Every year we take a family vacation to Italy.  The intent of the trip is to catch-up with family and friends, and have our kids spend time with their grandparents.  To make it a vacation, rather than a trip we generally travel somewhere in Italy for a week and spend a week with our extended family in central Italy.  During the Great Financial Crises, I was on the sellside and I started sharing my observations from these trips with my institutional clients.  The annual note was one of my most read work products so after a pandemic related hiatus, I welcome you to my nonsense ….

 

Retail

 

In many of my past notes I’ve commented that retail in many of the smaller towns we visited continues to trade down from super premium brands to more accessible brands.  I never understood how having a large section of a store dedicated to a brand like Prada worked in a smaller ‘factory’ town. This trend appears to have continued in both the towns and outlets. The super premium brands have retrenched to major cities. 

 

Where are the young people

 

Another oddity was that the customers at the beach clubs we visited appeared to be significantly older than our previous visits.  These clubs are expensive but in the past we’d see a lot of young Italian families.  On this visit, the patrons were consistently older Italians or tourists, and the children looked like they were with their grandparents rather than their parents.  As I get older, I generally find people look younger, this wasn’t the case at the beach clubs we frequented.

 

Navigating Italy

 

Apps on smartphones have been very helpful.  Before Apple Maps, Google Maps and Wayz, navigating more rural parts of Italy usually involved looking at the cities between you and your destination on a map and use the city names to guide you in the correct direction; good luck finding street names.  If you got lost you could stop and ask for directions which would often include a series of lefts and rights, vibrant descriptions of landmarks, and whistling noises accompanied by swerving hand motions. The apps make navigation simpler but we found that each app would: 1) try to over optimize the route; 2) suggest roads that were in poor condition where only a rally driver could drive the speed limit; and 3) take you to a slightly different destination, especially in Southern Italy where Google Maps seemed to be correct most often.

 

Higher energy prices

 

Energy prices were noticeably higher but I was left with the impression that the Italians will figure it out. This is a country that used to pay for local phone calls.  People answer the phone by saying “pronto”, which means ready.  They’ve had to deal with higher energy prices than most of Europe since they shuttered their nuclear reactors in the 90s following the Chernobyl melt down. Outside of tourist centers, it’s not a society that leans into air conditioning in the summer or heating in the winter, and late dinners and afternoon breaks during the workday create natural offsets in industrial and residential peak power consumption. It won’t be painless, but I don’t believe it is going to be extremely painful either.  There was almost no discussion about revisiting nuclear energy.

 

The housing ‘super bonus’  

 

My wife studied architecture in Italy before we got married and she immigrated to Canada; it’s a good story.  One of the benefits of these trips is that we get to catch-up with her friends, many of whom are architects or have construction companies.  There is a real problem in the Italian residential construction sector.  As part of the pandemic related stimulus, the Italian government offered to pay for green residential renovations, think solar panels, new windows, doors, high efficiency appliances … The program was called ‘the super bonus’.  It allowed homeowners to apply for permits, have work done and be reimbursed for the costs through: 1) tax credits, 2) credits on utility bills, or 3) bank debit that was guaranteed by the state and secured against future tax or utility credits. The banks securitized this debt and sold it to investors. Of the payment options, debit was the most popular since not putting up any money and renovating your home with someone else’s money is tough to beat.  I suspect you can guess where this story is going.  Tons of permits were granted.  The money starts flowing and the construction sector roars to life as many opt in for ‘free’ renovations.  Fast forward eighteen months and the government realizes that they don’t have adequate controls, and they are paying for projects that aren’t being done.  Payments are halted, which will help with the fraud but there were also a lot of people who were using the program appropriately and their contractors/architects now have large backlogs of work and raw material purchases that they haven’t been paid for.  I have no idea how the situation gets resolved but it was clear that there was real pain for business owners who have many months of receivables that they can’t collect, and raw materials sitting in storage for projects they won’t complete because of uncertainty around payment. I didn’t speak to any investors who bought the securitized debt.

