Exports keep growing after the past records, but on a new scale: +3.6% at 3.5 Billion Euros. Sunglasses and Europe take the lion’s share. Domestic market at +2.2%
Background: High economic risks and political instability, which are closely interconnected and tied in a cause-effect cycle, still prevail in the global economic scenario. Even in countries considered to be the most dynamic, a number of factors are materializing into a much-feared secular stagnation: a declining birth rate and ageing population, lower productivity gains generated by current innovations, dispersion of human resources due to high unemployment, low capital accumulation rate, the physiological slowdown of China, and creeping protectionism. This has had a significant impact on production and trade performance worldwide. Before the recession, GDP increased by 3.2% a year and trade by 6.8%. Now this is limited to 2.4% for the former and 1.8% for the latter.
The year 2016 in particular, basically radicalized uncertainty about the future: from Brexit to Donald Trump’s victory in the US presidential elections, the new successes of nationalist and populist movements in some European countries, the international community’s paralysis on the issue of the war in Syria, the new wave of terrorist attacks in Europe, and new uncertainties over globalization and economic growth which are fueling social fragilities. This means that nobody can count on the driving force of the others to pull them out of their stagnation and that everybody must work, together, on new growth policies. This applies in particular for the Eurozone countries. With this increasing turbulence worldwide, the Italian economy appears to be weaker than expected. These recent developments have also clearly revealed again the growing divide between Italy’s growth and that of other European countries, whose performance on average has not been brilliant either.
This overall situation has also negatively affected the performance of the Italian eyewear industry. After posting two record years for exports, with double-digit increases, 2016 closed on a positive note, albeit on a different scale: an “ordinary” scale. The same is true of the domestic market, which remains positive but is not showing any signs of being able to recapture pre-recession heights.
Production, Companies and Employees
In 2016, Italian eyewear production totaled 3,697 million Euros, up by 3.7% over 2015. This increase in production was lower than for the previous 2 years due to a lower rise in exports and the sluggish domestic market. The number of companies remained basically the same, with 862 businesses nationwide (0.9% less than in 2015). Employment levels also remained the same as in 2015: without taking other employment contracts into account (approx. 500) there were 17,250 people employed at the end of 2016.
Eyewear Exports and Balance of Trade
Exports of frames, sunglasses and lenses, which account for almost 90% of production by the industry, rose by 3.6% versus 2015, totaling 3,579 million Euros. [Preliminary forecasts, based on ANFAO estimates using the latest ISTAT data for January-October 2016.] This increase was solely contributed by sunglasses, whereas frames lagged behind, confirming the trend that had already been posted in the last part of 2015. In 2016, exports of sunglasses rose by 6.8%, amounting to approx. 2,465 million Euros. Exports of frames instead, decreased by 2.8%, totaling approx. 1,045 million Euros. This slowdown in growth is also reflected in imports which grew by 3.3% at almost 1,184 million Euros. However, the balance of trade for Italian eyewear continues to be largely in surplus (2,395 million Euros in 2016), up by 4 percentage points versus 2015.
EXPORTS BREAKDOWN BY GEOGRAPHIC AREAS AND COUNTRIES
As stated, 2016 was an “ordinary” year for Italian eyewear exports, and in line with the global slowdown in trade and definitely lower economic growth, in both developed and emerging countries. In this situation, sunglasses and the geographical area of Europe were the keys to the positive export results posted by Italian eyewear in 2016. Italian eyewear exports to emerging countries were lackluster, both in well-established marketplaces for eyewear imports and new markets.
A detailed breakdown of the geographical areas, for exports of both sunglasses and frames shows that:
- The main market for eyewear exports in 2016 continued to be Europe, with a share of almost 50% of total Italian eyewear exports and rising by 7.1% (+12.2% for sunglasses, -1.3% for frames).
- The share of exports to America in 2016 was 30.2%, with exports of sunglasses-frames up by 2.7% over 2015 (+3.9% for sunglasses, -0.5% for frames). Here, good results were posted for exports of sunglasses to Central and South America (+6.4%) whereas the trend was negative for optical frames (-5.7%).
