Innovation oriented business: the Piquadro case Analysis of the key factors

Angela Congedo, Marco Demarchi, Chiara Sibelli Politecnico di Torino, Industrial manufacturing and technological innovation engineering

Abstract

An analysis of Piquadro, an Italian leather goods brand, towards an understanding of its working sector, its current business organization and its future opportunities. The study of the environment as a conditioning factor for the strategic key decisions and for the brand’s future development allows the identification of the essential factors every company needs to take into account for a correct view of the market.

Keywords: Piquadro, Market Analysis, Analysis of the external environment, Market for leather goods, Innovation.

Introduction It is important to be aware of the risks and at the same time of the advantages of the In the last decades commercial relations world outside the company’s walls. It is among countries have changed significantly, equally essential to know who we have to driven by the globalization impulse and the compete with, because even though it is true thunder of a competition that is no longer that in war one should know his enemies merely local but global. This is true for every better than his allies, it is also true that, on economic sector and it affects each of the the market, knowing one’s competitors thousands of companies that make up the grants a company not only its survival but commercial landscape. its development as well. And if one eye is Actually, what could once be defined “the focused on the outside, the other has to look productivity challenge” is nowadays an within the organization because no company innovation and quality one. Consequently, can afford to overlook its own internal the strength of a modern company is no management, especially as far as the longer measured just by the number of financial economic aspect is concerned. invoices it issues, but also by the image it However, a solid financial management is communicates as well as the level of its only one of the two crucial points for a customers’ loyalty. company’s growth, the second factor is the Therefore, it is clear that in such a changing research and the development of new and competitive environment every products which represent the ability of a firm company needs to look further, to move to either come after or anticipate the very rapidly and, now more than ever, it has to frequent changes in the style of the think about what its strengths are, since consumers' lives. Finally, it is necessary to these are the very elements which make a remember that since running without a firm unique and uniqueness is the only specific goal leads nowhere, a careful guarantee for a better future. strategic planning is necessary both to set Design, comfort and technology are the goals and to determine how to achieve them. three fundamental principles of Piquadro’s Being aware that companies today must deal mission and the company considers research with these new types of challenges we and development the main targets for its decided to choose one company among future growth. The constant attention to the many others, in a sector among many others, technological innovation of the product is in a country among many others. confirmed by the large portfolio of patents We then analyzed the current situation of filed by the company. Another distinguishing Piquadro, an Italian enterprise that factor is undoubtedly the all Italian design manufactures leather items designed to edited by a team of designers who know and meet the needs of working and traveling interpret the company’s key values, people. developing cutting edge solutions and new materials. Moreover, Piquadro renews its style with the essential contribution of young Background talents by cooperating leading Italian and foreign design schools. Born in 1987 from an idea by Marco Palmieri, Due to their technological and design the brand has been able to develop in a very features the brand’s products’ life cycle is fast and dynamic way1. Its mission: "To ample in comparison with other leather enhance the emotion of the product, placing goods firms on the market, linked exclusively it in the consumers’ dreams, even if this to the fashion factor. The current product product is at the service of technology rather lines cover different functions: from business than fashion." Piquadro is now one of the bags to luggage and small leather items. most innovative Italian companies in the The typical Piquadro customer is a man “luxury-leather goods” sector. Its products (60%) or woman (40%) between 26 and 50, are the perfect blend between traditional economically independent, a professional, Italian material processing and the most graduate or young employee, has got both technologically advanced solutions.2 culture and money, open and attracted to This combination of tradition and Hi-Tech new technologies, unique design and has been the key of its success. Through functionality of the product. Environmental Analysis we are able to assess Piquadro currently trades in more than 50 why it is necessary for the company to countries by means of a distribution network improve the technological contribution of which counts more than 1500 dealers and 79 their products in order to assert the brand on of them are one-brand stores (46 in ). foreign markets in Europe and worldwide. It The organization directly chooses the is also worth pointing out that the company available raw material on the Italian market has been on the stock market since 2007.3 with a focus on quality, aesthetics and technique. 4 The production was entirely moved to China 1 Profile. About Piquadro. Firm Website. in 2008: 40% of the production is performed th [Consulted on: October 12 2010]. Available on: in Zhongshan (South China), totally in www.piquadro.com accordance with the ethical and the quality 2 Mission. About Piquadro. Firm Website. European standards. The remaining 60% is [Consulted on: October 12th 2010]. Available on: outsourced in the same geographical area. www.piquadro.com

