LOS ANGELES, United States — Bottega Veneta’s rise from near bankruptcy to mega-brand is something of a fashion fairytale. For more than a decade, the business achieved double-digit annual growth rates, making it a star performer in the luxury sector, even through the dark days following the global financial crisis of 2008, when Bottega Veneta’s “stealth luxury” ethos appealed to affluent consumers disenchanted with flashy logos and statement pieces.
Founded in 1966, the Italian luxury goods house was acquired in 2001 by Gucci Group (now part of the French conglomerate Kering, previously known as PPR), back when Tom Ford and Domenico De Sole were just starting to build a new luxury group. Soon after, Patrizio di Marco and Tomas Maier were appointed chief executive and creative director, respectively. Maier’s first collections focused on shoes and bags, notably, the Cabat tote, which, with no logos, no hardware and no adornments, became one of the brand’s best-selling products in its signature intrecciato weave, seen as a discreet sign of luxury and sophistication.
By 2005, the once-troubled brand had achieved profitability with €160 million in annual revenues, after a retail roll-out that began in London, Paris and Milan and continued in cities around the world, especially in Asia. In 2013, Bottega Veneta hit a critical milestone: €1 billion in annual revenue, making it the second-largest luxury brand in the Kering portfolio after Gucci. Over the years, Bottega Veneta has consistently earned some of the highest operating profit margins in the luxury goods industry, around 30 percent.
But like all good fairytales, Bottega Veneta’s story has a number of twists and turns. In 2015, growth slowed to 3.2 percent on constant exchange basis, for a total of €1.286 billion in revenues. Like many luxury businesses, Bottega Veneta had become overly dependent on the traveling luxury consumer, and when tourism and spending dropped in the second half of the year, the business was hit hard. In the first quarter of 2016, Bottega Veneta reported €268 million in turnover, down 8.3 percent from the year prior on a comparable basis. What’s more, while Bottega Veneta’s core leather goods category remains healthy, it is no longer able to drive the growth necessary to continue on the brand’s rapid trajectory. In 2015, leather goods drove 88 percent of revenues at Bottega Veneta, while ready-to-wear accounted for only 4 percent of sales.
Today, Bottega Veneta is led by Carlo Beretta, who joined the business as chief executive in 2015, stepping into the formidable shoes of Marco Bizzarri (now the chief executive of Gucci). Beretta’s key challenge: finding new avenues for growth for one of Kering's star brands, something the executive has coined ‘“2BV,” or “€2 Billion Bottega Veneta.”
In an exclusive conversation which coincided with the opening of Bottega Veneta’s flagship maison in on Rodeo Drive in Beverly Hills, California earlier this month, Carlo Beretta told BoF’s Imran Amed about his plans to reinvigorate the brand and drive €2 billion in annual revenue.
IA: In a way, the story of Bottega Veneta is like a fairy tale. There are few businesses that achieve this level of scale while still retaining a sense of exclusivity. How did Bottega achieve it?
CB: You’re right. When Kering acquired Bottega Veneta in 2001, the company was almost bankrupt. The business was doing €35 million in turnover, but with a financial situation that was very bad. At the head [of Kering, then Gucci Group] at that time, there was Domenico De Sole and Tom Ford, and their first good [decision] was to hire Tomas Maier to take responsibility at the brand, to begin this incredible fairytale, as you put it.
Bottega Veneta was founded by Renzo Zengiaro and Michele Taddei in 1966, in an area of Italy where there was not such a long tradition in craftsmanship for leather goods, but where there was a strong tradition for craftsmanship of leather. Their idea was to create an accessories brand in this area where there was such an incredible manual attention to building product.
When Tomas was appointed creative director, he really went back to the origins of the brand to understand its values, and he [defined] four pillars for the brand: outstanding craftsmanship, innovative design, contemporary functionality and the highest quality materials. The great success of Bottega Veneta has been always based on the coherence of these four pillars. Every single decision that has been taken in these fifteen years — because this year we will celebrate the 15th anniversary of Bottega Veneta within the Kering Group — has been based on these four pillars. And this is also what is guiding us for our future.
