The Italian Textile Service Market: The Future Looks Good

To understand the Italian Textile Service Market it is essential to understand Italy and its economy. Only then does the market make sense. Actually, only as far as this is possible when an estimated 28% of the world's sixth biggest economy is unrecorded, the biggest "black economy" in the industrialised world!

Some Economic and Political Facts

Italy's 57.7 million inhabitants enjoy a standard of living equal to or higher than that in France, Sweden and the UK. This is a remarkable achievement for a country poor in natural resources that imports 75% of its energy requirements. With a negative birth rate and one of the fastest ageing populations in the industrialised world, Italy has a lower proportion than most other rich countries of working age people in jobs - 53%, against 63% in the Euro zone and 74% in the United States. Over the past decade, Italy's economy has grown at an average of 1.6% a year, more slowly than any other in the European Union. Unemployment, at around 10%, is worse than anywhere in the EU except Spain (and Spanish unemployment has been falling rapidly). Inflation at 2.8% is above the EU average. The OECD has rated Italy as the least transparent of the G7 group of rich countries in its business practices. This accounts to an important extent for one of the lowest levels of foreign direct investment in the EU. According to a recent Harvard Business School report, foreigners consider Italy a closed country, lacking flexibility, capital, and infrastructure, and blighted by corruption. The head of IBM in Italy says that Italians see foreign investment as a threat to the existing system.

Italy has the most fragmented political party system in the industrialised world. There are more than 30 separate political parties represented in Parliament. Although they are largely joined in several major alliances, Italy has still managed to have 59 different Governments since 1945. Despite what might appear to many non-Italians as bordering on chaos, the Italian political system nevertheless seems to function. The fragmentation of Italian politics simply reflects the very strong family and community orientation of the Italians. Remember also that Italy was only united in 1861. Italians seem less concerned with their Federal Government than they are with their individual needs and pursuits. Curiously however, the Italians in a way leap frog their own Government and support the EU (the current President of the European Commission is an Italian) as a more important object for their political interest. Italy has been and remains one of the strongest supporters and believers in the European Union and continued European integration.

How then?

Despite these apparent weaknesses, how and why does Italy remain one of the most vibrant and admired countries and economies in the world? Economically, an important part of the answer is the same phenomenon that makes the German economy strong and resilient, namely tens of thousands of small and medium size companies. But in Italy they are even smaller. These predominantly family-owned consumer goods and engineering companies form the backbone and sinew of the Italian economy. Largely because of them, Italy exports more food-processing machines, washing machines, fridge's, shoes, and shoe-making machines, ski boots, ceramic tiles, jewels, woollen and silk clothes, radiators and boilers, optical frames and neck-ties than any other country in the world. The world's recognition and appreciation of Italian design, quality and craftsmanship have ensured that Italy consistently records a healthy surplus in its international trading account.

According to Confindustria, the country's industrial confederation, 70% of Italian workers toil for firms that have fewer than 100 employees. In France, the share is 30%; in Germany and America, it is around 20%. More than half of Italian manufacturing companies have fewer than 20 workers.

That most of these companies are in the North of a country that is more than 1,000 miles in length perpetuates an economic duality of two separate economies, North and South. In some sections of the North, unemployment is at or close to zero, while the South, at over 20%, suffers one of the highest recorded unemployment rates in the EU. But do not forget, what is recorded in Italy may not be the whole story. The real unemployment rate is probably lower but is as much a mystery as the size of the unrecorded economy.

Textile Service Market: Some basic figures

Italy has been slower to develop its textile rental market than Germany, France and the UK. Whereas estimated turnover in each of these three markets exceeds € 1 billion, the Italian market is estimated to be worth around € 650 million. Some insiders estimate the market as high as € 800 million and some as low as € 500 million. The Association of Italian Industrial Laundries (AUIL) estimated total textile service sales in 1998 at 1,260 billion Lira (€ 651 million) and market growth at 6 to 8% p.a. Real growth, especially of the rental business, may be between 3 and 5% p.a. The fact that few companies reveal their figures is compounded by the reasonable assumption that an important part of the laundry market is unrecorded.

The AUIL estimates there are around 800 textile service companies operating in Italy. This is probably as close to the true figure as one can get under the circumstances, although one estimate puts the total at 1,050. Of the total, some 220 laundries employ more than 15 people. Total employment in the industry is estimated at more than 12,000.