 

The Lightning Round

 

• You realize how expensive it is to eat out in Toronto when you visit high-end restaurants in major European cities and find the prices on the menu and wine list very reasonable.
• Cellphone service is incredibly cheap.  Unlimited data, voice, and messaging is typically less than €20 per month as part of a family plan.  My wife picked up an Italian pre-paid SIM from Vodaphone for €35 that had 75GB of data and unlimited calling and texts.
• You can purchase some spectacular Primitivo and Negramaro from Puglia for an absolute song. I suspect that best values don’t make it out of the region or country, never mind to Canada.
• Making enough ice for a day of hanging by the pool in 40-degree heat is an absolute mission with a countertop ice machine.
• Always travel with a Bluetooth speaker and a power pack; the number of devices we needed to charge daily was madness.
• The food in Italy is great but it’s regional. I didn’t appreciate how regional the food was until I had Olvie Ascolane in Ascoli, Buffalo Mozzarella in Campania, Risotto in Cortina, or Zucchini flowers in Rome.  Great becomes exceptional.
• The napkins at gelaterias (ice cream parlors) are still terrible.  I don’t understand why.  You wouldn’t lightly laminate single-ply toilet paper so why would you do it to a napkin?
• I was shocked at how well road cycling clothing holds up to fall.  It was a fluke, or the stuff is amazing.  I don’t even want to think about what the road rash would have looked like with lower quality stuff.
• A Lynk & Co 1 hybrid (I’d never heard of Lynk & Co) is a surprisingly comfortable rental car for a family of four.
• It was much easier than I expected to accommodate a gluten sensitivity in Southern Italy.
• Looks like another snap Italian election in the fall.  Governments really shouldn’t surprise me anymore (I’m sitting on plane wearing a mask for 9 hours as I type this), but the Italian government has been unable to agree to frameworks for reforms, mandated by Europe, over the line by yearend, and it’s going to cost the Italian people €200bn in stimulus.

I’ll leave it there, but I’ve include some notes I found from previous years below in case you are interested:

 

I’m always available for a discussion.

 

Delli 416-594-8990

 

 

2018 Observations from the Old County

 

Every year I make a few observations and share some nonsense after the family trip to Italy.  This year we spent the lion’s share of our time visiting family in Cervaro/Cassino, a few days with friends visiting wineries in Bolgheri and lots of time at the beaches near Sperlonga.

 

The main takeaway was the continuation of the main trend observed a few years ago which is Italians are getting better at living within their means. It feels like the economy is going sideways. Lots of talk about Trump, Turkey and immigration. It looks like there has been no inflation on Italian goods and services (in the towns I visited at least) in years. I’ve commented on there being less retail floor space allocated to iconic Italian brands in Cassino, that trend has continued to accelerate and stores are now being replaced by bars/cafes.  While the cafes are busy, the margins must be razor thin (€1.50 for a coffee, €2.50 for 750cl beer or €3-4 for a cocktail) and servers (who don’t get tips from locals) get €20-30/per shift (or <€5/hour) and turnover continuously unless they’re family members of the owner. If there is a minimum wage it certainly isn’t enforced.

 

A few more observations:

• Italy has some of the lowest prices in the world for cellular services but the offers are shocking low.  While Rogers charges CAD$12/day to Roam Like Home from Italy, a monthly no-contract postpaid plan from Wind that is €10/month for 1000min of voice calls (you only pay for outbound calls), 500 SMSs messages, and 30 GB of data! The sim card and activation were €10. Let me know if you want to see the advertisement.
• The napkins in Gelatarias (ice cream parlors) are awesome!  All over Italy gelato is served with what is essentially a wax-paper napkin.  The napkin is almost completely useless. For a moment I thought about revolutionizing the industry by introducing real napkins but it’s simply too much fun watching folks struggling to clean anything with the wax-paper napkins. The gelato life hack is to bring your own napkins!
• While in Tuscany we stayed at a boutique 16-room resort.  It was great. Ring me if you want to talk about the wineries we visited – the folks in Bolgheri are very excited about the 2016 vintage - but what struck me was that there were no Italians staying at the resort.  All the other guests were German or English and the manager commented that Germans and English speaking tourists were the majority of the resorts business. Even at the larger wineries, the tour guides would often switch from Italian to English mid-sentence because they do so many more tours in English.
• We visited a high-end outlet in Tuscany called The Mall.  While the brands were consistent with other high-end outlets I’ve visited in Italy, the big difference was the tour buses arriving about every 20min from Florence;  the lines to get into stores like Burberrys, Gucci and Prada; and the number of tourists that show up with an empty suitcase that they fill as they shop.  Italian visitors to The Mall were a minority when I visited.  Two things jumped out about the suitcase folks: 1) the stores have shaded areas, with benches, outside their front doors where the ‘suitcasers’ can removed tags and pack their bags, and 2) the amount of information that can be conveyed with a nod if you locks eyes with the patriarch who’s manning the suitcase and usually loitering on the main floor of the store between the front door and the till. I feel for that chap.
• When running I’d observe folks driving while talking on their phones, or while watching videos or with a child sitting on their lap. While I don’t often notice this while driving in Italy. Pretty incredible relative to Canada where a seven-year-old ‘needs’ a booster seat to get into a cab/Uber. 
• If an Italian is riding a road bike they’ll likely be wearing the full kit of a professional racing team.  You know, just in case they get called-upon to join a racing team mid-ride. If you’re not in full kit, there is a lot of satisfaction climbing past a group of folks that look like a professional team and listening to them try to bridge back to you.
• While air conditioners are become more common in Italian homes (thankfully), the Italian’s still are trying to figure out how to use them. It’s not uncommon to see air conditioners in homes set to 28-30 degrees.
• Finally, Juve Ronaldo jerseys everywhere. And I mean everywhere.  On the streets and in the piazzas.  The store manager of a sports store in Cassino showed me his waiting list for Ronaldo jerseys. I counted six at the baggage carousel in Toronto yesterday.  Juve might pay the €105mn transfer fee via jersey sales alone. Serie A starts on Saturday.  Hopefully, this is the year that Juve can add a Champions League trophy.