Patrizio di Marco first, and then Marco Bizzarri after, drove the company following this idea, mainly by focusing their attention on this incredible growth in leather goods with the idea of the intrecciato, which in reality is the most visible part of the collection. It’s only a part of the collection, but it’s the most famous.
IA: I’m also curious about the actual growth drivers. Did it come from opening stores, expanding products? How did the business grow so quickly?
CB: At the beginning, Bottega Veneta was a sort of atelier and the key success story has been to maintain, even in this fast-growing story, the atelier approach. We are not talking about mass production, even if we are producing a huge number of products. The approach we have with our production today is similar to the original atelier. This has been one of the key success stories: to maintain the original craftsmanship.
Then, growth came by focusing on retail. The US was actually the first foreign market Bottega Veneta entered in 1972, but the brand really began to spread all over the world during the Kering era. Within five years, Japan became the first market for the brand, then China, the Middle East, the US, Europe, and today we have reached 246 stores [at the end of the first quarter of 2016]. The brand has been extremely successful in Asia, and is extremely appealing for Asian customers — that was one of the main pillars of its growth.
IA: The business has also had extremely healthy margins. Where did that come from?
CB: We don’t have cathedrals. Tomas has always wanted to enforce the intimacy of the Bottega Veneta brand versus the gigantic version of spaces that we see in the luxury market. Bottega Veneta was a small artisan atelier based on leather goods. When Bottega Veneta started to open stores all over the world, mainly focused on accessories, big spaces were not needed. We have quite a large number of stores around the world, but with dimensions that, on average, are quite small because most of the stores are selling just leather goods. This limits the cost of the retail network, which, as you know, is one of the biggest [drivers] of the profitability of the brand.
IA: That brings me to today. A business like Bottega Veneta, once it reaches a certain scale, becomes more difficult to grow. The most recent quarterly results actually showed revenues going down — for the first time. The broader picture, of course, still looks quite healthy, but how do you find new avenues for growth without diluting this special brand?
CB: You know, growth first started to slow in the last quarter of 2015, and then it started to be more strongly affected during the first quarter of 2016. The dramatic decrease in tourists — not only in Europe, where we know the situation with the terrorism, but also in other countries — is dramatically impacting the results of the brand. However, we have already the first indicator that we are going in the right direction because — the first results of the new strategy and the store here in LA are giving us very positive signs.
We are now growing strongly with local customers, mainly in Europe. This is a great achievement for us because it's happening at a moment when things are difficult in Europe. We are also getting back to the focus on the US, which is still is the biggest luxury market in the world. Our portion [of sales] in the US is still limited, so there is huge room for improvement.
The challenge is to balance the short term results with a long term vision, and this is why we know we have to carefully manage the evolution of our collection, the expansion of our product categories, and the evolution of our retail network. We need to add new product, we need to add new categories, but that doesn’t mean we want to expand the number of stores. But for sure, we need to expand the square metres and the perimeter of our stores. And again, Rodeo Drive is a clear example of what we have to do.
IA: Tell me about how this new store in LA exemplifies your new strategy. As you have said, many of your stores were smaller stores and now you’re trying to expand into new categories which require more space. What does this new store tell us about your strategy?
CB: It is really the first store that clearly expresses our evolution as a brand. First, it’s not the typical store, built with the same concept as everywhere in the world. Tomas’ vision is to create stores in important cities and fashion capitals around the world that respect the local culture, that embrace the local habits with a special decor. This is why the first maison in Milan has been designed with a very Milanese approach and this maison on Rodeo Drive is very Californian in terms of design and architecture.
This also means adapting the brand to each location through the merchandising mix of the store. When I am talking about expanding the dimension of the store, doesn’t mean that we want to bring all the product categories to every store, but we will focus our attention on the product categories that present a clear business opportunity in each location. The first evolution for us is shoes. In the LA store, there is a shoe department that we don’t have anywhere in the world. Today, shoes are the new bags in the fashion business. If a few years ago the customer was buying two or three bags every year, today they buy four or five or six pairs of shoes. This is a natural evolution for a brand that has, at its core, a business in leather accessories.
