By and  on February 21, 2006

MILAN — Bottega Veneta, once a second-tier brand at Gucci Group that lived in the shadows of Tom Ford's Gucci and Yves Saint Laurent, has emerged as a point of strategic focus for its parent company. And forays into fine jewelry and home furnishings indicate even more future momentum for the label, which shows its fall-winter collection here today.

The company is on its way to hitting 200 million euros, or $238.7 million, in sales this year and officially broke away from the crop of emerging labels owned by Gucci Group by breaking into the black in 2005.

To the surprise of many, Bottega Veneta was touted early for growth potential by Franç ois-Henri Pinault shortly after he took over the reins of PPR and Gucci Group owner Artemis in 2004.

The Gucci label, at that time, was by far the group's cash engine, supporting smaller, developmental ventures such as Stella McCartney, Balenciaga and Alexander McQueen, in addition to Yves Saint Laurent, which has failed to break even after years of anticipation. Bottega Veneta fit into that mix as a small, niche leather goods player, albeit one with hefty price tags and intricate craftsmanship. It seemed to be the least likely candidate to break out as a strategic component for the Gucci Group.

Now, company executives exude bullish forecasts for the brand despite its elitist and ultra-selective customer appeal, with handbags starting at $1,500 and running as high as $75,000. Although Bottega Veneta is definitely a niche brand, there is plenty of room for it to grow, they said. A fine jewelry collection of hand-woven gold and diamond pavé designs, which bows on the runway today, is one potential driver for the future.

"It could be 500 million euros [or $597 million at current exchange], it could grow to be bigger than that," Bottega Veneta chief executive officer Patrizio Di Marco told WWD in an exclusive interview, alluding to Hermès' 1.43 billion euros, or $1.71 billion, in turnover as yardstick. "Looking at Hermès' positioning in the mind of the customer, you can't say that it's not exclusive."

Pinault, chairman and ceo of PPR, similarly lauded the brand's financial performance. At the end of 2004, PPR forecast that Bottega Veneta would reach sales of 200 million euros, or $238.7 million, by 2007, a target Pinault now believes the brand will reach by the middle of this year — six months ahead of schedule."Bottega Veneta has an extraordinary development potential," he said. "Ahead of schedule, Bottega Veneta was profitable in 2005.

"Profitability will improve throughout the coming years, thanks to newly opened stores breaking even and sales growth, the latter partially fueled by the expansion of new product categories such as ready-to-wear, accessories and jewelry," Pinault continued.

To wit, Bottega Veneta appears to be the second-most successful label for the Gucci Group after its namesake Gucci brand. Since Gucci Group purchased Bottega Veneta for $156.8 million, the leather goods brand's sales have grown from 35 million euros that year, or $41.8 million at current exchange rates, to 159.7 million euros, or $190.6 million, in 2005, which represented a 60.2 percent increase on 2004 revenues.

It is now nearly the same size as YSL, a fashion house that posted 2005 revenues of 162 million euros, or $193.3 million. It's a rare exception to find an acquisition that has worked so well, not just for Gucci but also for a host of other firms like LVMH Moët Hennessy Louis Vuitton and Prada that also are striving to turn around unprofitable businesses.

"We arrived at [nearly] 160 million euros without making any compromises," Di Marco said. "We were very fast, but we didn't stress ourselves out about having to reach a certain target."

Along the way, Bottega Veneta resisted the temptation to lower its prices to reach a broader audience or try to create an "It" bag, choices that defied some industry conventions but ultimately paid off, Di Marco said. Rather, the company worked to roll out focused collections, boost its exclusive cachet by shunning discounts and freebies and stress the importance of customer service and craftsmanship.

Creative director Tomas Maier who, like Di Marco, has been with Bottega Veneta since 2001, said it hasn't been easy. "[We've] been swimming against the stream since day one," he said Monday in an interview. "From starting to work here on the 12th of June and living through 9/11 and SARS after that, and doing a product that has no logo on it. You know I'm coming with a philosophy that is totally different from the one that was in the luxury market at that time," he said.Clearly, new stores have helped drive sales growth. When Gucci bought Bottega Veneta in February 2001, the brand owned 17 stores. Today, it counts 84 units after the recent openings of flagships on Fifth Avenue and in the Omotesando district of Tokyo. "We haven't been sleeping," quipped Di Marco.

