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A Wake-Up Call for Ferragamo

Salvatore Ferragamo was once the world’s buzziest luxury shoemaker, but the storied ‘sleeping beauty’ is having trouble coming back to life.
Salvatore Ferragamo Autumn/Winter 2018 | Source: Salvatore Ferragamo
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Since launching a plan last year to boost its relevance with millennials and reverse falling sales and profitability, Salvatore Ferragamo has issued a profit warning and lost its chief executive, Eraldo Poletto, who exited the Italian luxury shoemaker in March, after less than two years in the role, fuelling speculation of a potential sale.

Chairman Ferruccio Ferragamo, the eldest son of Mr. Salvatore Ferragamo, took temporary charge of the brand, saying that while the company would take the time it needed to find the right replacement for Poletto, he intended to hold the reins for as short a period as possible, ruling out a sale. “The sale of the company is out of the question,” said Ferruccio Ferragamo at the time.

Now, the Florence-based, family-owned firm has appointed ex-Gucci executive Micaela Le Divelec as general manager and postponed the selection of a new CEO. At the group's annual shareholders meeting on Friday, Ferruccio Ferragamo was granted full powers to manage the company. His son James was named vice chairman and one of three “strategic managers,” along with Le Divelec and chief finance officer Ugo Giorcelli.

Earlier this week, market reports suggested the brand was establishing an executive management committee to lead its revamp, citing sources close to the company, who said it could take up to 18 months to find a new chief executive.

On Friday, Ferruccio Ferragamo said the firm was pressing ahead with the turnaround plans it presented in February of last year "without changes or twists." But not everyone is as sanguine.

Salvatore Ferragamo was once the world’s buzziest luxury shoemaker, associated with old Hollywood stars like Audrey Hepburn. Its founder was a true innovator, birthing major footwear trends like the wedge and the platform. But after his death in 1960, the brand grew dusty and conservative. Ferragamo enjoyed a resurgence in the 1980s but again lost its cachet with consumers and slipped into a long slumber which it has struggled to shake off.

The company almost doubled sales in the six years to 2015 while net profit rose threefold. But recent performance has been worrying. In February 2017, the company pledged to grow revenue at twice market rate from 2017 and 2020, backed by a drive to update its product offering and increase store performance. But in fiscal 2017, the company generated revenue of €1.39 billion, up only 1.4 percent over 2016, while net profit sunk 42.4 percent year-on-year.

“While the original Salvatore Ferragamo was glamourous and associated with Hollywood stars, the Ferragamo that Poletto found was falling short on product innovation and drifting into the mainstream with communications,” explained Luca Solca, head of luxury at Exane BNP Paribas, in a March 2018 report.

It’s unfortunate, noted Solca, that Poletto’s exit occurred just as Ferragamo was starting to show a degree of promise on the creative side of the business with a co-ed runway show during the last Milan fashion week — staged by women's creative director Paul Andrew and men’s design director Guillaume Meilland — that was far better received than the brand's previous output, attracting kudos for its coherence, product focus and sense of colour.

But the bar was set low. "The fact that disaster did not strike is precisely what made the Ferragamo show so convincing. It was a coherent offering, clearly focused on the product, which aimed at repositioning Ferragamo in the understated luxury area after a few incongruous seasons," wrote Italian critic Angelo Flaccavento for BoF.

“Mr. Poletto had a tough task. It may only take a kiss in fairy tales, but in the real world, it takes time to revive a ‘sleeping beauty’ and bring a dusty brand like Salvatore Ferragamo back to life,” said Solca. “Eraldo has fallen into the trap of promising too much too soon.”

Ferragamo clearly still has a long way to go to bring back the buzz of its storied past. The brand is widely perceived as serious and boring. And despite the positive reactions to its latest show, some question whether Ferragamo has a winning formula on the creative side. While Paul Andrew is rightly credited with having brought a fresh perspective to the brand, he is ultimately a footwear designer, with little experience in designing women’s ready-to-wear collections.

What’s more, Ferragamo has long struggled to do what Italian rivals Gucci and Valentino have done so successfully: translate the energy of the runway into a strong merchandising experience. And while there’s certainly more the brand could do to boost its communications strategy, like resurrecting its movie-star past by connecting with young Hollywood, for example, it’s difficult to make this matter — especially given Ferragamo’s small media muscle compared to competitors — if the brand isn’t creating product that people actually want to buy.

Solca prescribes an “innovation stratagem” to drive product innovation, overcome brand inertia and boost desirability with young luxury consumers who increasingly drive the market and whose thirst for newness and novelty is growing. This could involve capsule “collection snippets” endorsed by modern-day movie stars from China and South Korea, as well as Europe and the US, he explained.

Some also point to weakness on the business side, saying Ferragamo has long lacked modern management and has a company culture that suffers from deep conservatism and rigidity in a fast-moving market that demands daring, speed and flexibility.

It was not entirely reassuring that Ferruccio Ferragamo said on Friday that he hoped the brand's new chief executive would come from within the company, though thankfully he did exclude the possibility that he or she would be a member of the Ferragamo family.