Measured by American and major European company standards, there are no big Italian textile service companies. Among the biggest companies are Pedersoli, which specialises in the hotel sector, Linen Supply Italia, which is owned by the American Steiner Corp., and Servizi Italia and Servizi Ospedaliere, the leaders in the hospital sector. None of the predominately family-owned companies appears big enough or for that matter interested to expand abroad. In any case, there is sufficient domestic growth potential to satisfy the bigger Italian companies for the time being.

There are four foreign owned companies in Italy: Steiner Corporation of Salt Lake City in the U.S.; Elis, the biggest French and European textile service company; CWS, the roller towel, hygiene and mat specialist owned by Haniel Textile Service of Germany; and Mewa, the biggest German and European industrial wiper company and a major player in workwear as well. Elis only recently entered the market through the purchase of a hospital laundry company called Rentex, which is not a member of the Dutch and German hospital franchise organization of the same name. The fact that Elis has entered the Italian market through the hospital sector underlines the relatively undeveloped workwear sector Elis normally favours. There are already rumours in the market that Elis may wish to consolidate the hospital textile services sector in Italy much as Berendsen is doing in Germany.

The Sectors:

Workwear and Uniforms

As might be expected with so many small, family-owned companies in all sectors of the economy, the workwear and uniform rental business is very undeveloped. It is estimated at no more than 6% of the total market or around € 40 million. Linen Supply Italia, owned by the Steiner Corp., is estimated to have around one-half of the workwear market, which makes up some 50% of its total turnover. Steiner, the biggest foreign company in Italy has five plants, including one on Sardinia that concentrates on linen.

Horeca:Hotels, Restaurants and Catering

The biggest textile rental sector is Horeca with around 50% of the market. Hotels account for perhaps 30% and restaurants and catering for the remaining 20%. Pedersoli, with nine laundries, and turnover estimated at around € 60-65 million dominates the hotel sector. Padana Industriale with turnover estimated at € 10 million is the biggest textile service supplier to restaurants.

Hospitals

The hospital sector is estimated to account for some 40% of the total market. The leading companies Servizi Italia and Servizi Ospedalieri with around four laundries each have turnover of the order of € 35 to €40 million.

Roller Towels, Hygiene and Dust Mats

As might be expected, CWS, part of Haniel Textile Services of Germany, and market leader in this sector in Europe, dominates the Italian roller towel and hygiene markets with turnover estimated at around € 30 million. The dust mat business is in its infancy in Italy, which means that this very exciting market sector could be a big opportunity in the future.

Industrial Wipers

The European leader in this sector is the German company Mewa, which specializes in workwear as well as industrial wipers. They began developing this sector in Italy some years ago, supplying the market initially from Germany. Mewa completed building a laundry near Milan during the past year. Turnover is estimated at around € 10 million.

Profitability and Consolidation

The bigger textile service companies maintain high standards for plant and equipment. They are also for the most part well automated and very efficient. Although the profitability of privately owned companies is not easily ascertained, there is little doubt that profits are good for the efficient and well-run companies. As in many European countries, there is a surfeit of small, marginally profitable companies. In general many of these companies are too small to compete for the bigger contracts. As the market consolidates, there could still be opportunities for the very small companies. The medium size companies are most likely to suffer. One of their problems is being too big to go unnoticed by the strongest competitors, and at the same time being too small over time to compete against the bigger, more dynamic companies. Since profitability will drive the market, those companies not able to generate sufficient profits and without adequate capital will fall prey to the bigger, more profitable companies.

A Positive Outlook

There seems little doubt that the Italian textile service market will expand in most product sectors and at the same time become more attractive for foreign competitors. Mergers and take-overs between Italian companies aimed at strengthening themselves against bigger and richer competitors seem inevitable. At the same time, it will be surprising if more foreign companies are not attracted to enter the Italian market. The more rapid development of the Mezzogiorno, the new wave of mergers in the industrial and service sectors of the economy, and the legal and social demands for use of uniforms, workwear and other textile rental products, will call for bigger and better capitalised industrial laundry companies.

It is not generally easy for foreign companies to understand, let alone to do business in Italy. Nevertheless, there seems little doubt that a bright outlook for the Italian textile rental market will be a key element in the future development of the European textile service industry.