- In Asia, which accounts for 17.4% of Italian sunglass and frame exports, exports in 2016 fell by 1 percentage point. The results posted for sunglasses (+2.4%) were very different than for frames, exports of which at the end of 2016 plummeted by 11.5%. The export trend to Central Asia (+9.6% for sunglasses, +7.5% for frames) should be monitored.
- In terms of supplies, a large share of imports were from Asia, accounting for 73% of the total.
An analysis of exports to the single countries shows that:
- In the United States (which has always been the leading market for the eyewear industry, with a 25.2% share in 2016), total sunglass-frame exports rose by +6% over 2016, an increase that was definitely down from the two previous years. The most striking results were for exports of sunglasses (+3.4%) compared to frames which closed the year at basically the same level (+0.4%).
- Europe was undisputedly the leading market for Italian eyewear exports in 2016. In Europe, the industry posted significant results in many of the main countries especially thanks to its exports of sunglasses. In France, the second export market for eyewear with a share of about 13%, sunglasses-frames rose by 2% overall, with a +5.4% for sunglasses and a flat +0.2% for frames. In Germany, total exports of Italian sunglasses- frames were up by 6.9%, with sunglasses accounting for +16.3%, more than making up for the negative export results of frames at -4.6%. In the same way, Italian frame exports to the UK increased by +3.1% versus 2015 with +10.5% for sunglasses offsetting the –11.1% for frames. Total exports to Spain posted a good +8.9% in value compared to 2015 (+12.7% for sunglasses and stable for optical frames). Italian exports to the Netherlands also performed well in 2016 with total exports at +14.7% (+23% for sunglasses and +4.4% for prescription frames), to Greece where exports stood at +16.2% (+17.5% for sunglasses and +11.5% for frames), to Portugal up by +10.1% (+23.6% for sunglasses offsetting the –8.4% drop for frames). In Europe, the good export trend for eyewear in 2016 was also contributed by Poland (+38.4%), Croatia (+63.5%), Norway (+10.4%) and Hungary (+39.6%). While these countries definitely play a small role in total exports by the sector, they show that there are still areas for potential growth.
- As always, eyewear exports to emerging countries were another matter altogether. As has been noted over the past years, eyewear is the sector of Italian-made products where exports have a wider range of action in terms of the number of markets served and their distance. Therefore, the industry is not new to dealing with difficulties and exploiting opportunities from such a vast range of markets and consumers, which nonetheless offer enormous potential for Italian eyewear exports. As far as market shares go, the figures are still not very significant, but overall 2016 was sluggish in emerging markets. Current export shares are listed below in order of importance showing the trends that were posted for these countries in 2016:
- China +3% (+11.9 sunglasses and -3.1% frames)
- United Arab Emirates –5% (+0.9% sunglasses and -11% frames)
- Turkey –4% (-7% sunglasses and -19.3% frames)
- South Korea –4% (-18.6% sunglasses and -16% frames)
- Brazil –8% (-8.5% sunglasses and -3.7% frames)
- Mexico +4% (+22.7% sunglasses and +1.7% frames)
- Japan –3% (+4.6% sunglasses and -15% frames)
- Israel +5% (+74.4% sunglasses and -28.1% frames)
- Saudi Arabia +7% (+11.7% sunglasses and -19.3% frames)
- India –7% (-9.6% sunglasses and -1.2% frames).
Russia is another matter where, while geopolitical problems continue to be an obstacle for eyewear exports, the figure for 2016 rose by +20.3% (+18.7% for sunglasses and +23% for frames), and as such there is a good deal of optimism about the future outlook.
MARKET SHARES FOR ITALIAN EXPORTS
When considering global exports of sunglasses and frames, which for 2016 can be estimated according to the figures available to date at about 15.7 billion Euros (+4.7% over 2015), the value of the Italian market share is 22%, behind China. If the share of high-end Italian products alone is considered, Italy continues to remain first at almost 70%. If the two sectors are analyzed separately, the market share for Italian exports as at 2016 stands at 30.5% for sunglasses and 20.5% for frames.
