The Business of Fashion » Emerging Designers

CEO Talk | Paolo Fontanelli, Chief Executive Officer, Furla

Imran Amed, Editor — Mon, 04 May 2009 00:15:49 +0000

Paolo Fontanelli, CEO of Furla

LONDON, United Kingdom — This Great Recession has proven difficult for many fashion companies positioned ‘in the middle.’ Between the ultra-luxe brands like Hermès and Louis Vuitton (whose performance has continued to impress, despite the downturn) and the mass-market miracles like American Apparel and Uniqlo (who are also outperforming the market), are aspirational luxury brands like Coach, who recently reported that their profits have dropped 29.3 percent.

It seems the biggest problem with brands like these are that they don’t pass the value test at the cash register, leading Coach’s CEO, Lew Frankfort, to admit that “the new normal is hard to adjust to” and that he doesn’t believe that “conditions will ever return to what they were before the recession.” Is this the death knell for brands in the middle?

Not according to Paolo Fontanelli, CEO of Furla, the accessibly-priced Italian accessories brand that has recently gone on a retail binge in the UK, launched a menswear collection, and created a special initiative to leverage the talent of emerging shoe designers. I met with Paolo on his recent trip to London to find out why he remains so optimistic. The added bonus? Paolo brought along Michele Furlanetto, a company shareholder and member of the founding family, to make this a CEO Talk, times two.

BoF: It seems to me that Furla remains largely unknown outside of Italy, despite its long history and presence there. How would you describe the Furla brand to people who are learning about it for the first time?

The story of Furla is first and foremost, the story of the Furlanetto family. It is the story of a family wh0, for over 80 years, have shown a relentless passion for providing extraordinary products at ordinary prices.

It’s true that some consumers may still not be familiar with our brand, but it must be said that our second largest market is Japan, a market which we entered 15 years ago. Our presence there has grown little by little and today we have more than 60 retail locations in Japan, including five freestanding stores, all of which are directly operated by us.

In all, we have over 80 directly-operated stores and more than 150 franchise stores ar0und the world, so Furla really is a global business, if not quite yet a global brand. We aim to increase awareness of Furla and our high-quality products through the visibility of our stores.

BoF: Many other accessible luxury brands are suffering, reporting dismal results and exposing the prospects for an uncertain future. Do you still believe in the concept of accessible luxury in this economic tornado?

The fact that Gucci and Louis Vuitton have continued to lower their entry price points proves that there continues to be a market in the middle. We have always been in that price range, from about £150-500 (about $225-750). Our product is 100 percent Made in Italy unlike many other brands that are in the same price range. We offer the best price for value in the market.

Our business continues to perform extremely well, with €157m in revenues in 2008, reflecting a growth rate of 4.5 percent over the previous year. Our EBITDA margin (a measure of operating profit) is a healthy 15 percent. The company has no debt.

BoF: You mentioned retail expansion. Where are you focusing your attention and how will you continue to grow the Furla business?

We continue to expand our retail presence and apart from our newly-launched stores in the UK, including a flagship store on London’s Regent street and a store in the Westfield Mall, we are opening more stores in China. Our stores in Shanghai and Beijing are directly-owned by the company, and we have local franchise partners for secondary Chinese cities, which are increasingly important. We have also recently launched a line of men’s bags and women’s shoes.

BoF: Speaking of shoes, I read about the Furla Talent Hub initiative. How does this fit into your strategy?

Max Kibardin for Furla

Furla has always been a supporter of creative talent, and in fact, Italy’s premier award for Contemporary Art, Premio Furla Per L’Arte, is a long-standing company initiative. We thought, why don’t we do something similar for young designers. And while many brands talk about supporting young talent, we wanted to put our money where our mouth is. The project was born in 2007, in collaboration with Franca Sozzani of Vogue Italy and their Who’s On Next competition

The Furla Talent Hub supports promising young shoe designers from around the world, enabling them to present their creative vision through products that are produced under the Furla brand name, in the spirit of Furla DNA. Most recently, we collaborated with Alice and Lisa Ferrari, Courtney Crawford, Nicole Brundage, and Max Kibardin in this way. We were so impressed with Max that we asked him to design our first line of Furla shoes for Autumn/Winter 2008-09, which are available in store now. And of course, Max continues to produce his own shoe line under his own name.

BoF: And finally, what is it like working as a CEO in a family business? Does it make it more complicated to make rapid business decisions?

Throughout my career in the fashion industry I have always worked with founders and family members, including Armani and Ferragamo. To make this work effectively, it is important that I stay in constant communication with the shareholders. The fact that we are privately-owned means we can take a long-term view towards our business strategy and our investments. This is very powerful, especially in times like the ones we find ourselves in today.

Imran Amed is Editor of The Business of Fashion.

