MILAN, Italy — The fashion industry is reeling from Sunday’s decision by Italian officials to quarantine the country’s northern region, locking down cities such as Milan and Venice that are home to some of the luxury sector’s biggest brands and suppliers.
The unprecedented step to isolate the region and its 16 million people to contain the spread of COVID-19 follows a dramatic increase in cases, which surpassed 7,300 in Italy on Sunday, with 366 deaths, according to a BBC report. Lombardy and 14 other neighbouring provinces — which include Italy’s fashion and finance capital Milan, as well as Venice, Parma, Modena and other cities — are now under travel restrictions and public events are banned. The decree will remain in effect at least through April 3.
The region is home to many luxury names, including Prada, Armani and Versace, and international brands from Louis Vuitton to Stella McCartney rely on Italian manufacturers and suppliers to create clothes, accessories and footwear. Bernstein calculates about 60 percent of Italy’s textile and apparel manufacturing capacity is in the lockdown area, along with 10 percent to 20 percent of leather goods and about 20 percent of jewellery. Eyewear manufacturing is almost unaffected, according to Bernstein analysis.
The northeastern region of Veneto is a manufacturing hub, producing textiles for brands like Diesel, eyewear for Luxottica and shoes for Louis Vuitton. Richemont-owned Yoox Net-a-Porter, the largest luxury e-commerce company, has a logistics hub in the Lombardy region. The Venetian neighbourhood Brenta Riviera is home to about 520 shoe manufacturers that employ 10,000 people, according to the area’s Tourism Promotion Consortium. It produces about 20 million pairs of shoes, 90 percent of which are exported.
It’s too early to tell how the quarantine will affect factories, warehouses and offices; the government has told residents to stay home where possible, but has not shut down most workplaces. Analysts say some disruption is likely, however.
“Authorities struggle between the need to contain the epidemic ... on the one hand, and maintain business operations in an area that represents more than one third of national GDP on the other hand,” said Bernstein analyst Luca Solca. “Events may force the authorities hand, as continuing contagion escalation may make a tight lockdown unavoidable.”
Even if manufacturers continue to operate, the shutdown is expected to severely curtail economic activity in the region, and potentially tip Italy into a recession. The fashion industry is preparing for a steep drop in sales wherever the virus spreads, as governments quarantine citizens and people generally avoid public places, including stores. In China, where lockdowns have been in effect in some regions for weeks, spending on luxury goods has plummeted, as Hermès, Tod’s, Burberry and Moncler are among the companies to report a slowdown in business there.
Many more brands at every price point are adjusting outlooks in anticipation of further declines as the virus spreads globally. Altagamma, BCG and Bernstein predict that the luxury industry may lose €30 to €40 billion in sales this year, as the sector’s value drops to a five-year low of €309 billion.
“At the moment [a production shortage] is not the main worry ... the priority is really on the demand side,” said luxury analyst Mario Ortelli. Consumers are “not in the best mood to splurge into luxury products.”
Brands are also having to adjust how they market their products, as the outbreak clears the calendar of the lavish industry gatherings traditionally used to launch new collections and kick off advertising campaigns
Some shows and events were cancelled during Paris Fashion Week, while brands like Gucci and Versace have cancelled upcoming Cruise shows. Fashion weeks in Tokyo and Seoul have been cancelled or postponed, as has Baselworld, the largest watch fair.
The Italian edition Vanity Fair dedicated its new issue to Milan, the first city to be hit by the virus, in a show of solidarity amid the health emergency. The issue will be distributed for free to readers in the Lombardy region.
Carlo Capasa, president of the Camera Nazionale della Moda Italiana, said the drastic measures are needed to help get the situation under control. He pointed to China as an example. “Cities like Shanghai and Beijing are going back to normality,” he said.
The Camera Nazionale della Moda Italiana is talking with the authorities about emergency relief measures to help businesses during this time, such as postponing tax payment due dates and implementing flexible situations around taking out and repaying loans.
Capasa anticipates that there may be a delay in product deliveries next fall, rather than a large scale supply chain disruption. Meanwhile, he expects many factories will continue to operate at a reduced capacity, with workers making use of flexible working conditions.
“The situation is serious,” said Capasa. “We have to face the fact that [we have] to get this situation under control by mid-April. Then let’s see what happens.”
Editor's note: This article was updated on March 9, 2020. A previous article stated that Veneto was a northeastern state in Italy. This is incorrect. It is a region.
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