ROME — Bulgari chief executive Francesco Trapani is optimistic that better times lie ahead for the luxury goods industry, but he predicted that some companies may still have to make sacrifices to stay competitive.
“We can’t think about returning to the rhythms of 1999 or 2000; I think those times are well behind us,” said Trapani in an exclusive interview at the company’s headquarters here overlooking the Tiber river. “But I think it’s realistic that the situation for next year could be better than that of today.”
But even though the war in Iraq is over and there is evidence that the spread of SARS has slowed, Trapani warned it could take a while for customers’ emotions to rebound.
“For the last two and a half years, people have heard that things are always getting worse,” he said. “Maybe [the industry] is even more linked to mood than to economic trends.”
Trapani also said he expects more and more companies to trim the fat on their budgets and reduce their head counts.
“Companies took a series of steps in the hopes that 2003 would be a much better year….Unfortunately, it is turning out to be a very tough year, tougher than 2002,” said Trapani. “I think we’ll see companies firing people and take measures to boost efficiency.”
Just this month, Compagnie Financière Richemont AG said it plans to slash 200 positions, or about 5 percent of the group’s Swiss-based watch-manufacturing workforce, amid plunging profits and sales. Meanwhile, Prada Group chief executive Patrizio Bertelli said earlier this week he expects the company’s profits to jump at least 30 percent in 2003 over the $31.1 million seen in 2002, thanks to Prada’s cost-cutting efforts.
Bulgari also has worked to cut costs and protect its margins, as sales growth has slowed from the boom years of the past. Net profit for fiscal year 2002 rose 12 percent to $90 million, while sales grew just 1 percent to $915.5 million. In local currency terms, profits totaled 76.1 million euros on sales of 774 million euros.
In the first quarter of this year, net profit climbed 26.7 percent to $13.5 million as revenue for the period increased 3 percent to $190 million — or 11.4 million euros and 160.6 million euros, respectively. Dollar figures have been converted from the euro at current exchange rates.Trapani said Bulgari is fine-tuning its structure to reduce costs without resorting to drastic measures like closing stores or shuttering factories.
“We do small things that in one way or another create big benefits,” he said.
For example, last year Bulgari dismantled a unit that oversaw travel retail for all of the company’s divisions. Now each department handles its own travel retail operations and Bulgari has a lower headcount. Some people were transferred to other divisions. It also recently cut 20 jobs in its U.S. operations, mainly administrative and back-office functions. Similar cuts could occur elsewhere in the world as the company moves to hold down costs, said Trapani.
In the past, Bulgari has also cut costs on advertising. In 2002, promotional expenses declined 25 percent to $89.89 million. Trapani said Bulgari will have to tweak its original ad budget for 2003.
“We had a rather aggressive plan for this year at the beginning of the year, but unfortunately, we have to adjust our ambitions a bit because then there was the war in Iraq and SARS,” he said. “I think it will be a year in which we will invest more than the past year but not as big an increase as we had hoped for initially.”
Trapani noted that market conditions are even more challenging for smaller, less-established brands or the smaller components of luxury conglomerates’ portfolios. He said some of these companies have seen “discouraging” results as they rapidly increased their store count.
“Probably what happened over the last few years was that several companies deluded themselves on the brands that they had,” he said. “They thought that [any brand] with a good style and a good product could expand.”
Bulgari, on the other hand, has continued to focus on its single brand (although it has acquired other brands through its Opera investment fund) and is hoping its gems will sparkle through the sector’s gloom.
“We want the client entering a Bulgari store to be really taken by a product offering that is diverse, fun, new and different,” Trapani said.
The jeweler is proceeding with an “aggressive” plan for product launches over the next couple of years, said Trapani, although he declined to provide a detailed list of upcoming items.He did drop a few hints, though, including that jewelry and watches remain priorities. More specifically, Bulgari, pleased with strong sales of its Quadrato and Rettangolo watch models featuring precious and semiprecious stones like black diamonds andtopazes, wants to produce more timepieces in this vein. Elsewhere, the company is eager to round out its offerings in handbags.
“At the end of this year, our assortment of bags will be very interesting,” he said. “There will be at the end more shapes, more-rigid ones, less-rigid ones, various colors, various materials and various prices.”
Trapani said Bulgari isn’t striving to become the next Gucci or Louis Vuitton in leather goods, but it is working to gain credibility in this area. At the same time, it’s setting its sights on the upper tiers of the market. For example, Trapani said the firm plans to launch a line of limited-edition handbags, although he stressed that this is a longer-term project and would happen next year at the earliest.
“We are working to find the best way to make a product, the Rolls-Royce of handbags,” he said.
Turning to watches, Bulgari’s second-biggest product category after jewelry, Trapani said Bulgari managed to substantially grow its order book at the Basel watch and jewelry fair in April, despite the overall dismal mood at the event.
As reported, Bulgari had experienced problems with watches in the past. Some analysts have said Bulgari’s fashion-oriented timepieces suffered as cash-strapped customers preferred more classic timeless watches from brands like Cartier and Rolex. But Bulgari’s watch business is clearly showing signs of improvement. Sales of timepieces in the last quarter of 2002 rose 28 percent at constant exchange rates. In the first three months of this year, watch revenue grew 6 percent at constant currency rates, but rose only 1 percent in actual terms.
Trapani stressed that customers are looking for colorful, unique timepieces. Bulgari’s more glamorous models include a watch from its Lucea collection featuring blue topaz stones on a bracelet-styled strap and a Quadrato model covered in pave diamonds and emeralds. He said Bulgari still didn’t have data on the Lucea watch but that sales of the jeweled versions of the Quadrato and Rettangolo were promising so far.“The response was certainly very positive,” he said. “In some ways the market is agreeing with our approach and is inviting us to continue.”
Nor does Bulgari’s quest to reach out to customers stop at the jewelry counters in its stores. Next year the world will finally get a glimpse of the first Bulgari hotel, which is slated to open in Milan in March.
The structure, featuring a giant glass wall overlooking a botanical garden, will be the first in a series of seven to eight resorts to be opened in tandem with partner Marriott International Inc. Bulgari hasn’t decided on the site of its second hotel but Trapani said the company is mulling locations in Italy and abroad.
News of the venture, first announced in 2001, baffled many in the industry, as Bulgari has a reputation for being conservative in strategy and the use of its brand name.
But Trapani remains quick to defend the hotel strategy as a critical means to both keep Bulgari’s image polished and stay close to “the people who count.” These resorts, he said, create a place where wealthy members of the local community can “meet one another, eat in the restaurant, or go to the spa, so that Bulgari is constantly in contact with these people.”
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