3 Balance sheet 2010. Piquadro. Italy, March 31st 4 Balance sheet 2010. Piquadro. Italy, March 31st 2010 2010 Storage and logistics, two key factors for and exact view of the context of the long-life-cycle products such as these, are company’s situation is provided which gives found in the establishment of Gaggio the reasons for decisions taken in recent Montale (Bologna), equipped with an years to better understand the direction the automated warehouse capable of handling company will take in the future and the orders for 24-48 hours with an extraordinary motives that led to such considerations. efficiency. R&D, design, engineering, quality In the first place, the analysis of the political control, marketing, communication and factors reveals that in this sense the distribution are centralized in the same company is not subject to any specific Italian Piquadro head office.5 As for influence derived from the context: the only distribution, Piquadro uses two different exception seems to be the decision of channels: DOS (direct sales) and Wholesale transferring the production to Asia, (franchising).6 specifically to China8. This initiative has in The company current strategic plan to fact led to a series of measures mainly develop its presence on the national and the related to the trade regulations and work international markets can be summarized in rules. As far as the first are concerned, the the following five guidelines: company feels the need to regularly test its products, in order to ensure a certain quality Constant research and development; standard level9. In that sense, it is worth Expand and strengthen the brand's mentioning the European regulations and presence internationally; directives all the company’s products are Expand the distribution network by subject to. However, Piquadro is not affected opening new franchised stores; by these standards in a negative way since its Develop the offer in the sub-sector products have always proved to be in line of women's handbags; with the standards of control, in this way New communication strategies and giving the company a quality image. On the brand development. other hand, as far as the work regulations are concerned, Piquadro is affected in a As far as strategy is concerned, research and positive way in terms of costs, since the intellectual property represent the production in China allowed their company’s basic competitive points of considerable reduction. At the same time, strength.7 the different working attitude and environment have played a negative role given the peculiarities of the European and PEST Analysis the Chinese realities. Nonetheless, the relocation of the production has not been a PEST analysis allows a focus on the most important environmental factors influencing 8 the company in question. The political, Image Building. Cartella stampa Piquadro [on line]. Page 6, Acquisizione dello stabilimento economic, socio-cultural and technological produttivo in Cina. Available on: aspects are analyzed. In this way, a detailed www.confindustriaixi.it/documenti/Palmieri_Pres s_Kit_Piquadro.pdf 5 Piquadro. Press kit. Italy, April 2010. 12. 9 Image Building. Cartella stampa Piquadro [on 6 Balance sheet 2010. Piquadro. Italy, March 31st line]. Page 8, Rigidi controlli qualitativi. Available 2010 on: www.confindustriaixi.it/documenti/Palmieri_Pres 7 Piquadro. Press kit. Italy, April 2010. 12. s_Kit_Piquadro.pdf decisive factor only from a political point of opportunity to establish new markets. view, but also from an economic one: the Therefore, a high variation in the purchasing use of Chinese workforce can reduce staff power can affect the company’s sales, costs and other sector costs. The different although it is useful to remember that the location involves different costs not only in positive change in the average income in terms of workforce but also of energy, real developing countries is a positive factor for estate, etc. Another economic factor worth the increase in revenues. This last aspect is mentioning is Piquadro’s ability to cope with also linked with the subject of the the economic cycles, without being effected educational level present in emerging by any specific changes: the overall tendency countries, which suggests a future increase in consists in the steady company’s intention to the income of the populations from these take advantage of the changing economic areas and, therefore, represents an factors in order to experiment and opportunity for Piquadro. It is worth implement new winning strategies1011, as reporting that in recent years there has been shown by the transfer of the production. In a change in lifestyle and in the way work and addition, the company has not reported free time are conceived. This is not a risk for lower income rates despite the crisis of the company, as the products it offers can recent years; this trend is partly due to the cover both the sectors of work and travel above listed reasons and in part to the type products. of target (medium-high) which the company Finally, in relation to the technological addresses itself to. factors, the company has been subject to a In the second place the analysis of the socio- conflicting influence about the availability of cultural factors reveals that the company is co-operation and guidance to the influenced in a positive way by many of development of new products: on one hand, them, such as demographics, income the total lack of interest from the Italian distribution, educational levels, factors Government, on the other hand the spirit of related to lifestyle change. As regards these co-operation of some companies and variables, the target Piquadro aims to universities. As regards the Italian address to has proved to be decisive: this is a government, evidence of potential medium high socio-economic class, since developments of innovative products are still Piquadro mainly manufactures luggage and accompanied by a complete lack of adequate work items. It follows that factors such as IT support and pragmatism. However, the demographics, distribution of income and company has been able to count on the educational levels do not produce relevant participation of some of the firms which changes on the existing market. As far as the operate in the ICT field to fund the research opening of new markets is concerned some and the development of several innovative considerations can be made; the target is products: among these Sagem, Tim, decisively important when considering the Windows and Samsung are to be mentioned. In addition, since 2002 the company has

