The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
MILAN, Italy — It's the day before Versace's Spring 2016 show and chief executive Gian Giacomo Ferraris is brimming with energy. We meet in a non-descript conference room with flipcharts and speakerphones, which feels more business than fashion. Perhaps this is appropriate given the remarkable business turnaround Ferraris has overseen at the Italian fashion house, since he joined as chief executive in 2009.
In its heyday, Versace was one of the hottest fashion brands in the world, creating iconic advertising campaigns with original 1990s supermodels Linda Evangelista, Christy Turlington and Naomi Campbell, and indelible red carpet moments, most notably Elizabeth Hurley's black Versace dress held together by oversized safety pins.
But, following the sudden death of its founder Gianni Versace, who was gunned down in a shocking murder in Miami in 1997, the brand went into a downward spiral of over-licensing and a revolving door of chief executives. While the spirit of Gianni Versace lived on through his sister Donatella, who stepped into his shoes as artistic director, the underlying business needed serious operational and business discipline.
Today, the consolidated Versace brand encompasses four lines: Atelier Versace, a couture line shown in Paris; Versace, which produces ready-to-wear collections for men and women; Versus, a contemporary line designed by Donatella Versace and Anthony Vaccarello; and, Versace Jeans — a licensed casualwear line. In January, the brand took production of its previously licensed textiles business in-house.
It was Ferraris — a former management consultant who joined Versace after stints at Gucci and Jil Sander — who saw the company through a trying period of change and transformation. With its newly found creative momentum, a €210 million cash injection from The Blackstone Group, and an IPO in the offing, Mr Ferraris spoke to BoF about the next steps in the Versace renaissance.
BoF: Ten years ago some people might have described Versace as kind of a basket case. When you arrived in 2009, can you describe what the business was like?
GGF: I entered in July of 2009, and it was a horrible moment because of Europe, Italy, Lehman Brothers, bankruptcy. The net financial position of the company at that time was close to €80 million loss — on a turnover of €270 million. So, the situation was not based on positive thinking and I could really cut the fat. The fat was everything that was not creativity and product development. Not one of the 350 people that we downsized was in creation or product development.
At the end of the day, because Versace is well known everywhere, it is a sleeping giant. We had balance in terms of gender, [and] as a brand, very strong international recognition, strong DNA and a fantastic archive. If in some way [we could] awaken this giant — my God, you have a power.
BoF: So what was the trick to capitalising on this power?
GGF: Versace is a fashion, luxury, lifestyle company. With these three words we agreed on our future strategy.
Fashion means we are all obsessed with attracting younger generations. When a company is not growing well, normally there is no identity. Versace has a clear, distinctive DNA. Ms Donatella has the capacity to be a trendsetter; she really understands the DNA of Versace because she worked with her brother. She has the capacity to anticipate the trends; she has no fear to work with young talents like Christopher Kane and now Anthony Vaccarello.
We gave the total power of creativity to Ms Donatella from the first moment I joined. Every single piece of every collection has to be approved by Ms Donatella's team. I knew [she was] a hard-worker with a highly-talented creative instinct, who know what should be the Versace of the 21st century. We started to [make] new product.
In the meantime, using the bad moment of 2009, we began an effective restructuring. We moved logistics that were internal to an external provider — you can find, in Europe and the USA, people that can do better than you in delivery, transportation, and so on. I externalised all the non-core activity, but kept creation, product development, communication inside.
The other negative situation was that we had too many [licensed] lines — Versus was in license, the silk and the furniture were in a license. So now, everything, apart from Versace Jeans, is produced internally. So, I did a very fast and immediate restructuring and Donatella started to do a new product that was perceived by our customer in a very positive way, and we started to activate the turnover. Already in 2010, we [grew] plus 10 percent, from that moment until now, we are growing with a compound annual growth rate of 17 percent.
BoF: A 17 percent compound annual growth rate is impressive. What was driving the growth?
GGF: The culture in the company [at the time] was mainly focused on ready-to-wear. At the time 85 percent was in ready-to-wear and 15 percent in accessories. So, we brought in accessories experts to support the creativity and there was immediately a big growth in women's and men's. The men's market also had a big influence; it was flying in 2011 and is now 50 percent of our revenues. The percentage between ready-to-wear and accessories in 2014 was 62 percent and 38 percent respectively, and quite well balanced between the genders.
BoF: When you use the words fashion, lifestyle and luxury. I could apply that to any number of fashion companies. What makes Versace different?