Ready-to-wear is also fundamental in order to create a relationship with a local customer, especially in the US, which is a market driven ready-to-wear, rather than leather accessories. As one of the pillars of our strategy is to focus our attention on recruiting new local customers, we need to offer our American customers a sensational RTW collection. We are applying this kind of strategy in each city around the world.
IA: Tell me more about the US customer and the connection to ready-to-wear.
CB: I think it is a matter of habit. Historically, the first markets that approached luxury were European and American, and the first approach in fashion has been with ready-to-wear. If you think back to the 1980s, for Americans and Europeans, leather accessories were not what defined a fashion brand — it was ready-to-wear. In reality, the big accessories boom arrived with Asian customers, who were the first customer to approach fashion through leather accessories. Then this started to spread around the world. But the main categories in the US market, even today, are ready-to-wear and shoes.
IA: Ready-to-wear or shoes is a much more difficult business to run than a leather accessories business. Managing sizes and SKUs is more complicated in these categories. What do you have to do operationally to adapt to this new style of business?
CB: What you are mentioning now is one of the reasons Bottega Veneta has been so successful with the leather accessories and why, until today, it has not been able to focus attention on the other product categories.
The company has been always organised around leather accessories. If you trace our supply chain system, it’s based on leather accessories. When I joined Bottega Veneta with the vision and objective to bring the brand to the next level, one of the main points that I had to face was how to introduce into the culture the idea of the other product categories.
If you want to do a serious business in shoes, you need to be an expert in shoes, you need to have production directors that are trained in producing shoes. It’s the same for ready-to-wear. So the first thing has been to really give dignity to the product category by creating a new business unit, starting from the design team all the way to the production. There are now specific teams devoted to each product category.
This had already started with Marco Bizzarri, who put in place the first shoes unit — not in Vicenza but in Padova, a village nearby — to create the culture that it is a business unit that needs to work by itself, with its own approach for managing the collection, the production and deliveries, which are arriving now in the stores, because the first big season for shoes is Winter 2016. We also need to train the sales staff, who have been fantastic in selling leather goods but were not trained to sell shoes. We need to create the right space and the right environment and then start working in a way that is specifically dedicated to shoes.
The next evolution will be in ready-to-wear. We are putting into place the new atelier for ready-to-wear with exactly the same approach that as we had with shoes — creating a business unit for ready-to-wear with a devoted team and strong expertise. This is a creative evolution for the brand, from a leather goods driven business to a multi-category lifestyle approach. In reality, this was already consistent with Tomas Maier’s approach in designing the collection, but that had never been brought to the final customer — because at the end, the final customer has only been seeing leather goods.
IA: Given the focus on new categories and expanding stores rather than opening new ones, how do you maintain the profitability levels and growth expectations of the market?
CB: The first pillar [for growth] is, for sure, expanding into new categories — but not only this. The strong focus on the local customer is the second pillar. Today, we have to consider more the weight on the nationality than the weight on the region. That is the key point, because Chinese customers can shop in China, as is happening today, or in Europe, as was happening last year. The key point is to focus on the Chinese customer, to focus on the Japanese customer, to focus on the Americans, wherever they are shopping. This is an extremely a big change.
That brings me to the second point, which is the attention to the customer. What we really need to do today is build a strong relationship with our local customer, building a one-to-one relationship because that’s what really makes a difference. Even when they are shopping online, they need a one-to-one approach, they need a sort of personalisation in the approach.
This year, we started a project called “Remote Customer Client Service,” where for 24 hours a day we can [respond to] customer requests all over the world, in all languages, in whatever way they are in contact with Bottega Veneta — it could be by telephone, or online, e-mail, everything. We answer all their requests directly, immediately, on time. This makes a real difference for the customer.
We are not in a rush. We want to build a long-lasting business, we don’t want to build a fire that then could expire in a few years. The key point is that Bottega Veneta aspires to be the first Italian brand in the absolute luxury segment, where today there are only French brands.
This interview has been edited and condensed.
Disclosure: Imran Amed travelled to Los Angeles as a guest of Bottega Veneta.