Indeed, the brand’s conservatism is also a product of the family which owns 70 percent of the company. “One can understand that, when one thinks they have all their eggs in one basket — if something goes wrong they are in a difficult position,” explained Solca.

But comprehensible or not, the Ferragamo family may be holding back much needed progress. “The fact that demand today is driven by young Chinese consumers keen on newness is putting the conservative approach to a handicap,” said Solca.

THE NEWS IN BRIEF

BUSINESS AND THE ECONOMY

Gucci 'Dionysus' bag | Source: Shutterstock

Gucci and Guess end nine-year trademark dispute. After a long legal battle over the Guess logo and diamond pattern, which Gucci alleges are direct copies of its trademark, the two companies said they had reached an agreement "which will result in the conclusion of all pending IP litigations and trademark office matters worldwide." The terms of the agreement were not disclosed. The proceedings put an end to litigations in all countries where they were pending: Italy, France, Australia and China.

LVMH faces $10 million suit by makeup artist. Sammy Mourabit is suing LVMH for 'fraudulent inducement to contract' after the French group allegedly cancelled an agreement for him to join cosmetics brand Make Up For Ever as global artistic director. The complaint was filed late on April 9 in the US district court for the southern district of New York. LVMH declined repeated requests for comment.

Bally profits rise on US and Japanese growth. Sales at the privately-held company have grown over the past two years and the company booked its biggest core profit in ten years in 2017, according to chief executive Frederic de Narp. Buoyed by collaborations with rappers and street artists, Bally's fastest-growing market is the US, where sales have grown by more than 20 percent this year, outpacing a 14 percent rise in 2017.

H&M announces Moschino collaboration. The Italian fashion house is the latest to work with the Swedish high street chain, which has previously created ranges with Balmain and Stella McCartney, among others. Creative director Jeremy Scott announced the news at Coachella, via Instagram Live with model Gigi Hadid. The collection of womenswear and menswear will be available from November 8.

PEOPLE

Natalie Massenet and Nick Brown | Source: BFA

Net-a-Porter founder's next act is a venture capital firm. After more than two-and-a-half years away, Natalie Massenet is returning to e-commerce, teaming up with Nick Brown to form VC firm Imaginary Ventures. The new firm said it has raised $75 million for its first fund, money that the two expect to pour into direct-to-consumer start-ups like Glossier, which sells beauty product to millennials, and Keeps, a hair-loss prevention company.

DVF appoints CEO. Sandra Campos has joined DVF as chief executive, filling a role left vacant since Paolo Riva departed in November 2016. She most recently served as co-president of women's apparel at Global Brands Group, overseeing brands including Juicy Couture, BCBG and Hervé Leger. At Global Brands Group, Campos worked closely with Nathan Jenden, who recently rejoined DVF as chief design officer and vice president, creative.

Nike's vice president of footwear quits. Greg Thompson has left the company, the latest in a string of executive departures at the sportswear maker. Nike's vice president of diversity and inclusion, Antoine Andrews, left earlier this week. Trevor Edwards, president of Nike's namesake brand, resigned last month, followed by the exit of another vice president Jayme Martin. Edwards is continuing as an adviser to Nike CEO until he retires in August.

Lululemon names chief financial officer as CEO search continues. Patrick Guido will take on the role at the end of April, while the company continues to look for a chief executive. The search for a new leader follows the abrupt departure of former CEO Laurent Potdevin, who left the yogawear maker in February under a cloud of misconduct. For now, chairman Glenn Murphy is running the search, while Haselden and two other executives maintain day-to-day operations.

Stuart Weitzman names CEO. Tapestry has named Eraldo Poletto as chief executive and brand president of Stuart Weitzman, succeeding Wendy Kahn. Poletto joins the company from Salvatore Ferragamo, where he has served as chief executive since 2010.

MEDIA & TECHNOLOGY

Tencent-backed fashion app seeks IPO. Meilishuo is in talks with several investment banks about a US initial public offering that could value the start-up at about $4 billion. The online retailer, which merged with rival Mogujie in 2016, was said to have been valued at $3 billion at the time of that deal. It is one of the more popular fashion and cosmetics retailers online in China, a niche it's clung to despite the dominance of Alibaba and JD.com.

Amazon has more than 100 million Prime subscribers. It marks the first time Amazon has revealed subscriber numbers behind the programme, which started 13 years ago and gives customers free, unlimited two-day shipping and other perks. The e-commerce giant has been losing money with international expansion, but experts say that investors will be patient if the company is gaining Prime subscribers.

Robots will replace humans in retail, says JD.com's Richard Liu. Speaking at the World Retail Congress, the chief executive said he thinks it will take another decade for technology and shoppers to be ready for fully automated stores. The Chinese e-commerce giant has been expanding heavily into luxury goods, apparel and offline retail over the past year in an effort to tap new consumers, echoing similar efforts by rival Alibaba Group.

Yoox Net-a-Porter launches high-end jewellery section. The online retailer is consolidating its push into hard luxury, at a time when jewellery is one of the fastest growing categories in the luxury sector, and expects to reach €1 billion in revenue by 2020.

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