GGF: Fashion means [an] obsession to attract [the] young generation. When you are a fashion company, for me, you have to have atelier — because Atelier Versace is a lab. Now [there] is also a huge opportunity [for] Versus. Versus is a lab. Versus gives me an opportunity to [connect] with the early adopters. I have worked with a lot of other designers, but only Ms Donatella, every day wants to be projected in the future. For me, this mentality, this is fashion. Never stop. Always be forward.
Lifestyle: Gianni, when he founded this company in 1980, was the first person to develop perfume, watches, etcetera. We were the first company to have experience in this kind of lifestyle. We have customers who buy thousands of euros in terms of furniture — they live in the Versace style.
Luxury. If you are not made in Italy, for me, you are not luxury.
You know, when you go to the circus and you have a juggler — one is easy, two is already difficult, and three you have to be good. Donatella was born in this circus. Some designers, and I have worked with some excellent designers; they don’t even know what this is.
BoF: Can you give me a sense of your brand architecture?
GGF: The brand architecture is that we have Atelier, which is our luxury lab — people that are working with a special client. Then we have the pret-a-porter, [for] men and women. This is very important, as more than 70 percent of our total turnover comes from the first line.
Versus is a different brand because it has a different DNA, different positioning, a different concept, a different customer and now a different designer — Anthony Vaccarello. Versus is completely different, always rock & roll — the Versace spirit for a younger generation. Our competitors [for this line] are Phillip Lim, Kenzo, Rag & Bone, even Sandro and Maje.
BoF: But many other businesses, that have had this kind of hierarchy before, have decided to collapse it.
GGF: In other brands, the second line becomes cannibalising — and then you are no longer a luxury [brand]. I don't have this problem. We control everything and we make sure that Versace is 70 percent and we are not changing our growth. When we reach our goal of €800 million (about $860 million) — in two to three years — 70 percent will always come from first line. The first line has to give the heat to the other line — it's about control.
BoF: The other thing different about Versus is the underlying business model you are exploring.
GGF: Yes, the business model. Now we are talking philosophy and strategy, which I like. We could risk the Versace Collection, which is the second line — it could be attacked by Zara and H&M and so on, because they are really competitive in price. In any case, even if it's a second line, it is quite expensive and more expensive than Zara. They have a powerful supply chain and three or four months before we deliver our first line cycle they are already on the market at a fifth of the price.
With Versus, however, I anticipate Zara — because when you see the collection it’s already in the shop. You cannot anticipate me. This is a completely different business model. It’s show now, buy now, wear now. We did the presentation in London in Victoria House the other day, and the collection was already ready.
I cannot do this with [mainline] Versace, which is 70 percent of my business. How can I change the business model of Versace? But, with Versus, I started with €6 million two years ago, €20 million last year and now more than €37 million this year. But it’s a different structure and completely different business model.
BoF: Do the buyers tell you what they want or the other way around?
GGF: No, I say, through Ms Donatella, what they will buy. And if they want to buy they will buy, and they are buying. Net-a-porter has already sold 75 percent of this collection — and it only went on sale last week.
BoF: Finally, what have been the steps that you’ve taken to prepare the business for an IPO? How will you know it's the right moment?
GGF: When I presented the restructuring plan, probably even Ms Donatella did not believe it was possible. In any case, I presented the initial plan based on cost reduction more than growth. Then, in 2010 we did more than 10 percent growth. The initial scepticism became more and more a [sense of] confidence.
When you reach €400 million, you say: “but listen, how is your business and who are your competitors?” My competitors have more than €1 billion and they are Ferragamo, Gucci, Armani, Dior, Prada, Miu Miu. [At that time] I had only 80 direct shops and I am a single [independent] player — a small mouse.
To finance growth, we did not want to enter with a strategic partner, so we needed to consider financial partners. We did a selection of possible partners and Blackstone is a pure financial partner that has experience in IPOs and international [business] experience. Blackstone now sits in our monthly meeting because [the] IPO is an indispensible step to maintain the family and maintain control. This is why a company would do an IPO, to make sure it can compete with big giants.
This is a company that has to grow and has the dimension to grow. To think about an IPO we have to be able to plan for the growth in the future and be disciplined because even in the year where there is crisis you have to demonstrate that you can grow — you have to be resilient. It’s changed from a family business to a transparent international business, and this takes a bit of time.
Then, it depends also on the market, whether it’s ok or not. But, we are not obliged — at least not now. However, as soon as possible, we will do it, because we want to win the championship. People are asking, will you do it in Italy? UK? We are an international company, so we can do it anywhere. Maybe in Hong Kong or in London — because London is Europe at the end of the day.
This interview has been edited and condensed.