Italian Retail, Demographics and Immigration: in search of the lost mind

30 Jun 2017
Retail is the most reliable indicator of social changes and behaviours. Retail managers are constantly engaged in the effort to interpret these changes, continuously reviewing their models: digital strategy, formats, varieties, and operating models. One of the most important retail transformation phenomena that is often spoken of in an impulsive or prejudicial way is immigration. Our Managing Director, Fausto Caprini (FC) has spoken to Roberto Lancellotti (RL), Manager and Senior Partner at McKinsey's in Europe and the Middle East until 2017, about it and today he deals with youth unemployment and immigration as a researcher and social entrepreneur. This month, together with Stefano Proverbio, also from McKinsey, he has tabled a theatrical dialogue on immigration in "Sette", the magazine of the Corriere della Sera daily newspaper.  
FC: Italian retailers have faced a significant slowdown in consumption over the past few years - this is not just a business phenomenon: some factors like demography play a key role. Am I wrong?
RL: Given the fertility trends, the Italian population is inexorably destined to decline and grow older in the coming decades. Between 1995 and 2015, the native Italian workforce has decreased by about three million, another four million will be gone in 2030 and even as much as twelve million by 2050: 30 percent of the current workforce. Population aging will impact heavily on consumption: the elderly consumes at least 14% less than young people, and the expected "punishment" is half a point of GDP per year. This trend puts the brakes on any hypothetical recovery and will put pressure on welfare, in terms of healthcare costs (heavily dependent on the average age of the population) and sustainability of pensions (with a ratio of workers and retirees who without immigration would reach 1:1 in 2050, clearly unsustainable).
FC: That's right. Immigration is the topic of your research and I understand that for you a slowdown in the consumption decline may come predominantly from that front.
RL: Immigration is an important resource to counter negative trends and boost growth and welfare. Of course, productivity has been steady since the beginning of the millennium, and participation in the labour force has to be increased, especially for young people and women. Fertility support is important, but for a real turnaround there would have to be numerous families like at the beginning of the eighteenth century: this is impossible. Like it or not, a robust injection of immigrants into our economy is required. The most optimistic scenarios for our welfare are based on immigration balances far above the current levels (between 220 and 300 thousand per year up to 2030, much more than the 133,000 achieved in 2015). Without a significant contribution from immigration, welfare will only be able to return to normal levels with heavy reductions in pensions and health benefits.  

Main countries of origin of immigrants and attendees at the end of 2015

Paesi di origine immigrati
  FC: Basically, you see the demographic issue as a factor of utmost importance for any retailer's growth strategy.
RL: A negative demographic rate hinders growth and sustainability. The aging of the population creates new needs and important shifts in the spending mix. Immigrants will be an ever more important consumer category, and relatively younger and more active at the same time. The strategy pertaining to category and variety must not be overlooked. In addition, as has already happened in other areas, immigrant workers can be an important resource for many of the professional skills needed in the industry.
FC: Of course. But you can not deny that if economic considerations are fundamental, immigration is still a significant source of social tensions.
RL: It is a fact that immigration related issues are making an impact on the population, everywhere in the world. Italians are most worried about the phenomenon, also because of the economic crisis and confusion between immigrants, refugees and terrorists: almost two thirds of our countrymen believe that there is still too much immigration today and the vast majority believe that the impact on the country is negative. Most of these ideas are myths that need to be dismantled.
FC: Let's try, then. Are there really too many immigrants?
RL: No. The percentage of immigrants in Italy is lower than other large European countries: we have about 5 million, less than 10% of the population, also taking naturalized citizens into consideration. And their growth rate has remained low in recent years: Italy is largely a transit country for them. Certainly, it is felt in the big cities, but only in Milan they account for around 20%, an average number compared to other major European cities.
FC: More immigrants, less work for Italians?
RL: No. There is high unemployment in Italy, however it is not dependent on immigration, but rather structural causes exacerbated by the current crisis and the technological evolution. What is really changing is the type of work: midterm employment is contracting in all countries (-10% between 1993 and 2010 in Italy) in favour of specialization and unqualified, unpopular occupations. Competition between immigrants and Italians concerns only a small proportion of low-skilled jobs, less than 15% of the total workforce. Certainly, many companies survive thanks to 20-30% lower pay for immigrants than Italians, but the alternative would be the relocation of production, a sad, well-known outcome. Immigrants then fill gaps where there is no adequate supply of Italians in the job market: in assisting the elderly, for example, with a growing demand of 25% over the next fifteen years. The more the country ages, the more it will be important to adapt itself.

Influence of immigrants on the population (2015)

Influence of immigrants on the population  
FC: It is a widespread belief that immigration does not contribute to growth: we are also seeing the negative impact of remittances in the countries of origin and the use of public services, which are already not good enough for Italians.
RL: This is also not true. More than 500,000 non-individual businesses are run by foreigners, growing by 6% per year, while Italian-based ones are down 1%. They have a positive impact and bring in a revenue of around 3 billion euros per year for public accounts because they are a younger population requiring fewer services than the Italians, who are older on average, and contributes to paying the pensions of Italians. Moreover, many of them pay pension contributions that they will not benefit from. It is true that remittances represent a significant foreign exchange disbursement (about 5 billion), but it is a cost that affects the current account balance, an area that Italy is very active in.
FC: Immigrants "brag" about being more involved in criminal activities. Yes or no?
RL: True, but only for illegal immigrants. It is less than 10% of the overall total, but for certain types of offenses they are involved in between 60% and 90% of the total offenses committed by foreigners. However, despite the rise of immigrants, the number of crimes in all categories has been declining since 2013. In addition, the figure is "weighed" carefully: among the immigrants there are many more young males than Italians, a social group all over the world characterized by higher rates of delinquency; In Italy, "mature" immigrants over the age of 44 are less delinquent than Italians.
FC: So, your thesis is that immigrants are beneficial and that the problems that arise are handled adequately. Concrete tips on what to do?
RL: In the first instance, let's put the numbers on the "table": we must understand the phenomenon in its totality and know how to intervene. Then the inputs and the qualitative mix should be aligned to the needs of the country and we should move towards a constructive integration policy. We need to get out of the "emergency" management mode in order to form solid decision-making and recognition processes quickly and, for those who have the right to it, provide language-based integration paths, education and work. It is the path that has been chosen by Germany since 2015 when it was faced with an inflow eight times higher than ours.
FC: Today, retailers are developing proposals in line with your suggestions, that is, a growing integration of migration flows: just look at the wider range of services offered ever more frequently. Of course, it is worth taking the issue into consideration in the strategic planning of every retail company.