10 established an ongoing collaboration with Image Building. Cartella stampa Piquadro [on various design institutions1213 such as the IED line]. Page 6, La storia. Available on: www.confindustriaixi.it/documenti/Palmieri_Pres s_Kit_Piquadro.pdf 12 Piquadro Design Factory. Design Factory. Firm 11 Global news. L’esperienza sui mercati esteri di Website. Available on: www.piquadro.com Piquadro: “Decisivo investire nel design e nel 13 marketing” [on line]. 23rd March 2006. Available Image Building. Cartella stampa Piquadro [on on: www.globus.camcom.it/globus586.aspx line]. Page 8, La collaborazione con gli Istituti di Design. Available on: of and Barcelona and the University of The leather industry is highly fragmented, as . Thanks to the great attention given it includes a large number of competitors to technology and design, Piquadro with different characteristics and sizes which products14 are able to maintain an extended range from large global companies to small useful life span despite the periodic cycles local firms. The number of international dictated by fashion15. Some aspects, such as companies which offer a wide range of the speed of technology transfer and the leather goods (such as Louis Vuitton, rate of obsolescence affect the organization Hermes, and ) is relatively small; since they become key research factors in other businesses tend to focus on a specific the study phase of the product, with the aim product category. This is the case of Tod's, of creating products connected not only to and Coach for women's bags, fashion, luxury and design, but also to Samsonite, Delsey and Roncato for travel technology and functionality. goods and Tumi, Hartmann and The Bridge for business items. The differences among competitors on the Competition leather goods market determine a wide range of prices as well. The price usually The leather goods world market is depends on the importance of a brand and characterized by a large number of on distinguishing factors such as design, companies, from big international businesses quality and innovation. to small local firms. The main product Piquadro’s competitive market can be categories on the market include luggage analyzed in relation to two different aspects: and handbags, representing respectively 39% Value Proposition, namely the reasons for and 36% of the total number. Business items, the product’s purchase and the need the the core production of the Group, represent product is supposed to meet, and Price only 8% of the total market. However, it Positioning, which considers not only the should be noted that there are sharp consumers’ purchasing power but also the differences between markets according to reasons underlying the decision to purchase their geographical area. In Italy, for example, a specific product. As regards Value the product category which represents the Proposition we can distinguish three types of highest percentage of the market is that of product: Performance Product when it is women's bags (40%), followed by leather designed to satisfy a specific purpose accessories (29%) and luggage (12%).16 (document transportation, travel, etc.), Fashion product when its design depends

mainly on fashion trends, Lifestyle Product www.confindustriaixi.it/documenti/Palmieri_Pres when it is distinctive of a particular lifestyle s_Kit_Piquadro.pdf or social status. According to Price 14 Image Building. Cartella stampa Piquadro [on Positioning three different classes of line]. Pages 11-12, I prodotti. Available on: products can be distinguished: Medium/Low www.confindustriaixi.it/documenti/Palmieri_Pres for affordable items, Premium for s_Kit_Piquadro.pdf aspirational articles; Luxury for exclusive 15 products. Image Building. Cartella stampa Piquadro [on line]. Page 3, Overview. Available on: Piquadro classifies its products as www.confindustriaixi.it/documenti/Palmieri_Pres Premium/Performance and it combines the s_Kit_Piquadro.pdf

16 Mediobanca Securities. Company data. Available on: www.borsaitaliana.it aspirational content of its collections with From the income statement and balance the ability to meet a specific need.17 sheet data of the last five years the trend of In order to succeed over competitors the company can be clearly identified thanks Piquadro should focus on the improvement to the economical and financial indicators.21 of its products’ performance mainly through technological innovation and provide new 2006 2007 2008 2009 2010 solutions before its competitors to overcome Sells (S) 23.572 35.742 45.982 51.701 52.218 Operating the main barriers imposed on the product by 5.336 9.612 12.201 12.525 11.784 Margin (Mo) its traditional use, developing new Profit (P) 3.059 5.320 6.485 7.514 7.123 technological-related features. Equity (E) 4.908 7.817 12.378 17.437 21.925 Invested Finally, it is important to notice that in recent 29.259 36.008 41.357 51.128 53.894 years the leather industry has undergone a Capital (K) Operating positive trend, with an annual growth rate 16.494 19.086 24.115 27.319 26.301 Capital (Ko) exceeding 3%. In particular, the category of B.T. 10.219 14.035 15.644 17.535 18.474 women's bags exceeded the annual growth Liabilities (L) average of the market, recording a 5.3%, Stock (St) 4.495 6.456 8.290 6.667 5.686 Actual 3.685 4.050 2.251 6.396 8.589 while the category of luggage recorded an Currency (C ) 18 a annual growth of around 2%. Theoretical 9.684 13.507 18.512 24.588 26.625 Currency (Ct) Table 1 – Data extraction Source: Personal elaboration, Balance sheets 2006 – 2010, Economic and Financial Analysis Piquadro