CEO Talk is an ongoing series of discussions with fashion entrepreneurs and business leaders as they combat the economic downturn. Previous interviews are listed below:

Friday Column | Business vs. Fashion?

Lauren Goldstein Crowe — Fri, 06 Feb 2009 00:01:14 +0000

LONDON, United Kingdom — I just finished reading the interview with Jane Rapley, the Head of College at Central Saint Martins College of Art and Design in this month’s Luxury Briefing, and I couldn’t help but think that for a school that prides itself on being progressive, she sounded behind-the-times when it comes to the way the industry works and what her students need to thrive in it.

Take for instance her answer to the question: Is it difficult to teach ‘creatives’ to be business-focused? She says:

“Yes, it’s terribly difficult! And we don’t always try…Product design is very much about the market because the way it works is that you identify a gap, research it, answer a very specific problem and quantify it. It is a more analytical process than being a textile designer. However, we don’t necessarily expect a great engineer or scientist to be a great business person or a musician to know how to run an orchestra, so does a designer need to know about business?”

Um, YES. This is a business. Just because they’re not plugging numbers into a spreadsheet doesn’t mean scientists don’t know the basics of their business. In a previous life when I was working with scientists involved in packaging, I was surprised to find they all knew that without the support of the marketing division, they had no hope of getting their ideas off the drawing board. They were all too aware of costs per unit, of minimum number of sales required, all those business-y things.

Rapley goes on to say:

“Our responsibility is to make them [the design students] understand the areas where they don’t have expertise and surround themselves with people who do. McQueen is a very good example. By chance, or by design, he surrounded himself with some very interesting people who were prepared to buy into his vision and allow him to make it happen. We’re not about trying to develop all of those skills in one person.”

First of all, I think this does a great disservice to McQueen, who has had a series of strong managers by his side. Partnerships like that do not just happen. In order to find a good manager, designers have to stop thinking of managers as people who need to buy into their vision. Instead, they have to respect the job they do and listen to their advice.

Talented managers get a thrill out of building businesses in the same way designers get a thrill out of creating a new silhouette. A potent partnership must be founded on mutual respect. Hussein Chalayan is practically glowing these days, so happy is he to have met a manager with whom he gets along (Puma’s Jochen Zeitz). To say managers are there to back someone else’s vision, goes a long way towards explaining why there’s such a shortage of talented managers willing to work in fashion.

Look at all the trouble this attitude caused Christian Lacroix when he expected the managers at LVMH to bend to his will. They got so fed up with his lack of understanding, his refusal to compromise for the sake of profits, that they sold his brand. The days of designers being able to create whatever their hearts desire and have a hope of staying in business are long gone — if they ever existed.

I think what makes me so upset about this interview, is that I am very frequently asked for help by designers who all want the same things — money and someone to help them “sort out” the business side as if it were an adjunct to their activities. Let’s make this clear: If you’re in fashion, you’re in business. If you want to create things for pure aesthetic joy, then you should be on an art course. If more students at CSM were being taught the basics of their business at college it would give them a huge lift in the future. Even if they never intend to strike out on their own, how much more persuasive could they be in fighting for their ideas if they understood the implications in production costs, margins, overheads, etcetera? It appears that the primary way CSM deals with this is by sending students to do internships and hope they pick it up through osmosis. Jane said:

“We need to provide the students with an awareness of the range of skills that they have to have if they want to go into somebody else’s business and where their creativity fits alongside the accountant, the production engineer, the marketing people, the retail people. Some pick that up post-graduation and have the drive to become very business minded. And there’s nothing like going out into the world and finding that you have nothing to eat at the end of the week to encourage that!”

Internships can certainly be helpful, but it seems these students are being sent out into the world not fully prepared for the reality of business. As a journalism student, I was taught the basics of media law, production, and even ad sales. Of course, magazines and newspapers have other people to do those things on a day-to-day basis, but as the people creating the content that is at the center of the enterprise, it is essential to understand what happens to ones work after it leaves your hands. The students at Central Saint Martins may not like their production class any more than I liked my media law one, but I bet it would be just as helpful to them down the road

She also says:

“British industry doesn’t feel that it gets what it wants out of our education system. For the past 35 years this has been an ongoing battle: industry says it doesn’t get what it wants and fashion educators say that industry doesn’t understand what it is setting out to do. Industry complains that the graduates do not have enough basic skills in some areas and not enough technical focus or production skills.“

Is it really so far-flung an idea that students can be highly creative, technically competent and have experience in other areas of their business? Yes, CSM graduates are highly sought after and get great jobs abroad. But how many English designers have I met in Milan and Paris who are dying to come back home? Too many.