 

Highlights from previous visits are below for you to enjoy.

 

Delli

 

2017 Observations from the Old County

 

I got to attend the annual family trip to Italy (missed last year) and it has become a bit of a tradition to share some observations.

 

My main takeaway was that Italians (at least in the smaller towns I visited) have more modest expectations and are living within their means. On previous visits, I'd have a series of thoughts along the lines of  'how are all the teenagers, from a town of 50k people where the biggest employer is Fiat, wearing thousands of Euros worth of clothing everyday?'. I didn't have one of those moments on this visit and the iconic Italian clothing brands that could be found in almost every store in Cassino years ago, can now only be found in two higher end stores. While people seemed to be significantly busier with work than during previous visits, a cousin in her early 40s summed it up well when she asked 'who do you know that is getting ahead?'; this is particularly telling since an Italian in their early 40s should be seeing similar career progression to a Canadian in their late 20s or early 30s.

 

It's still Italy so the bars and restaurants are lively, the people are welcoming, and the food is spectacular.

 

A few more observations:

• After two decades of renovation, Fumicino (the main airport in Rome) no longer looks like it belongs in the third world. From a commercial perspective it's improved from a 2 to an 8 out of 10. Luckily the car rentals are still in the same place. If you don't know where the car rental counters are at FCO, I wish you the best of luck since you essentially need to find them before you'll see a sign. 
• It's amazing how satisfying it is to see everyone driving in the right lane and passing in the left lanes on the highway. We should import this behaviour.
• Anyone who complains about Italian bureaucracy has never seen an entire street of stores close at 1pm with the precision of Olympic synchronized swimmers.
• In spite of photo radar nearly everywhere, the infrastructure (outside of the toll highways) needs a lot of work. Driving on provincial highways its common to see the lines indicating lanes/dividers almost completely faded or actual sections of highway with lower speed limits because of potholes.
• Samsung seems to be dominating the Italian smartphone market and the kids have 30 GB data plans (with throttling not overage) for €20 per month.
• According to my Garmin, I get more stressed driving for on curvy costal cliff-side road for a few hours while on vacation than I do during the average workday. Amalfi, Positano and Ravello are worth the trip.
• Thankfully, the bars are still sticking to the original recipe for Negronis rather than tweaking them to appeal to the hipsters who have adopted the beverage here in Toronto.
• Outside of more touristy destinations, I don't think I saw a single price on a menu that has inflated over the last five+ years. It feels like the last time the price of pizza changed was when Italy moved from the Lira to the Euro.
• Headline fatigue and shockingly little discussion about Spain, Brexit, German elections, Italian politics, ... the one exception was the refugee/immigration situation where everyone seemed to have very strong opinions.
• (Not Italy specific but) Twice in the last few months I've been able to rent significantly more car/SUV from AVIS at a third to a quarter of the best competing bid from Hertz. The spreads were shocking.

 

Happy Canadian Thanksgiving.