The following section briefly reports the INDICATOR FORMULA results of the analysis in order to evaluate R.O.I. (%) (Mo/Ko)x100 the company’s economic and financial R.O.S. (%) (Mo/S)x100 performance. The main economic and R.O.E. (%) (P/E)x100 financial indicators have been taken into Debt Incidence K/E account. It is worth noting that the Financial Independence E/K company’s turnover on 31st March 2010 Stock Incidence (%) (St/K)x100

(Piquadro fiscal year closes in March) was € Currency Ratio (Ct + Ca)/L 19 52.2 million , with an increase of 1% Table 2 – Indicators compared with the previous year and an Source: Personal elaboration average growth of 21.1% during the last six years.20 INDICATOR 2006 2007 2008 2009 2010 R.O.I. (%) 32,35 50,36 50,6 45,85 44,8 R.O.S. (%) 22,64 26,89 26,53 24,23 22,57 17 Investor relation. Company Profile. Firm R.O.E. (%) 62,33 68,06 52,39 43,09 32,49 Website. [Consulted on: January 20th 2011]. Debt Incidence 5,96 4,61 3,34 2,93 2,46 Financial 0,17 0,22 0,3 0,34 0,41 Available on: www.piquadro.com Independence Stock Incidence (%) 15,36 17,93 20,04 13,04 10,55 18 Mediobanca securities. Company data. Currency Ratio 1,31 1,25 1,33 1,77 1,91 Available on: www.borsaitaliana.it Table 3 – Indicators calculation 19 Source: Personal elaboration, Balance sheets 2006 – 2010, Piquadro. Financial reports. Italian stock Piquadro th exchange Website. [Consulted on: January 17 2011]. Available on: www.borsaitaliana.it

