| SANTERAMO IN COLLE, Italy
SANTERAMO IN COLLE, Italy Jan 12 From this
hilltop town on the heel of Italy's boot, Pasquale Natuzzi has
built an eponymous furniture company that is one of the
country's most global brands. It sells sofa beds from Dallas to
New Delhi and is one of a handful of Italian companies listed on
the New York Stock Exchange.
Yet today, Natuzzi's home base is dragging it down. Best
known for its brand Divani & Divani, the company hasn't made a
profit in six years. In the first nine months of 2013, it lost
38.7 million euros, deepening year-on-year losses on a slight
dip in sales to 328 million euros.
Though it sells in 123 countries, and has factories in
China, Romania and Brazil, Natuzzi says the main reason for his
company's woes is the high cost of making sleek sofas and
armchairs at home.
The core of its production and half of its 6,500 worldwide
employees are in Italy where high labour costs and strict
employment laws make it hard for companies to keep up with more
nimble competitors elsewhere.
It costs Natuzzi up to 10 times more to make a product in
Italy than in its factory in China and although it has been
proactive opening factories abroad is under pressure from
Italian unions to keep jobs at home.
The result is that, as the recent economic downturns have
hit Natuzzi's key consumer markets of the U.S. and Europe, the
company hasn't been able to adjust its cost base to compensate
for the fall in consumer spending.
"The orders we have are enough to employ 1,500 people, not
our 3,200 [in Italy]," the 73-year-old Natuzzi, who is company
chairman and chief executive officer, said in a recent interview
in Milan where he was unveiling the new Revive armchair.
Late last year, Natuzzi agreed to a government-brokered plan
that will allow the company to avoid laying off more than a
thousand workers, while pledging 242 million euros to breath new
life into the company's Italian operations.
Natuzzi's predicament is just another chapter in Italy's
industrial decline. In the 1980s and 1990s, many Italian
companies began exporting abroad helped by devaluations of the
lira that allowed them to price lower than foreign rivals.
But that advantage was lost when Italy adopted the euro in
1999 - around the same time that European goods faced a flood of
competition from low-cost rivals from China.
Italy's efforts to loosen its labor laws have stumbled,
despite attempts - most recently in 2012 - to make it easier for
companies to adjust their workforce to economic cycles.
Italy's social security and labour taxes are among the
highest in Europe. Despite the 2012 reforms, it is still
difficult for companies to downsize for economic reasons.
Usually companies resort to state-funded furlough schemes in
which workers are still employed by the company and receive a
salary, paid largely by the state even though they don't work.
As a result, many companies, especially in the textile
business, subcontract work to tiny firms to increase
flexibility because they don't fall under the strictest of
labour rules or to lower costs because they hire workers on
under-the-table terms in order to evade taxes.
Until about a decade ago Natuzzi used subcontractors, but -
under pressure from unions - stopped outsourcing its production
and now operates fully-owned plants.
A fire in a factory last month in Prato, near Florence, that
killed seven workers who had been sleeping where they sewed
cheap clothes during the day thrust the spotlight on some 5,000
sweat-shops that often violate labour and health regulations.
After the fire, Natuzzi wrote a letter to Italy's president,
complaining about "unfair competition" of rivals who use
subcontractors that enjoy little regulatory oversight.
"This is a type of business that seems legal, but that
breeds on illegality. In order to offer products at lower
prices, these subcontractors almost always break the law,"
Natuzzi wrote in his letter.
Donato Caldarulo - president of one of southern Italy's
upholstery districts where many of the small subcontractors are
based - said in a statement that while there were some
"irregularities" in the industry, "the respect of legality is
something that all the companies operating in this district hold
close to their hearts."
Pasquale Natuzzi founded his company in 1959 together with
three friends, but the brand's fortunes didn't really take off
until the entrepreneur began selling in the United States in the
early 1980s, taking advantage of Italy's weak currency to
attract buyers in the world's largest consumer market.
Some 90 percent of the company's production is now exported
outside of Italy, with 45% of its turnover made in the U.S.
In 1993, Natuzzi listed on the New York Stock Exchange, a
major coup that gave its founder -- who was dubbed the king of
sofa in Italy -- added cachet back in his home country.
Paolo Moramarco has been working in Natuzzi's Santeramo
maintenance unit for 22 years. He says the name was enough to
get him a mortgage when he and his wife were buying a house.
"Thankfully, I've finished paying the mortgage because
today, if you show up at the bank with a Natuzzi paycheck, they
ask for proof of another income," he said.
Problems for Natuzzi began in the early 2000s, partly
because of the strengthening euro and because of the global
economic downturn that followed the September 11, 2001 attacks
on the World Trade Center in New York. Between 2007 and 2012,
Natuzzi racked up 140 million euros in losses.
The decline in consumer spending hit much of the furniture
industry of southern Europe. Between 2000 and 2012, the turnover
from the myriad upholstery companies in Puglia and Basilicata
regions dropped to 28.5 billion euros from 42.5 billion euros,
according to industry association Federlegno-Arredo.
Last year, Natuzzi's sales fell to 468.8 million euros from
486.4 million euros the year earlier. In the first nine months
of 2013, sales dropped by 6 percent in Europe, 7% in Italy and
1.5% in the U.S.
"Our efforts to make our company more competitive at the
global level have been rendered vain," said Natuzzi in emailed
answers to questions.
To balance his high labour costs in Italy, where Natuzzi
operates five of its nine worldwide factories, it has expanded
production to China, Brazil and Romania.
Production costs are 20 eurocents per minute worked in
Romania and 10 eurocents in China. But in Italy, where 3,175
employees are based, the cost has soared to one euro per minute
worked - a cost that is unsustainable, especially compared to
rivals in Italy who use subcontractors that cost a fraction.
"To be competitive, we would need to get to 50 cents," per
minute worked for our Italian factories, says Natuzzi.
Consofa, a consortium of upholstery makers - was recently
fined for violating labour laws. In a statement, Consofa said
that it believed authorities had "made an erroneous evaluation
of its contractual relationship with subcontractors and
suppliers," adding that it was sure it would "be able to confirm
the correctness of our operations."
Michele Giannelli, who works on the assembly line in
Santeramo, says he can understand fellow workers who accept
under-the-table jobs with subcontractors. "If someone has lost
his job, can't rely on unemployment schemes and faces the bank
confiscating his house, then it's a matter of survival."
Natuzzi's woes in Italy reached fever pitch over the past
year. The company has 1,450 of its workers on Italy's state-run
furlough scheme and last spring warned it would have to begin a
collective lay off scheme because of the worsening economy.
In October of last year, the company reached a deal with
unions and the government in which it will offer buyouts to 600
workers and, in conjunction, bring part of its Romanian
production back to Italy by creating two new local subsidiaries.
The challenge, Natuzzi says is still to bring down local
labour costs, something the company is looking into.
"We aren't looking for the simplest way out, rather the best
and fairest one," he said.
(Editing by Alessandra Galloni and Anna Willard)