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Geox’s Store Closures Illustrate COVID-19’s Crippling Effect on Italian Luxury

Italian brands are taking a critical hit amid the rapid spread of COVID-19 that has driven the government there to restrict movement across the country though at least the start of April.

In light of the Italian prime minister’s decree that will see all shopping centers and medium and large-sized stores closed on Saturdays and Sundays—with restrictions on how many shoppers can enter at once—Geox will temporarily close 150 of its directly operated stores, the high-end Italian footwear brand said Tuesday.

“The situation is constantly evolving and a number of local authorities are calling for even greater restrictions on commercial activities, while trade associations are urging government to adopt measures to support the economy, commerce in particular,” the company said in a statement.

The stores will be closed completely, taking the government’s orders a step further, until—as of now—March 15.

“Never before has it been so important to pull together as a team. Institutions, enterprises and all citizens must come together to deal with this emergency,” Geox founder and chairman Mario Moretti Polegato said. “As a company, we feel extremely responsible towards all co-workers and customers who visit our stores, and their families.

“We have therefore decided to contribute to the collective effort being made in Italy by temporarily closing all of our stores in the country,” he added. “We are solid and, once we’ve overcome this difficult time, I am absolutely confident about the future for this sector, for Italy and for Geox.”

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Success in that future, however, will be hard won for the footwear brand.

Just five days prior, in its 2019 earnings results release, Geox discussed closing 80 unprofitable stores this year—and these closures will be permanent.

“Despite harming results for 2019, this rationalization measure will allow us to create the right basis to improve the group’s level of profitability focus on projects to quickly adapt the business model and free up the resources necessary for the most significant investments,” Geox Group CEO Livio Libralesso said in the release.

Sales for the year came in at 805.9 million euro ($910.1 million), a 3.3 percent decline on a constant currency basis. Adjusted earnings before interest and tax came in at a 3 million euro ($3.4 million) loss, compared to a 15.2 million euros ($17.15 million) in the black in 2018.

“2019 was characterized by a particularly complex context,” Libralesso said. “In addition to social and political tensions in a number of important markets (primarily France and Hong Kong) and significantly different relationships within the EU (due to Brexit), the entire sector has also had to face profound and continuous changes to consumers’ buying behavior, with digital solutions becoming increasingly popular.”

Sales at the company suffered at the hands of shuttered wholesale and franchised stores, thanks both to challenging market conditions and Geox’s efforts to reduce business risk and maintain the brand’s image by taking a “more selective” approach to the partners and markets it aligns with.

At the start of 2020, Libralesso said things were looking positive at stores with sales up, but the upward momentum took an abrupt hit in light of the global coronavirus outbreak.

Conditions for both retail and manufacturing in Italy are bleak and many luxury brands, like Gucci and Louis Vuitton, are expected to take a major hit. Already, conditions had been challenged with tensions in Hong Kong that quelled spending among a sizable portion of the luxury shopper population, and with mainland China itself reeling from the effects of the coronavirus, shoppers there won’t be spending as much either.

On the supply side, conditions aren’t any better.

Manufacturers are already reporting significantly reduced or no orders from luxury brands that produce in Italy, and the smaller set may not make it through the melee.

Scandicci-based producer Almax, which makes bags for Kering brands including Gucci, Saint Laurent and Balenciaga, as well as LVMH brands, told Reuters Monday that his orders had declined by a “few percentage points.”

“I thought things were not too bad given the circumstances, but now this new alarm in Italy risks making more casualties among businesses than among people and disrupting the supply chain for the orders that are still in the pipeline,” said Massimiliano Guerrini, whose family owns Almax.