Pinault said PPR will dedicate the resources needed to open more than 10 Bottega Veneta stores this year after the 18 opened in 2005.

Maier will travel to Tokyo in April to stage a fashion show there to inaugurate the store and he's designed a limited-edition run of reptile skin bags to commemorate the occasion.

"People think the Japanese just want logos. That's not true," he said.

Sales figures back up that claim. In fact, Japan accounted for 33.9 percent of Bottega Veneta's 2004 turnover of 99.6 million euros, or $118.9 million, making it the brand's single-biggest geographic market. The U.S. accounted for 28.1 percent of the business, while Europe generated 23.4 percent. Other Asian countries excluding Japan comprised 14.2 percent.

"Our intention is to develop our presence in the world, maintaining our geographic balance," Di Marco said. "Specifically, that means developing more in Asia, consolidating our presence in Japan, the U.S. and Europe and developing with the best local franchise partners stores in Russia and the Middle East."

Leather goods generated 83.4 percent of Bottega Veneta's turnover in 2004. Shoes made up 8 percent, ready-to-wear comprised 6 percent and other products generated 2.6 percent.

And even though some accessories houses have mixed track records on apparel collections, such as Salvatore Ferragamo and Bally, Di Marco maintains that it's an important product line to develop. Clearly Maier wants to make his mark as a designer of a broader-based collection, an ambition many say only a runway show can make happen.

But even Gucci's ready-to-wear, despite Ford's runway buzz, remained a proportionally small portion of the business, with accessories still comprising about 67 percent of that brand's sales.

Maier, discussing today's Bottega Veneta show, unveiled a simple unlined pantsuit in chocolate and a pleated plum coat, both in wool. Accessories are more lively fare, like a snakeskin floral bag with an antique metal closure or a pair of purple heels trimmed with copper chain swirls and bows."The only things that are added on are the accessories, they are like pieces of jewelry," the designer said.

Beyond the runway, Bottega Veneta has expanded over the past few years into tableware, such as Murano drinking glasses and woven placemats and throw pillows. Maier has also rolled out costume jewelry featuring sterling silver settings, and semiprecious stones and leather since 2002.

"We evolved the brand from its origins as a leather goods house into a lifestyle brand," Di Marco said.

Still, Simon Raggett, an analyst with Williams de Broe in London who recognizes untapped potential at Bottega Veneta, warns that the company shouldn't channel too many resources away from accessories, a key moneymaker in the luxury goods industry.

"The main growth is likely to come from the established leather area," Raggett said.

Given that a company can only churn out so many handwoven bags, diversification into areas like jewelry and home furnishings only makes sense. Maier, who has custom-made some benches for select clients, isn't designing couches, beds and armchairs, but rather smaller accent pieces that can be lifted by a single person. Bottega Veneta's hard-cased luggage and trunks served as aesthetic inspiration for the collection, which will make its debut at Milan's Salone del Mobile in April.

"Everything is thought of in a way that you can pick it up and move it because I like the idea that I can wake up on a Sunday morning and say, ‘Hey, what about putting that little table over there. Wouldn't that change the whole room around?'" Maier said, clad in a beige corduroy jacket over a blue and white striped shirt and jeans.

While Bottega Veneta is crafting the home items in-house, the company turned to an artisan in Maier's hometown, Pforzheim, for the fine jewelry — his identity is being kept hush-hush.

The jewelry pieces range in price from about $10,000 for a yellow gold bracelet to about $108,000 for a white and yellow gold necklace with some diamond pavé detailing. Wisps of gold fiber are handwoven around a small wooden rod and these braided components make up the links of the chain. The pieces are tumbled for 48 hours to reduce their shine and give them an antiqued finish.Maier said other precious stones, such as rubies, could be incorporated in the jewelry for future seasons but he wanted a focused approach for the debut collection.

"It's a very defined statement. It doesn't look like anything else — like everything we do," he said.

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