 

Delli

 

2015 Observations from the Old County

 

It has become a bit of a tradition to share some observations after our annual family trip to Italy; highlights from the last three visits are below in case you’re looking for a bit of a timeline.  This year, my initial impression was that little had changed year-over-year but looking a little closer revealed that the Italian’s appear to be adapting and some pre-financial crisis excess in personal consumption have disappeared from smaller cities; the international hubs still look unchanged.

 

Observations:

• Italians appears be enjoying fewer excesses:
  • Years ago I was surprised at the clothing brands and prices in Cassino, a 50k person city between Rome and Naples where a FIAT factory is the largest employer. Those brands (and the teenagers wearing them) have vanished and have been replaced with more affordable labels (most of which I’ve never heard of).  Outlet shopping also appears to be growing in popularity.
  • A friend who owns a local wine store comments that he brings in less of the high end wines from Tuscany and Piedmont because people aren’t buying them the way the used too. The odd highend bottle has also disappeared from the supermarket shelves.
  • Another friend who owns a drywall business (it’s a high end interior finish in Italy) has also noticed a modest slowdown since April but he attributes it to him and his competitors extending very little credit to customers after years of having difficulty collecting receivables.
  • Small luxuries appear to have become more affordable.
• I haven’t noticed price increases on restaurant menus for years.  Grocery prices looked flat, even meat.
• A very nice nearby beach that charged €50/couple just a few years ago now charges €35 and the staff is more welcoming.
• Pay-as-you go plans for iPhones and tablets with 4GB of data were only €12 and €6 for the month; no activation fee but €10 for the sim cards.
• And, if you’re looking for a high-end bicycle frame or group set the retail prices at authorized dealers in Italy are about half of what we pay in North America – the shop keeper was in visible disbelief on the prices I was quoting until he saw them on his iPhone and commented “I guess they charge what people here will pay”; he also suggested we should go into business exporting high-end bikes from Italy to Canada.
• Surprisingly little discussion about Greece.  My impression is that most folks don’t understand the implications or the timeline so it’s difficult to say more than the fact-only sound-bites buried in the middle of news broadcasts. The few times I was asked, rather than guess at an outcome, I suggested if person’s saving were in Italian banks or Italian government bonds they may want to consider how to get some of their money ‘out’ of Italy so they aren’t left standing at ATMs for hours or worrying about haircuts on account balances should Italy find itself in difficult situation.
• Smaller cities still appear cash strapped and using high density photo radar as a source of income. While the density doesn’t appear to be increasing, photo radar is everywhere south of the capital and the brake lights from the locals confirm the systems are still being maintained (rare in Italy). I told a cousin who lives in Rome I received a ticket for going 53kph in a 50 from the city of Fumicino (near Rome’s largest airport) last year, he replied “no one drives to the airport because the tickets cost more than the taxis”.

Looking forward to catching up. Hope you are having an excellent weekend.

 

Delli

 

2014 Observations from the Old County

 

Just back from Italy with some observations to complement the highlights from my last two visits (notes below).  While last year I felt that the pace of the slowdown was slowing, this year it clearly felt like things had at least stabilized. In fact, it felt like the situation in Italy is improving, although the ‘new normal’ is likely more modest than it was before the financial crisis.  

 

Observations:

• Pensioners were much more interested in the stability of their pensions, investments, economics, and currency.  Friends, family, and acquaintances that I normally see when I visit Italy were suddenly asking fairly pointed questions.  This was a significant change from the typically blind faith in pensions and purchasing power that I’ve observed for years.
• While I didn’t make it to Rome this visit we did spend some time in Tuscany (Maremma and Bolgheri mostly) and it was clear that this area was less affected by the financial crises than the areas I normally visit south of the capital. The wineries we visited all spoke about China and Russia being their frontier markets with very fast growth. Restaurants were quite busy (even early in the week in small towns) and apparel retailers hadn’t been forced to trade down to less expensive brands. One surprise was that discretionary items (restaurants, wine, the beach, …) were significantly less expensive in Tuscany than Lazio (the region I normally visit which is just south of Tuscany).  A beach front hotel owner said he hadn’t lowered or raised prices for years but it was okay because his costs hadn’t changed either.
• In Lazio, the municipalities still appear cash strapped with photo radar systems everywhere and often at ridiculous intervals (like 100 meters).  Thankfully density hasn’t increased (could it?) but it’s clear the systems are still active since everyone slows down; often to speeds well below the posted limit. On a personal note, I don’t think I’ll need to cancel a credit card this year!
• Retailers in Cassino were still pushing their trade down brands and the only noticeable trend was hanging men’s shirt by the sleeve rather than the collar.  I expect this presentation style will be short lived since the clothing doesn’t hang well and wrinkles quickly.
• Positively, I spoke to a number of younger people who had taken a plunge and started new business selling ready-made foods (like stuffed olives, artisan cheeses, …) or hosting children’s parties. All were predominantly cash businesses. Friends that own business were still complaining about collecting receivables. 