Even if they don’t relish the idea, I think the students know they’re missing something. Why else are websites like this one so popular? Students at Saint Martins should be made to work out the cost of the garment, to factor in the shipping, the taxes, the mark-ups and every other part of the process because they are leaving CSM and entering a fiercely competitive business world — a world they’ll need to understand in order to thrive, and survive.

Lauren Goldstein Crowe is co-author of a book on Jimmy Choo to be published by Bloomsbury later this year

CEO Talk | Jeffrey Kapelman, Chief Executive Officer, Hilldun Corporation

Imran Amed, Editor — Wed, 04 Feb 2009 23:59:17 +0000

NEW YORK, United States — Even in the best of times, it’s tough for fashion start-ups to access the capital they need to sustain their growth and expansion. But today, it’s downright brutal.

The usual private investment sources like angel investors and early-stage venture capital, which were limited to begin with, have dried up. What’s more, fashion boutiques can be notoriously slow at paying their invoices and sometimes, they don’t pay at all, making cash flow management tricky and unpredictable.

In a sinking economy, this kind of behaviour will only get worse, as fashion boutiques hoard cash and in some cases, go out of business. So while we have seen independent fashion businesses flourish in recent years, today they have an even higher risk of failure due to their small scale and limited access to capital.

This is where factoring companies like Hilldun Corporation can help. I caught up with CEO Jeffrey Kapelman to get his take on the economy and what independent designers can do to survive the downturn.

BoF: First things first. What exactly is factoring and why might emerging designers be in need of such services?

Factoring is actually one of my least favourite words, because it lacks a definition.

Boiled down to its essence, though, factoring (i) is the approval (and guarantee) by the factor of the credit of a designer’s customer (typically a store) and (ii) may include an advance by the factor against the future payment of the invoice by the store. Factors act as a designer’s collection department, as well as helping their cash flow by loaning funds, where appropriate.

This can be of enormous help to emerging (and established) designers because the factor typically has the knowledge of the creditworthiness of stores and the strength to collect on behalf of the designer.

In addition, factors also act a source of financing. For appropriate clients, Hilldun can advance against invoices after (and in some cases, before) shipment, thereby saving the designer from having to wait for payment before having the funds to produce subsequent orders.

BoF: So, how do you decide which brands and designers to work with? I can’t imagine that every brand is right for Hilldun or that Hilldun is right for every brand.

We evaluate our prospective clients by quality of product and production, experience, quality of customer-base and size of business. Since the charges for factoring are relatively small, we seek clients with the capacity to get and produce orders and the potential to grow. We pride ourselves on spending the time to give our clients the benefit of our experience.

Also very important to the fit between a factor and a designer is the area of the market that each specialises in. For example, though we are active in all areas of the market, Hilldun typically works with high-end designers. As a result, we work with many designers who are selling to the same store base. Having the top designers who are sought after by these stores is important to us (and our clients) because this gives us enormous strength in collecting from these stores.

A store can live without any one designer, but in Hilldun’s case, representing 30 or 40 designers selling to the same stores means that these stores cannot afford to jeopardise their source of product, and have to pay Hilldun on time, or else risk losing their supply from all Hilldun clients.

Simply said, in a world of sometimes limited resources, Hilldun gets paid first.

BoF: Even if a brand does not avail itself of factoring services, what should one do to evaluate the credit worthiness of a shop, boutique or department store?

Evaluating the credit of a store without the benefit of a factor can be difficult. Designers can certainly ask the store for references from other designers, as well as trade and bank references and financial statements.
But, the difficult part is that financial statements are frequently dated, references are those chosen by the store and, in fact, credit is a moving (and sometimes a very fast moving) target. Having a factor in your area of the market is really the best way to know what’s doing from a credit perspective.

BoF: How is Hilldun as a business responding to the economic crisis?

Today’s environment makes evaluating credit even more difficult, and stores are susceptible to sudden and significant changes in credit which really should be monitored almost daily.

Hilldun’s concerns in this environment are, of course, the credit quality of a designer’s customers and the ability of the designer to get and produce sufficient orders to sustain its business, as well as its access to sufficient capital to produce its orders.

BoF: Finally, as the economic environment continues to deteriorate, what other advice would you offer to emerging fashion businesses in order to survive and thrive in the downturn?

The best advice that we can give to designers is to keep your overhead low, stay flexible, scale your overhead promptly to changes in your business including volume, only produce to order (don’t speculate on orders – its great to tell a customer you’re sold out!), and don’t sell on consignment or special arrangements (mark-downs, guaranteed profits, etc.). Your job is make a great product and ship it on time, the stores’ job is to sell it.

We are all in a difficult environment now, but as I often remind our clients, consumers can’t live without clothing forever. Demand is being built even as we struggle and change will come again in the future. Your job is to get there.

CEO Talk is an ongoing series of discussions with fashion entrepreneurs and business leaders as they combat the economic downturn. Previous interviews are listed below: