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Versace Eyes 25% Cut in Staff, Return to Black in 2011

Versace launches reorganization plan aimed at returning the company to profitability in 2011.

MILAN — After only three months in the job, Gian Giacomo Ferraris, chief executive officer of Versace SpA, has launched an extensive reorganization plan aimed at returning the company to profitability in 2011.

After forecasting an 18.8 percent drop in 2009 sales to 273 million euros, or $405.6 million, and an operating loss of 30 million euros, or $44.6 million, Versace will cut 350 jobs, which is about 25 percent of its workforce.

Ferraris also anticipated flat sales in 2010. All figures are converted at current exchange rates.

Versace follows brands including Chanel, Burberry, Cartier and Swarovski in making layoffs due to the recession. He cited Chanel’s decision to cut 200 jobs earlier this year as a similar measure.

The executive is seeking to rationalize costs by streamlining such noncore operations as the logistics department to create a more flexible structure. “There’s no reason why the logistics department should be in-house when it can be outsourced and still guarantee high quality but at better prices,” said Ferraris, adding he adopted a similar formula at Gucci and Jil Sander with great results.

Though the cuts are worldwide, they will primarily impact the Milan headquarters; the three-year-old Burago factory, where the accessories collections are developed, and the ready-to-wear plant in Novara. The plan will be presented to the unions immediately and the staff reductions should be completed by mid-March.

But Ferraris stressed quality and service will remain untouched because he sees Versace as a fashion luxury brand, with apparel accounting for the bulk of sales.

While praising his predecessor, Giancarlo Di Risio, for growing the accessories business to a 40 percent share of revenues, Ferraris nonetheless feels the offering should include more entry-level price points. “We can’t just offer caviar. If today’s starting price for a bag is $2,900, we should also sell one for $1,700,” he said.

Emphasizing he is in no way involved in the creative process, Ferraris said he advised Donatella Versace to ramp up the brand’s heritage of sexiness, prints and color, which she did in her strong spring collection.

Formerly at Jil Sander, Ferraris succeeded Di Risio, who quit in June after a five-year tenure. Versace called in Bain & Co. after losing confidence in the executive and its board approved a new three-year plan by the consultancy at the end of May. Ferraris said the detailed Bain & Co. study helped him develop his strategic plan, though his is more bullish and relies on a quicker turnaround than the one envisaged by the consultants.

Sources indicated that despite Di Risio’s early success at Versace — after 18 months in the job, he returned the company to profitability in 2006 — his strategy later focused on projects that would generate only short-term income, such as the Palazzo Versace Dubai set to open in 2010, or the Versace-designed helicopters. Such high-end projects were no longer competitive given the economic downturn, sources said. But Ferraris confirmed he will push ahead with the projects.

Versace has 85 freestanding stores, a number not destined to change, though the shuttering of underperforming venues to open in more profitable locales is being studied. In the pipeline are openings in Las Vegas, Dubai, Mumbai and New Delhi by yearend.

This summer, Versace pulled out of Japan with the shuttering of four freestanding stores, although it expects to retackle the market with a new and improved retail plan at some point.