Permira taps into accelerating fashion cycle with Gruppo Florence

Francesco Pascalizi and Giorgio Dinaro discuss Permira’s Gruppo Florence acquisition and wider trends in B2B luxury market.

Permira will shop for luxury fashion sub-verticals for Gruppo Florence to help meet the needs of a sector calling out for a stable and sustainable supply chain, partner Francesco Pascalizi and principal Giorgio Dinaro told PE Hub Europe.

Milan-based Gruppo Florence is an Italian integrated manufacturing hub for the luxury sector. Permira announced the acquisition of the group in late May from VAM Investments, Fondo Italiano d’Investimento, Italmobiliare and Gruppo Florence’s founders.

“Fifteen years ago, a stable supply chain was more or less taken for granted,” said Pascalizi. “Just before and throughout covid, the value suppliers bring to the table – and the pain they cause if not well managed – became very evident.”

London-headquartered Permira’s previous investments in luxury brands include footwear brand Dr Martens, which went public in 2021, and Golden Goose, a luxury trainer brand it acquired in 2020.

The experience of those deals, along with the understanding of the critical nature of the supply chain, helped Permira to appreciate the quality and value of the Gruppo Florence platform, according to Dinaro.

Permira expects the B2B luxury market to consolidate due to several factors, including luxury brands’ increasing focus on sustainability and the need for faster lead times. “In this context, Gruppo Florence is the only player of scale,” Pascalizi added.

While the luxury B2B is a large industry, it is mostly served by SMEs and family-owned businesses, Pascalizi said. “Sustainability is a space where the SME model reaches its limits,” he said, “because you need to invest in R&D, something that a small, family-run business is not accustomed to.”

Sustainability is not the only change within the segment. The pace of the luxury and fashion cycle is accelerating, according to Pascalizi. Ten years ago, luxury operated around collections: spring/summer and fall/winter. “Now, any brand worth its name works in terms of drops,” Pascalizi explained, referring to a model where products are ‘dropped’ to create hype and exclusivity. “It completely changes the rules of the game.”

Ruthless

For M&A, Permira’s north star for Gruppo Florence is around quality. Bringing in differentiated, high-quality suppliers is the “best insurance policy for success”, Pascalizi explained. “It’s a very selective world, he said. “Luxury is a ruthless market.”

Permira considers the company to be strong in its ready-to-wear segment, but there is still “a long way to go” in terms of new brands and sub-verticals, Pascalizi explained. Similarly, shoes and accessories have plenty of opportunities for expansion.

Gruppo Florence will primarily remain an Italian business, as historically in luxury fashion, the country has been “the place to be”, said Pascalizi. But Permira is open for shopping outside the Italian borders for certain targets. “We have nothing against looking at other geographies,” he added. “Especially countries like France and Portugal, which have highly reputable manufacturers for luxury brands.”

There could even be room within that manufacturing for artificial intelligence. In Gruppo Florence’s case, the business is “half industrial, half manual” and a lot of the products are manufactured with the help of artisans, said Pascalizi. This physical aspect makes the industry less prone to major disruption, he added. “We do want to remain at the forefront of technology though. There is technology like 3D modelling – that’s really winning ground.”

As for Permira itself, the firm is also in the process of assessing the opportunities brought on by AI, according to Pascalizi. “We are spending a lot of time to understand the implications of AI on our portfolio companies and our core business.”