Versace CEO's billion-dollar plan

Versace may have been left behind in terms of profits by its competitors in the luxury goods industry, but CEO Gian Giacomo Ferraris is working to put the Italian fashion label back on course.
By Salma Awwad
Mon 15 Jul 2013 01:15 PM

Gian Giacomo Ferraris used to be a schoolteacher. And if you want to learn how to double your turnover in the next three years, than the Versace CEO is someone you could learn from. Lesson one: confidence. “I think Versace deserves to double its turnover. So for the next five years our target will be to become a one billion dollar company,” he says.

A tall order, but Ferraris’ track record since taking the reins in 2009 suggest he may just be the man to pull it off. Despite Versace taking up its usual slot on the red carpet back in 2009, the iconic fashion brand was struggling behind the scenes with serious implications to its bottom line due to the economic crisis and the lack of a fixed strategy.

However, due to its strong DNA, the company was able quickly react and started seeing a significant uptick in their revenues in 2010 and finally profitability in 2011. This allowed the brand to re-enter the haute couture fashion shows and capitalise on creative director Donatella Versace’s expertise.

Now, Versace is looking to become a billion-dollar company in the next five years, which is double their current reported revenue of $528.4m in 2012. The man who is spearheading this vision is Ferraris. Prior to his role at Versace, Ferraris was CEO of the Jil Sander Group, and the managing director of the ready-to-wear division of Gucci Group, with responsibility over all the group’s brands, including Gucci, YSL, Balenciaga, Stella McCartney, Alexander McQueen and Bottega Veneta.

“I joined in 2009, in the middle of the worldwide crisis,” says Ferraris. “For us, it was strategically fundamental to define a medium- and long-term strategy, which means we want to be very Versace. And thank God, just like the oil is in this country, we have this endless creative energy, who is Ms. Donatella Versace.”

The Middle East is a key player in this strategy, as Versace celebrates its new partnership with Samra International, a fine jewellery retailer, distributor and manufacturer, which is based in Dubai. This partnership gives Samra the right to produce Versace’s atelier jewellery for the global market.

“Originally, in 2009, Samra was our retailer and regional distributor. We noticed immediately that there is a good feeling between us as we spoke the same language in terms of our products culture,” Ferraris continues. “We started up an atelier with them in Dubai Mall. This is where we have our unique pieces which are very exclusive.

“In 2013, we signed a worldwide licence, so we trust in their capacity to translate the same energy that we have in the atelier and the total range of our product. We need to have a coherency in quality, in service, in craftsmanship and in everything else.”

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The Middle East is an important market for the iconic brand, and not just in terms of jewellery. Not only are the well-heeled locals in the Gulf big fans of Versace’s products, but the retailer can also tap into the many worldwide tourists who are increasingly using cities like Dubai as a stopping-off point.

“Culturally, we know that a big part of our turnover is related to the Gulf area,” says Ferraris. “Certainly more than ten percent and it will soon reach fifteen percent.”  This means the Middle East region is already the third-largest source of revenue for the fashion- luxury lifestyle label, sitting just behind Europe and the Far East, and on a par with the US.

It’s therefore no surprise to see that Versace has put up its regional flagship, a physical free standing jewellery boutique, in Dubai Mall.

 “In our flagship stores, we are putting the jewellery and exclusive pieces,” adds Ferraris. “Due to Samra holding the licence rights, we agreed that the first initial start-up of our investment would be in the Gulf area. Then we roll out in Russia, China, and throughout.”

Versace celebrates its 20th anniversary of producing fine jewellery this year. According to Ferraris, Gianni Versace was the first designer that entered into this kind of lifestyle culture.

“The genius of Gianni, who created the brand in 1978, started as a couturier,” he points out. “He was a tailor, working with his mother. After his first year of success, he did not just stop at the ready-to-wear business; he entered into the accessory business, and then created a whole company for watches, perfumes and home collection. So this was the genius of Gianni.”

Since the passing of Gianni, who was assassinated in 1997, Donatella Versace has been the guardian of the brand and its spirit.

“We need a voice that is able to coordinate the energy and give the distinction of the brand,” says Ferraris. “Donatella is our creative mind, so her involvement is total, which means that not a single piece exits to the customer without the physical approval of Donatella. It does not mean that she is continuously working. She has a team, but she has 100 percent power to decide.”

