Task 3. Read the text and answer the questions below.

 

The Italian luxury goods industry

The Roman jeweler Bulgary was founded by Sotirio Boulgaris, a Greek immigrant to Italy, in 1884. The patriarch’s grandsons, Paolo and Nicola, are respectively chairman and vice-chairman. Mr. Trapani who took over as chief executive in 1984 at the age of 27 is their nephew. Yet Bulgary, the third biggest luxury jeweler after Cartier and Tiffany, is different from most of the other family-owned luxury goods firms in Italy. Now other Italian luxury goods firms are considered to follow Bulgary’s example on entering the stock market. The industry is booming. Emerging markets in Asia are becoming increasingly important and demand more investment in products, stores, and marketing. Famous brands are branching into the new lines of business, including hotels and interior decorations. The Italian companies also have an eye on their main competitors – French firms like Hermes or Louis Vouitton that dominate the luxury goods industry with 36% of the global market. Luxury goods companies depend mainly on tourists, particularly Asians visiting Europe. Last year international travel picked up and luxury goods sales grew on average by 10-20%. Asian demand was particularly strong: sales in China were up by 50%. Industry surveys estimate that the global annual sales of luxury goods are from100 billion to 150 billion dollars. The Japanese in their home market are responsible for one-third of the demand, and Europeans and Americans are accountable for about one-quarter each. Around two-fifths of sales are in Europe, but again the tourists are the main consumers.

Investment in Asia is the test of whether a brand can compete in the world market. Big investments in advertising and promotion are necessary to start business in China. “The Italian industry’s artisans used to be extremely successful”, – says Mr. Trapani, Bulgary’s chief executive, – “but in today’s global economy size matters. Bigger companies can invest more in advertising and marketing and this is very important in the industry built on image and aspiration. They can pay for an extensive retail network and employ the most talented designers and managers. Marketing costs can be very high, as pricey as expenses for setting up shops and training staff". In 1991 Ermenegildo Zegna was the first Italian luxury goods company to enter the Chinese market. Today the firm has about 52 shops across the country.

Some luxury goods firms invest their money in new businesses. Giorgio Armani is the pioneer of luxury-brand extension. He developed sub-brands, such as Emporio Armani and Armani Junior. Nowadays, after setting up joint venture with Emaar (a Dubai property developer), he is building a chain of hotels.

Should Italians follow a French business model and merge into multi-brand groups? Their defenders say that multi-brand groups mitigate the risk of big investments and save money. Managers of individual brands are able to share know-how and the best practices. For instance, they can compare their experiences in entering the Chinese market and dealing with local taxation and legislation. Finally, multi-brand groups can always survive, and they are not affected as much by inconsistency of the industry.

(Abridged from “The Economist”)

Notes:

artisans – ремесленники

property developer – застройщик

to mitigate – уменьшать

inconsistency – переменчивость, нестабильность

 

1. When was Bulgary founded?

2. Many luxury goods companies follow Bulgary’s example, don’t they?

3. What is necessary to enter the Asian market?

4. Who are the main competitors of the Italian companies?

5. Do you think Italian companies should follow a French business model and merge into multi-brand groups?