• Italy has been mired in a recession that has lasted for more than three years but the rate of decline in the economy is finally slowing, and in the final quarter of 2014 GDP actually stagnated rather than contracted.

• Although consumers still remain negative, both retailer and consumer confidence are on the up.

• Aggregated spending on the key non-food products sold through department stores amounted to €101 billion in 2014. But it has shrunk by as much as €10.1 billion (in current prices) compared to 2010 creating challenging trading conditions for the sector.

• Personal care spending (which includes beauty an important market for department stores) held up best over this period and was worth more in 2014 (€23.8 billion) than in 2010 (€22.9 billion).

• But spending on clothing, the largest product category for department stores, has been in decline over the last four years, and weak demand saw apparel inflation/deflation fluctuate between around +1% and -2% in 2013 and 2014.

• Clothing is a core category for La Rinascente and Coin, the only two national department store chains in Italy.

• Apparel perhaps accounts for up to 40% of turnover at Coin and La Rinascente, equivalent to combined sales of €295 million ex-VAT in 2014, and equivalent to just 0.7% of the clothing market.

• But department stores are a popular destination for clothing – some 25% of adults shop at these stores for apparel according to consumer research commissioned for Mintel report Clothing Retailing – Italy – October 2014.

• Beauty sales through Coin and La Rinascente were worth between €110 million and €150 million ex-VAT in 2014 we estimate, which represents around 1.4% of the total personal care market (toiletries, beauty and other personal care products).

• Consumer research commissioned for Mintel report Beauty Retailing – Italy – January 2015 showed that as many as 43% of beauty shoppers use department stores for beauty products (cosmetics, fragrances and skincare).

• Department store sector sales grew by 2.7% in 2014 to reach an estimated €811 million.

• La Rinascente accounted for virtually all of this increase last year we estimate.

• Sector sales will grow by around 3% in 2015, we forecast, thanks to improved trading conditions and the benefit of Coin’s new stores starting to come through.

• Sales through the much broader mixed-goods sector declined by 0.5% in 2014 to €11.1 billion we estimate, continuing the downward trend of the previous three years.

• We think the mixed goods sector will benefit from a modest upswing in retail sales in 2015, and grow by just over 1% during the year.

• Coin and La Rinascente are the only two national department store chains in Italy with 100 stores and 11 stores respectively.

• Both chains focus primarily on fashion, accessories, beauty and homewares.

• La Rinascente is a more upmarket business and held up better than Coin during the recession than Coin.

• La Rinascente recently opened a large new space in its Milan flagship dubbed Annex-La Rinascente. This targets teenagers and was accompanied by an Annex app.

• But Coin has been busy testing new formats too – a contemporary premium/accessible store in Rome dubbed Coin Excelsior and a top end luxury concept Excelsior which has two stores in Rome and Verona.

• La Rinascente does not sell online and, at present, Coin only has a transactional site for its homewares offer Coincasa.

• But our research indicates that over 40% of department store shoppers in Italy would be interested in shopping online or seeing a bigger online offer in this sector.

• However e-commerce still remains very underdeveloped compared to northern European countries with online sales in 2014 accounting for just 1.9% of all retail sales – see Mintel report E-commerce – Italy – July 2014.

• The main reasons for the low level of development are: the slow build-up of broadband penetration; lower numbers of online retailers; no tradition of home shopping; low levels of credit card ownership; and minimal levels of online shopping for food.

• Department stores are not a heavily used format in Italy compared to say the UK or Spain.

• 19% of consumers had bought from a Coin store in the last six months and 18% from La Rinascente.

• Although the two chains attract similar numbers of in-store visitors and purchasers, Coin has a much larger store network so really ought to do better than this.

• Italians are more likely to shop at department stores when abroad than the French or Germans.

Figure 2: Italy: The consumer: Where they visited and bought, February 2015

Base: 1,000 internet users aged 16+

* eg. Selfridges in the UK, El Corte Inglés in Spain, Galeria Kaufhof in Germany

Source: Lightspeed GMI/Mintel

• Italy’s department stores need to seriously consider building their online offer.

• As many as 40% of department store customers say that they would like to shop online or have a bigger offer online and over a third are also interested in click and collect services.

• There is also plenty of scope to improve the fashion offer – the core element of the mix.

• More than one in four customers would like to see a bigger range of sizes and a more fashionable offer, while around one in five would like to see more clothing suited to their age.

Figure 3: Italy: The consumer: Attitudes towards department stores, February 2015

Base: 492 internet users aged 16+ who have visited or purchased at department stores in the last 6 months

* compared to a couple of years ago

Click here to zoom

Source: Lightspeed GMI/Mintel

Department stores are not a heavily used format in Italy compared to Germany, Spain and the UK and the sector is highly concentrated in Italy with Coin and La Rinascente accounting for the vast majority of stores and sector sales.

La Rinascente held up better than Coin through the recession perhaps because its customer base is more affluent and so less impacted by the tough economic conditions. A new flagship is due to open in Rome in 2017 and a second new store is also planned for Venice. Some €50 million is also to be invested in existing store renovation all of which should boost revenues in the run up to the end of the decade.

Italy is starting to show some signs of economic recovery and if consumer confidence strengthens we expect to see Coin progress too from the flat sales of the last few years. We think the more contemporary approach of Coin Excelsior could be the way forward for the bulk of the chain although Coin will need to get the right mix of premium and accessible luxury brands. We are less convinced by the name Coin Excelsior as this could confuse shoppers, particular as there are two genuine luxury stores trading under its Excelsior banner.

We think Coin’s prospects have also improved now that its stable mates OVS and Upim have been spun off in to a separate quoted company. OVS was always the strongest banner within Gruppo Coin’s portfolio so the department stores should benefit from greater management attention. Private equity owners BC Partners are likely to realise the rest of their investment in Gruppo Coin at some stage and this too could create the momentum needed to push Coin forward. However one of its disadvantages is the space constraints of its many small stores.