Forza Azzurri!

 

Delli

 

2013 Observations from the Old County

 

First trip to Italy in two years … we chose not to travel with a two-year old last year.  After this year’s visit I’d highlight the same trends (weak economy and slowing consumer spending) I observed two years ago appear to still be in place. I can’t tell if things have bottomed but at minimum it did feel like the pace of the slowdown was slowing. Still appears like it’s a long road back to ‘normal’.

 

Observations:

• Rome is still a bustling place but the one item that stood out was that every retailer was much more careful when handling cash. In the past, retailers would take a close look at €50 and €100 bills. During this visit retailers were subtly inspecting even much smaller bills.
• The municipalities are clearly strapped for cash and are using photo radar systems to pay their bills. The ~30km stretch of highway I drive from Cervaro to the beach near Gaeta had less than five photo radar units two years ago.  The same road now has more than twenty units in each direction. In some towns I drove through, the speed limit would drop from 70km/h to 50km/h with five systems installed at 100m intervals after the speed limit changed – I’m tempted to cancel the credit card I gave the car rental company!
• The retailers in Cassino are carrying fewer brands and smaller inventories then they were two years ago.  The trade down brands I noticed two years ago appeared to have been traded down again. The big European luxury brands were still out in force in clothing stores for children though.
• Sales seemed to have larger discounts, items were quietly on sale even in luxury retail stores and the beach became a lot less expensive.
• The job market:
  • It was clear that young people aren’t having much success in finding jobs and continue to hide in universities.
  • Friends that own businesses all complained about how hard it was to collecting receivables in both the public and private sector.
  • Young people who wanted jobs are traveling further to work in a country doesn’t really have the infrastructure to support a 100km+ round-trip commute.
  • Some friends were clearly considering leaving their jobs to start cash businesses.

 

 Looking forward to catching up.

 

Delli

 

 

2011 Observations from the Old County

 

Back from my first two-week vacation in five years. Here are some observations from Italy.

 

I look forward to catching up this week.

 

Delli

 

Observations from Italy:

• Everyone believes the US has mucked things up worse than the Europeans and generous government pensions are a birth rite that will continue forever.
• Retailers continue to trade down to more accessible brands and price points. For context, each year I visit my family (and the in-laws) who live in a very small town called Cervaro which is about halfway between Rome in Naples. The largest town nearby is middle class town called Cassino with a population of ~50,000 where a FIAT factory is the most significant employer. Years ago, I’d marvel at that stores in Cassino that were dominated by brands like Prada, Isia, Armani and Canali making it difficult to buy a pair of shoes, shirt or pants for less than €200-500. Last year I noticed that stores had introduced less significant brands like Guess and Ralph Lauren.  This year the changes were startling. The floor space afforded major brands was down more than 50% YoY, inventory levels were light (even for new fall merchandise), additional trade down brands had been introduced, prices seemed significantly lower and sales seemed to include high end brands (Fay, Tod’s, …).
• Consumer pulling back. I noticed there were significantly fewer people in restaurants and in bars. I noted a sign for a bar serving Financial Crises Coffee for €0.50 on the way to the beach (which was still packed). In speaking with a cousin who owns a restaurant in Cervaro he said that his revenue from tourists (mainly French, German and Irish) had declined about 50% from half of revenue in 2007 to less than a quarter this year.  He also commented that his Italian customers were eating out less.  Finally, we also hosted a lunch following our youngest daughter’s baptism where we noticed many of the extras we had to pay for four years ago following our older daughter’s baptism were now included in a lower per person price.
• Finally, Soccer players sign contracts based on their net salaries and are now striking as top clubs don’t want to absorb the impact of new luxury taxes … note to self: negotiate for net compensation – negotiating for gross compensation is for suckers.

All the best.

 

Delli

 

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