Overall, the Italian eyewear industry exported about 100.1 million pairs of glasses in 2016 up by 2.1% over 2015. Of the more than 100 million glasses exported, 66.8 million were sunglasses (66.7%) and 33.3 million were optical frames (33.3%). More specifically, the number of sunglasses exported rose by 4.4% over 2015, with frames falling by 2%.
In 2016, the domestic market maintained the positive trend of the previous year, however, the positive result in terms of value (+2.2% for the sell-in) was generally lower than what had been expected, in the hope of a greater momentum that would close the divide which has been building up from 2007 on. In terms of products, sunglasses (+3%) did better than frames (+1%), whereas for ophthalmic lenses (+0.5%), the best performers were still progressives (+3.8%).
FORECASTS FOR 2017
According to the latest figures released by leading research institutes, the global economic scenario has improved with a strong pickup in production, both in the manufacturing and tertiary sectors, to which all developed markets and some of the leading emerging markets (headed by China) have contributed. The threat of instability continues to menace this positive trend however, both due to the highly volatile financial markets (shares, rates, currencies, raw materials) and the geopolitical picture (elections, in France and Germany especially, negotiations on Brexit, neo-protectionism, terrorism).
This notwithstanding, business confidence in the OECD countries is at its highest levels since September 2007 and could be conducive to the start of an investment cycle worldwide, which is what is needed to drive the recovery and revitalize trade. Prices, which are no long deflationary, would seem to be moving in this direction too, allowing central banks (first among these the U.S. FED) to focus on gradually normalizing monetary policies. Italy continues to move ahead slowly, but access to bank credit remains difficult and uncertainties over political elections still linger. There is cooperation on negotiations with the EU on public funding under the 2017 Budget Law, with the mutual knowledge that the top priority is sustainable growth. In order to obtain this, reforms are necessary.
Looking at the overall situation of growth but strongly characterized by uncertainty, forecasts must necessarily remain cautious. Considering the particular structure of the eyewear industry, which is mainly export-oriented, it will certainly succeed, as usual, in drawing the maximum opportunities arising from international markets. Furthermore, 2016 also showed that there can also be interesting opportunities for growth in developed markets like Europe. These many aspects could therefore lead to growth albeit on a smaller scale, but probably steadier over time. Also mentionworthy are the recent events involving the eyewear industry: the merger of two worldwide giants Luxottica and Essilor, respectively undisputed leaders in eyewear (frames/sunglasses) and lenses, and the direct entry of one of the big luxury names, LVMH, into the sector following a joint venture with Marcolin.
These events definitely demonstrate the vitality of the sector and the importance that it holds internationally and also follow another trend that had already been observed, that is, the return of very high-end production to Italy.
Although the short- and medium-term effects are difficult to forecast, some initial basic evaluations can be made. Italian eyewear companies possess levels of undisputed excellence and an internationally-recognized leadership. The know-how and the professional and technological expertise of eyewear companies, especially in the eyewear district of Belluno, stem from a century-old history which has made a decisive contribution to the development of eyewear worldwide. On the one hand, therefore, a maximum level of vertical integration (such as the Luxottica-Essilor operation) will undeniably guarantee the giant from Agordo, sound and solid future development by further expanding its possibilities. The operation could therefore lead to more employment and local investments, as the company’s top management has recently pointed out to the press.
On the other hand, the entry of the large luxury groups into the sector (Kering and now LVMH) is similar to what has already happened in other sectors of the fashion, clothing, footwear and leather goods industries. This does not detract from the role of the Italian manufacturing industry, but allows more investments to be made, something increasingly necessary in order to compete on the global stage. Last but not least, this situation could be an incentive for small and medium-sized companies towards a greater integration into the chain allowing them, with their strong focus on product innovation or extreme specialization, to take advantage of the opportunities that derive from having a critical mass on the international marketplace.