By Silvia Ognibene and Silvia Aloisi
With unsold luxury handbags and clothing gathering dust in their workshops, Italy's artisans fear for their future as brands cut orders and in some cases demand discounts and payment delays.
Italy accounts for around 40% of global luxury goods manufacturing and has been hit hard by a dramatic drop in demand triggered by the coronavirus crisis, with several artisans saying they have no new orders beyond the summer.
German fashion group Hugo Boss and Italian company Max Mara both wrote in May seeking price reductions on existing orders of 8% and 7% respectively, suppliers told Reuters, which also saw emails detailing the requests.
This illustrates how some mid-size luxury brands are attempting to protect their margins to make up for sales lost during weeks of lockdowns.
Hugo Boss said in a statement emailed to Reuters on Friday that it has "close and long-standing relationships" with its suppliers and "is working together with them to find solutions based on partnership that are appropriate to this situation".
"We are in discussions with our suppliers to see what contribution they can make, but there is no Group policy on a specific discount level," it added.
A spokesman for Max Mara declined to comment.
Reuters spoke to half a dozen Italian artisans supplying top luxury brands who said they had seen a cut in orders of between 20% and 50% in May and June compared with last year.
Hugo Boss has also asked for payments to be delayed to 120 days after delivery, from 10 days in normal times, one of the group's Italian suppliers, who asked not to be named, said.
"We want to exceed the existing payment terms, keeping the actual discount condition to 120 days, this has to be seen in the context of our "Supplier Financing Program". This program allows suppliers to convert receivables into cash in a fast and cost efficient way," Hugo Boss said in its statement.
Production cuts and price negotiations now threaten the survival of thousands of small and medium artisan workshops tanning leather, sewing handbags and shoes and weaving fabrics.
"If things don't go back to normal in the next couple of months, the worry is that from September onwards the situation will deteriorate further and that many luxury suppliers, particularly the smaller ones, will go bust," David Rulli, head of fashion at business lobby Confindustria in Florence, said.
Luxury brands shut shops and idled manufacturing sites as the coronavirus first emerged in China, a key market for the sector, and then spread to the rest of the world.
With major economies facing recession, demand for high-end clothes and accessories is expected to fall by up to 35% this year and revenues may take until 2022-23 to return to an estimated 2019 level of 280 billion euros (£253 billion), according to consultancy Bain.
Labels are grappling with piles of unsold stock and in most cases the prospect of widespread markdowns.
Top brands from Chanel to LVMH's Louis Vuitton and Kering's Gucci have raised prices of some of their most coveted products in a bet they can still lure the wealthy.
However some houses, including Gucci and Michael Kors, are scrapping or delaying new collections and say luxury should stop mimicking fast fashion's hectic delivery cycles.
"We have enough orders to keep going until July but I am very concerned about the second part of the year which for us is crucial," Filippo Baldazzi, CEO of silk manufacturer Serica 1870 which works with Brunello Cucinelli, Kering and French rival LVMH, told Reuters.
"At this time of the year I would be presenting my fabrics for next year's fall and winter collections but no one is thinking about that now. Plus you can't show fabrics by video, people have to touch it," he said.
Two U.S. clients had cancelled orders because they could not pay and others had asked for payment delays, Baldazzi added.
While Italy's government has earmarked more than 20 billion euros to help fund temporary layoffs, many small businesses say they have yet to receive the money.
Some luxury labels say they are juggling their own goal to reduce production and keep a lid on costs with the needs of struggling suppliers who they cannot afford to lose.
Chanel has scaled back orders "while trying to maintain a minimum level of activity with suppliers in France and Italy to make sure they don't go bankrupt," its finance chief Philippe Blondiaux told Reuters in a recent interview.
Italy and France are between them by far the two main producers of European luxury goods.
Dior, one of the LVMH conglomerate's biggest labels, also pointed to the need to support suppliers as it said this week that it was sticking with its 2020 fashion show programme.
Some executives in the industry, which in Italy alone employs 400,000 people, say the crisis could accelerate a trend where big brands snap up artisan workshops to tighten their grip on the supply chain and ensure prized manufacturing skills do not vanish.
"Real luxury is in the small details. I think many groups, including foreign ones, have realised that once those artisans are forced to close, that kind of sophisticated work ends with them," Baldazzi said.
(Additional reporting by Emma Thomasson in Berlin; Writing by Silvia Aloisi; Editing by Alexander Smith)