20 Financial Highlights. Investor relation. Firm Website. [Consulted on: January 15th 2011]. 21 Balance sheets from 2006 to 2010. Piquadro. Available on: www.piquadro.com Italy, 2006, 2007, 2008, 2009, 2010. The analysis which results from these data laptops22. Furthermore, many partnerships shows that the economic and financial have been placed to create special projects situation of Piquadro is stable. In fact, ROI, such as six limited edition items dedicated to ROE and ROS prove that the company has a the launch of Windows 7, P-Mobile in good economic return from the investments collaboration with Samsung, the ING Renault it makes, it succeeds in creating positive cash F1 Team equipment and the Fiat Yahamaha flows and in having a satisfactory economic Team equipment23. return on equity, despite the decrease in Environmental sustainability, energy and percentage. It is also worth pointing out that new materials, were the keywords of the financial independence of the company Piquadro’s innovation24. But how has the has increased thanks to debt relief and re- market moved towards these directions? investment of benefits within the company There is no single and relevant answer to the itself, proving it free from the pressure of question but a series of fragmented actions external funders. At the same time, the low undertaken by large and small companies. debt ratio allows Piquadro to ask for new Pensy Maiden, manufacturer of eco-friendly loans in order to finance its assets without bags with a clean and original style, takes the affecting its current independence. Finally, environmental sustainability as a mission, the company’s currency ratio shows a great but its reference target and the volume of its capacity to cope with future outflows business do not allow the brand to rank resulting from the maturity of current among the direct Piquadro competitors. In liabilities by means of future revenues the field of energy special bags have been deriving from the realization of current patented which use solar energy, but these assets. projects are not yet supported by a prestigious brand and they gained little visibility on the market. The search for new Technology and science materials is a field which sees a competition with several internationally renowned One of the key points of Piquadro’s strategy companies, such as the aforementioned is to keep offering new products, expanding Tumi and the giant Samsonite, whose investments in research and development in research and development strategies have order to search for new materials and exponentially increased in recent years. innovative solutions. The past commitment In order to support its growth on the market shown by the company in this sector is Piquadro should set innovation as its main witnessed by the large number of highly objective, looking for unexplored solutions innovative and technologically advanced and applying new technologies to serve the items, unusual for a sector like the emerging consumers’ needs anticipating its traditional leather goods manufacturing. competitors’ moves. To name a few, the ecological bag label launched in the Jungle Collection in 2009 was the first bag on the market made of 22 tecnomatrix material, a mixture of linen, SPD e Piquadro. Design Factory. Firm Website. polyurethane and white leather Available on: www.piquadro.com manufactured with a low environmental 23 impact production process. Thanks to its Press Releases. Press 2006-2010. Firm Website. partnership with SPD, Piquadro produced Available on: www.piquadro.com bags provided with a high-performance 24 Piquadro Design Factory. Design Factory. Firm power generator to recharge phones and Website. Available on: www.piquadro.com leather products as well as of its existing Strategy25 distribution network which is constantly growing. The Group strategy is identified by the In addition, Piquadro feels the need for a constant growth in the sector of luggage and constant research in the innovation and work items, with a particular attention to the quality sectors. For this reason, the company capitalization of the key values associated annually invests most of its resources in with the brand: the unique combination of research and development in order to study high quality, technological innovation, design materials and innovative solutions and to and ergonomic efficiency. discover new methods to improve the design In the near future the company is going to of already existing products. In order to undertake different tasks at a strategic level. accomplish this, Piquadro regularly performs First of all, Piquadro identified the studies on new technologies especially in the opportunity to improve its distribution fields of eco-sustainability, energy and new through internationalization: the company ‘s materials. Thus, the company has established aim is to widen its distribution network, several partnerships with research particularly abroad, through the institutions, universities and other reproduction of the same business model enterprises. Finally, the Group intends to implemented in Italy. Since 2008 the maintain a high level of profitability in company has started to turn to European current operations. markets by opening stores in shopping centres in the most important European capitals, such as Madrid, Monaco, Paris and Conclusions London. As far as the expansion of the franchise network is concerned, the strategic The company has been described under plan for the future focuses on the opening of several points of view: at first, its relations new stores both in Italy and in with the external environment have been Europe. Moreover, the company is analyzed; secondly, its competitiveness on considering the opportunity to extend its the market; then the evolution of its network by investing in retail stores in high- economical and financial situation and its potential-return areas, such as Asia, with the efforts in terms of research and development support of joint ventures between the and finally, the company’s planning company and local entrepreneurs. strategies. In relation to the existing markets, Piquadro From the context analysis and specifically is going to strengthen its co-operation with from the PEST analysis, the company’s most various European department stores in order determining factors have been identified as to increase its presence on strategic markets. the socio-cultural and technological ones. In the second place, the company aims to Over the next few years, the company will widen its range of products, particularly in probably continue to be influenced by the the travel goods and handbags sectors, same factors, with additional attention to taking advantage of its know-how about the technological ones. Apparently, the company’s network of co-operations with

25 universities and design schools will be Investor relation. Analyst presentation. Milan, increased in order to maintain its creativity. th November 24 2010. Available on: These will involve other ICT companies as www.piquadro.com well, in order to develop new advanced products, in terms of design and technology. Moreover, it is reasonable to assume that Piquadro’s market network will expand This allows Piquadro to keep up with the despite the current economic crisis, since a modern challenge and to be one of the most market growth has been recently recorded. important investors in R&D, without losing Besides, by analyzing the competitive the typical charm of Italian craftsmanship. environment and market, it worth noting that the company has recognized the need to strengthen its presence within the sub-sector of women's bags26, in line with the market demand. The company has identified this as one of the key objectives for its upcoming strategy and it will study and implement alternative solutions regarding both design and practicality. A steady interest in the company’s innovation and internal development has been detected which will allow the firm to react to any change in the customers’ lifestyle and, therefore, in the market demand. Piquadro has once more proved to be ready to cope with changes, considering them as a new challenge for the study of new products and the improvement of the existing ones. The company’s commitment shows itself in the steady interest and effort in the improvement of the practicality of its products and in the introduction of more competitive new articles in terms of innovation and technology solutions, without stooping to compromises in terms of design and quality which are the company’s driving forces. Summing up, if enterprises want to survive on the current unstable market, they have first of all to enjoy a good economic and financial situation, as Piquadro shows through its indexes, and then they have to be aware of their internal strengths and weaknesses, as well as of the opportunities and threats coming from the outside. Piquadro plans its strategies on the base of these factors, achieving objectives in line with its needs.

26 Image Building. Cartella stampa Piquadro [on line]. Pages 4-5, I driver di crescita. Available on: www.confindustriaixi.it/documenti/Palmieri_Pres s_Kit_Piquadro.pdf