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One of Donatella Versace’s main strategies to pull Versace into the 21st century took place in 2010, when the firm took the opportunity to collaborate with H&M.

“This was a big opportunity for us to catch and inform the new generation and offer a chance for them to approach our product for the first time,” says Ferraris. “This worldwide event was very successful and this was the key point to entering into a new customer generation.”

According to the CEO, the average Versace customer is a loyal customer, glamorous and up to date with fashion. They expect consistency and exceptional quality; however, they also need to experience constant innovation.

“By giving them the reinterpretation of the iconic pieces, which is essentially our DNA, we could count on this loyal clientele. This way, there is always going to be space to grow, even in a crisis,” Ferraris says.

Another growth strategy that the company is utilising is highlighted through their commitment to emphasise Versace as a luxury lifestyle brand. Palazzo Versace, a $626m hotel and resort based in Dubai, is now being finalised and construction will continue apace for a 2014 target.

“Now we are finalising Palazzo Versace here in Dubai for 2014. It is now in full speed and will be located on the opposite side of Festival City,” says Ferraris.

The hotel has had something of a difficult start in life. Palazzo Versace Dubai was launched in 2006 by Emirates Sunland Group, a 50:50 joint venture between Enshaa’s subsidiary firm Emirates International Holdings (EIH) and Australian developer The Sunland Group. The design includes two Versace-branded residential buildings comprised of 169 units, and a Versace-designed hotel with 217 suites.

Sources say the project has encountered a series of delays since its launch due to different issues, including problems with a nearby dhow ship yard and a complete project redesign. In March 2012, developer Enshaa Services Group said it would deliver the project by the end of 2013 and was even aiming for a soft opening this summer.

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That aside, Versace is looking like it’s in pretty good shape. The firm has even been linked with an investment from Qatar Holding, although the Gulf sovereign wealth fund is remaining tight-lipped on the issue. Last year, it posted a 7.6 percent rise in profits to $10.9m, as it continues to improve since reaching profitability in 2011.

However, while the brand may be big, the company is still not in the same league – profits-wise, at least – as some of its competitors. Paris-based Hermes International posted profits of just under $1bn last year, while Italian fashion house Giorgio Armani saw operating profits of $452m. The biggest luxury group of them all, Louis Vuitton Moet Hennessy (LVMH) announced $4.5bn worth of net income in 2012, although that sum came from a variety of different brands.

So despite Versace’s improved balance sheet, there is still some way to go before the profits match the brand.

“I think we are finishing the first phase which brought the company until now $500m too low,” says Ferraris.  “But now I think Versace deserves to double its turnover. So for the next five years our target will be to become a one-billion-dollar company.

“Not only with our mature markets, but because now we are re-entering Japan and Korea by ourselves. Also we are re-entering Turkey and Brazil. Versace is a worldwide historically recognised brand, and we will exploit this opportunity.”

Global luxury sales to taper off in 2013

Growth in sales of luxury goods is expected to ease slightly this year, hit by subdued spending in Europe and slower growth in China, consultancy Bain & Co said in a study in May.

Bain sees luxury goods growth cooling worldwide to four to five percent in 2013 from five percent last year at constant exchange rates.

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The consultancy, which conducted the study with Italian luxury trade body Altagamma, forecast global luxury goods sales would rise at a compound annual growth rate of five to six percent between 2013 and 2015.

The total size of the market, which was 212bn euros ($273bn in 2012, would reach 250bn by mid-decade.

The study covers worldwide spending on luxury ready-to-wear, perfume and cosmetics, watches, jewelry, and accessories.

In the first quarter of 2013, global luxury sales rose three percent at constant exchange rates and one to two percent at current exchange rates, against ten percent in 2012.

Bain forecast luxury goods sales would remain sluggish in Europe this year, rising by a maximum of two percent, compared with three percent in 2012.

Chinese tourists were spending less in Europe due to narrowing price gaps with goods at home and were travelling to new destinations, it said, while local demand in Europe remained depressed.

Bain forecast growth in the Asia-Pacific region, excluding mainland China, would reach seven to nine percent this year, down from ten percent last year. For mainland China, it forecast growth of six-eight percent.

Bain predicted high consumer confidence in the United States combined with store openings would help drive growth there, while demand in Brazil would remain strong. It also saw a pick up in Japan, helped by its efforts to stimulate its economy.

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