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Economic crisis tests Italy's luxury market

The Great Recession highlights both the vulnerability and resilience of this cradle of cashmere sweaters, designer bags and sports cars.

December 04, 2011|By Don Lee, Los Angeles Times
  • Sara Cassetta is a painter at Ubaldo Grazia, a 500-year-old ceramics maker in Italy that has seen business plummet.
Sara Cassetta is a painter at Ubaldo Grazia, a 500-year-old ceramics maker… (Don Lee, Los Angeles Times )

Reporting from Deruta, Italy — "It's been a disaster, a disaster," bellows Ubaldo Grazia.

The owner of his family's 500-year-old ceramics business isn't talking about the financial meltdown in his country or the Eurozone debt crisis, but the weak U.S. economy that he said had cost him one customer after another. Saks, Tiffany, Nieman Marcus, Williams-Sonoma — his list goes on.

Grazia's company, now in its 25th generation, is one of dozens of ceramics makers struggling in this picturesque medieval town known for its handcrafted pottery. Business has fallen so low — down to just five painters from 75 a few years ago — that he's worried about whether it will make it to the 26th generation.

A half-hour's drive away in central Italy's Umbria, in the hilltop village of Solomeo, Brunello Cucinelli seems a picture of contentment inside his 14th century castle, headquarters for his thriving cashmere clothing company named after himself.

Cucinelli is expecting another double-digit growth in sales this year, in part thanks to emerging markets like China. The self-styled philosopher-entrepreneur has made enough money to help restore the village church, repave streets and build a 240-seat theater that looks like Rome's Pantheon.

"I want to make profits with dignity," said Cucinelli, 58.

The contrast between the two Umbrian businesses shows both the resilience and vulnerability of one of Italy's staple industries — luxury. Whether cashmere sweaters, designer handbags or sports cars, Italy's luxury goods are famous the world over, but the Great Recession and the region's widening debt crisis have severely tested old formulas and markets.

Many of them are hoping for an eventual lift from Italy's new government and the promise of economic reforms, even as the country braces for pain from austerity measures to come. On Sunday, Italy's new prime minister, Mario Monti, announced approval of spending cuts, higher taxes and other proposals to "reawaken" the economy and help avert a collapse of the euro.

Italy's luxury sales have bounced back after they were hammered by the 2008-09 recession, but its future — like that of many other industries — will depend also on how well they adapt to the new realities of globalization.

Grazia and others in Deruta have been putting out the same products their forbears did centuries ago, catering to people with the depth of knowledge and appreciation for an old tradition of majolica pottery-making. But those folks are not the hot customers in today's global economy.

When high-end stores and restaurants in California, New York and elsewhere cut back orders, it exposed the town's over-reliance on rich American customers and its dominant platform of Raffaellesco (dragon-patterned) designs.

Cucinelli, meanwhile, has made a faster drive to diversify his products and adjust to the tastes of people who have money today. He made his mark with sporty sweaters in light earthy tones, but more recently has added a more contemporary line of close-fitting jackets and dark party dresses that cost as much as $3,500.

Cucinelli also is moving more aggressively into developing countries. Americans still dominate purchases of global luxury goods — $65 billion last year — but the large government debts and the prospect of slow economic growth and higher taxes in the U.S., Western Europe and Japan mean these long-dominant markets are likely to see few gains for years to come.

Yet luxury sales are booming in emerging economies. They rose 35% in each of the last two years in China, for example.

"With these growth rates, their strong economy and populations, the future belongs to those countries," said Santo Versace, chairman of fashion company Gianni Versace.

Like other business leaders in Italy, Versace blamed part of the industry's troubles on former Prime Minister Silvio Berlusconi's failure to reduce government spending, collect taxes, make investments and cut red tape choking the economy.

"We have entrepreneurial creativity, culture and such an incredible beauty of art, landscape and history," he said.

Grazia too celebrated on that Saturday night when Berlusconi stepped down, popping open a bottle of champagne. But back at work on Monday morning, he had little to cheer about as he showed a visitor vacant seats in his workshop and displays of his company's past glory.

He recounted how his grandfather began exporting to the U.S. in the 1920s, shipping plates and pitchers to New York in wine barrels stuffed with straw. In the decades that followed, as overseas demand grew and tourists arrived by the busloads, riches flowed into Deruta.

Beautiful parks went up. A splendid castle museum opened on a hilltop overlooking the town. Tiles of Deruta's signature Raffaellesco patterns were embedded on cobbled sidewalks in front of cafes and pretty storefronts.

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