting sector, too, the contraction of the domestic market (-8% for residential lighting, and a slight growth in professional lighting) is compensated in part by modest growth in exports.
Again in this case, technological and design innovation, which is partly linked to the advent of LEDs and their specific applications for different market segments, has contributed to mitigating the contraction in the market.
E-commerce records a slight growth, and the department stores have recorded a boom in the sales of retrofit LED lamps. Flos, with a well-balanced mix of consumer and professional products, is probably the most successful firm of the year.
Italian lighting imports are declining from all countries except China, whose flow to Italy is stable.
A representative kitchen
Italians love the home and they love cooking. The Italian cuisine is one of the most popular in the world, so it is hardly surprising that Italy is the world’s second exporter of kitchen furniture, and that most kitchens are built-in, which is far more elegant than single furniture items and free-standing appliances.
During 2012 appliance wholesalers recorded a drop of 12% in the sales of built-in appliances, while kitchen producers recorded a contraction of 8%. Sales through the large-scale retail trade were stable, but the average sales price fell by around 1%. The share of appliances in the domestic turnover of Italian kitchen furniture manufacturers started to rise again, from 29% to 29.5%.
The 2.7 million built-in appliances purchased in Italy can be subdivided into roughly 865,000 hobs (32% of the total), 715,000 ovens, (26.5%, declining), 590,000 refrigerators (22%, probably growing, including at least 10% free-standing decorative items), 445,000 built-in dishwashers (16.5%, declining), and a combined total of 3% (85,000 units) of built-in washing machines, small appliances and microwave ovens. In recent years the market for built-in appliances in Italy has been more receptive to foreign products, such as Siemens and Samsung.
Events
Custom House/Casa su Misura took place in Padova from 5-13th October 2013.
The world’s largest furniture trade fair, Milan Furniture Fair, or Salone Internazionale del Mobile, will take place between 8-13th April 2014 at the Milan Fairgrounds, Rho. As well as the central fair, the next edition will feature the International Furnishing Accessories Exhibition, EuroCucina (International Kitchen Furniture Exhibition), International Bathroom Exhibition and SaloneSatellite – and a huge number of events will take place around the city during the concurrent Milan Design Week.
Home textile far Proposte will take place at Villa Erba in Cernobbio (Como) between 7-9th May 2014.
The Centre for Industrial Studies (CSIL) is an independent research institute specialising in applied economics. Aurelio Volpe is a founding partner of CSIL, and is heavily involved in international market research. Article courtesy of CSIL’s World Furniture Review magazine, June 2013.
