Industry looks beyond the crisis of credit

Italian companies are being positive even though they now admit that the recession is hurting.

On paper, the outlook for the Italian economy does not look too cheerful. The official figures show that gross domestic product shrank by 0.6% in 2008, and the Economist Intelligence Unit estimates that it will fall by 2.5% this year and then remain static in 2010.

Government debt is forecast to climb for the next year, so tax cuts are thought to be out of the question. In addition industrial output has dropped by 9.7% while retail sales have fallen by 3% in the last year.

Yet Prime Minister Silvio Berlusconi says Italy is doing better than other European nations.

Admittedly, he has handed out u2billion to industry, including the car manufacturers, and has given a 20% tax deduction for purchases of furniture and electrical goods.

However, he has not offered anything to the banks, which, to be fair, seem to have a record of prudent lending.

This restrained reaction to the global economic crisis is probably behind the optimism in parts of the laundry and drycleaning sector.

However, the lenders’ continued circumspect policies have become the biggest obstacle to development in the industry.

“Laundries are not investing because the banks do not have the money to lend,” complains Vera Simon, export manager of GMP, the Italian company specialising in ironers.

Clement Salvaggio, the West European sales manager for the manufacturer Jensen, also sees tight credit policies at a time when laundries need to invest as the biggest problem today for the industry.

The crisis, if there is one, is referred to as “a crisis of credit” by Carlo Miotto, general sales manager of the Italian manufacturer Imesa.

Nevertheless, there are those who believe that any pain today is for the best.

Giovanni Sacchi, director-general of Kannegiesser Italy, says: “We are not running the risk of a collapse of the credit structure. I think the action that was necessary will pay off. Eventually the banks will return to selling money.”

Nor is the present scenario one of deep gloom. Andrea Rotondi, co-owner of the Rotondi Group, the Italian distributor and agent for the Ipso brand, reports reassuringly: “Italian banks are giving credit by drops. They are still supplying credit to existing customers.”

That scenario is also coloured by certain factors that are peculiar to Italy. Around 98% of hotels and hospitals and most care homes outsource their laundry, so this large market encourages optimism in the laundries.

Holidays still a priority

Then, though business travel has been trimmed by the economic stringencies, Italians are reluctant to sacrifice their vacations and most take them in Italy. Rotondi says: “Italians cut many things but not holidays. We’re expecting a good summer for tourism.”

Salvaggio strikes an equally hopeful note. He says: “Italy has been less hurt by the crisis than Spain and the UK. We are quite confident because we are well placed in the healthcare and hospitality sectors.”

An abnormally good winter holiday season has kept Italian laundries busy. The heavy snow, particularly in the northern mountain areas, has produced the best winter tourism for 20 years.

Business increased by up to 15% in the resorts, creating a similar rise in trade for the laundries serving the hotels and restaurants.

Healthcare also remains a big earner for the Italian laundries. This is a steady trade, says GMP’s Simon, but it is not growing quickly because the state does not invest heavily in it.

Getting the bills paid is another snag for laundries specialising in the healthcare sector. “You have to wait at least a year for settlement,” says Miotto. This is a particularly relevant point at a time when, as Miotto puts it, “customers are looking at their wallets.”

Sacchi says: “In the past the payment terms were nine months to two years. Now the terms have been extended. So laundries have to wait for their money and find it difficult to invest.”

Revolution in workwear

In common with most European countries Italy is experiencing a slow revolution in workwear and corporate wear.

The provision of workwear has increased gradually during the past two years, especially in industrial northern Italy and this means more orders for the laundries.

“It can only grow,” forecasts Raffaele Tarchiani, manager of the Italian distributor Laundry SAS.

Business is being stimulated by a law, effective from January this year, compelling employers to guarantee that their staff uniforms are kept in a hygienic condition. This increases the use of laundry services, though some employers encourage staff to wash uniforms at home.

The signs are therefore hopeful but there is still some fear in the air that the crisis being talked about will become a damaging reality.

Efficiency is one of the answers, says Tarchiani. “Laundries can be managed efficiently,” he says. “They can concentrate on savings. Several are already in trouble because they are not efficient enough. The good ones are also paying attention to maintenance, and they want the most reliable service.”

Rotondi is in an equally upbeat mood. He believes that even now good machines will always sell. They cost up to u90,000 but can only benefit a laundry business. Rotondi adds: “We can’t complain about sales this year.”

He has noticed that Italian laundry companies are reacting more to urgent, last-minute requests. “Customers are not planning as they used to,” he says.

Vera Simon says GMP too is concentrating on efficiency as an aid to the industry and is introducing an energy-saving machine this year.

It is also responding by offering sales and technical training and showing its laundry customers how to recognise problems in time to rectify them.

Alliance International, which makes equipment under the Ipso brand, has the same customer support culture. “We are giving superior service and providing our distributors with the best possible back-up,” says sales director John Balman.

Kannegiesser helps customers to invest by including a loan package. Sacchi confirms that customers are willing to invest in equipment to economise on energy and labour costs but the lack of finance holds them up. “So we sell with a financing plan,” says Sacchi. “We give delayed but warranted payment terms without interest.”

Electrolux makes an interesting suggestion for building up business in Italy. Massimo Scatto, the manufacturer’s Italy sales director, says that the market is stable and mature and the only prospect for growth for companies selling commercial-size machines, as opposed to industrial equipment, is for the hotel business to manage its own laundries rather than outsourcing.

There is perhaps less optimism to be found in Italy’s drycleaning sector, which has been in a slow decline for over two decades.

Eugenio Boni, export manager at the manufacturer Italclean, is not too happy about the scene today.

“We are surviving and our Italian competitors are surviving,” says Boni. “But people are asking us for work because they have lost their jobs elsewhere.”

The number of shops has fallen from 40,000 in 1990 but now seems to have stabilised at about 15,400. There has been no further shrinkage in the past 12 months. The main problem is, of course, the lack of loan finance. Boni points out that some investment now takes longer because the shop owners have saved the money for new machinery, only to find that the strength of the Euro has pushed the price even higher .

Nevertheless, Boni is looking forward to an improvement over the next 12 months, simply because the demand for equipment exists and the shops will find a way of purchasing it.

Modern efficient machinery is the only route to prosperity in the sector, believes Marco Niccolini, export director of Renzacci.

He finds the shops that do well are the 10 to 15% with efficient modern machinery. Renzacci is showing drycleaners how they can economise and is asking them to calculate the savings they will make with new machines. Businesses must also sell their service, says Niccolini. “The customer must believe that he is buying a good service.”

Taking space in Italy’s now popular shopping centres seems like a good move. The mall opening at Faenza, near Bologna will have a drycleaning shop but Niccolini is cautious and says that drycleaners have suffered in the centres because of the high rents. Many centres ask for a guarantee of a year’s rent, which could be as much as u90,000 and the bank will not lend it.”

Some diversification could help existing businesses, says Gabriele Cuppini, sales director at Union. “The shops should offer more services,” he recommends. The clue to good business may also lie in attitude. Cuppini declares: “If you want to work and if you have some brains you can make money. If you have good machinery and you talk to people you will do business.”

The tight times cannot last much longer, says Roberto Grandi, sales manager at Realstar. He sees recovery starting in September or possibly October.

Niccolini expects a revival but not before the end of this year.

However, most of the Italian manufacturers of laundry and drycleaning equipment are in a global market and all report a fall in export sales as a result of the worldwide effects of the recession.

Their biggest problem is Europe. However, opportunities are showing up elsewhere. Imesa exports 70% of its business and reports good markets in North Africa and the Middle East. Miotto also predicts that China and the Far East will be good for the future.