By  on March 28, 2005

ROME — Picking his way through the construction debris at the forthcoming Fendi palazzo here last week, chief executive officer Michael Burke entered a vast, sun-drenched room and declared proudly: “This is for Karl right here, the ready-to-wear and fur studio.”

Despite all the rumors swirling around Fendi, Burke is clearly operating under the assumption that Fendi’s future includes star designer Karl Lagerfeld, who has been associated with the Roman fashion house for half of its 80-year history, but whose contract expires later this year.

Burke declined to comment on the contract negotiations, but said, “I am functioning as if it were being renewed. Karl and I agree things have to change. We’re working on finding a better way to go forward.”

Lagerfeld, who has been vocal about Fendi’s shortcomings in the recent past, described discussions as progressing in a positive way.

“If they organize [Fendi] to work the way I want, it can continue,” he said last week. “I know what I need.” He added, “There is no hostility between me and LVMH, no tension at all.”

Indeed, to witness the scale of the palazzo project here, with dozens of workers and artisans toiling over practically every inch of this seven-story neoclassical landmark, suggests that LVMH Moët Hennessy Louis Vuitton is building for Fendi what Rue Cambon is to Chanel — one of Lagerfeld’s other day jobs.

The countdown has begun to May 18, when the international fashion press and LVMH chairman Bernard Arnault  descend on the Italian capital to discover the largest Fendi store in the world and, remarkably, its first real headquarters in a building smack at the crossroads of old and modern Rome. The grand 19th-century Palazzo Boncompagni, with breathtaking panoramic views of Rome from its rooftop terrace, sits at the base of the Via Condotti luxury promenade that commences at Piazza di Spagna.

“It’s our coming out, having fixed everything,” said Burke, referring to the 18 months of behind-the-scenes work since he joined as ceo from Christian Dior and since Dior ceo Sidney Toledano was tapped to oversee Fendi strategy. “We did some major restructuring, but now everyone involved in the creation of the product will be here [at the palazzo]. It’s basically becoming a beehive of creativity.”In recent years, Fendi has been viewed more as a nest of turmoil.

Since LVMH and Prada Group swooped in and jointly bought a majority stake in 1999, the Italian fashion and accessories firm has endured family squabbling and a succession of management changes that saw the company move through periods some employees describe in derisive shorthand: the Prada era or the Versace era.

And while Fendi has also been accused of being Dior-ized or even Louis Vuitton-ized since LVMH took complete control in 2001, Burke assured his mission is to preserve the brand’s unique character and its reputation for cutting-edge creativity and craftsmanship.

“The one thing this company is not lacking is creativity. I am not shopping for creativity,” Burke said, waving off speculation the house had approached Gucci’s creative director for women’s wear, Frida Giannini, about a senior design post.

In fact, Giannini was an acolyte of Silvia Venturini Fendi, who oversees the accessories categories that generate about 65 percent of the house’s revenues. Wearing a zigzag-printed fur shrugged on with the ease of a cardigan over her denim skirt, she joined Burke for the interview and a walk-through of the palazzo, which she characterized as a “dream come true” for the brand her family made synonymous with luxury furs and sumptuous leather goods.

“With Michael, we have been talking about what Fendi is really about,” she said in Italian-accented English. “We have our own identity and we don’t want to look at what everyone else is doing. We are back to our roots.”

Already, the approach is showing strong results. Burke said sales of furs for the coming fall-winter season zoomed 250 percent, with Harrods and Neiman Marcus among retailers slated to open shops to showcase styles such as Lagerfeld’s raspberry-tinged broadtail jacket or his slim military coats in shaved fur. Neiman’s plans to carry the collection in Chicago, Los Angeles and San Francisco.

Meanwhile, wholesale orders of handbags vaulted 60 percent versus last year, while fall-winter footwear, the first complete collection designed by Ernesto Esposito, rocketed 80 percent. It spans everything from rubber boots and loafers to velvet evening pumps and extravagantly beaded boots that will retail this fall for $2,900.“I’m sure they will sell out. We have no price resistance,” Burke asserted. “We can sell the most expensive things. We’re seeing very, very healthy growth.”

Burke also cited a strong improvement in Fendi’s network of 118 stores, which have been dogged by a reputation for selling most of its merchandise off-price. He said sales this spring have been advancing by “strong double digits” and during the January-February sales period, full-price merchandise outsold sale items by a margin of two to one: the reverse proportion of the past. In particular, he noted that first shipment of the Spy bag, a large, soft bag with secret compartments, sold out completely. A second reorder placed in November just replenished stocks.

Capitalizing on strong handbags by continually elaborating on shapes — and not always moving on to the next thing — is one of the strategies Burke has instituted at Fendi in a bid to double the company’s volume within three to four years.

In the past, innovations like Venturini Fendi’s ruffle-bottomed Chef bag might have been dropped. Now, the style is entering its sixth season, with variations in grandmotherly hand-knit or embossed metallic leather.

“They were chasing after huge creativity, without taking ownership of it,” he said of Venturini Fendi’s teams, who also oversee licensed products such as eyewear and scarves. “That’s a very important change in [business] model. That means we don’t go on sale.”

For example, he noted that its more classic Selleria range, in supple calf leather with saddle-stitched edges, represents about 20 percent of the leather goods business. And even the Baguette, celebrating its 10th anniversary next year, still represents between 5 to 10 percent of the category.

That slim shoulder jewel, which tucks handily under the arm, helped propel the bidding war that consumed Fendi at the height of the luxury acquisitions frenzy. There have been plenty of skeptics circling, saying that LVMH will have a tough time recouping the more than $1.1 billion it paid for a 94 percent stake in the brand.

Market sources estimate Fendi posted losses upward of 25 million euros, or $32 million at current exchange, last year on sales of about 250 million euros, or $324 million. LVMH has said the brand should reach breakeven by 2007, if not sooner.In the interview, Burke described the company’s transformation as dramatic. “Fendi, up until about five years ago, was a 100 percent Rome-based company. If you were a retailer and you wanted to buy a Baguette, you had to come to Rome,” he explained. “It was a global brand, but not a global company.”

Certainly, Arnault seems firmly committed to Fendi, evident by his refusal to flip the palazzo even as property values have quadrupled in Rome in recent years. His steadfastness is becoming legendary in Roman real estate circles.

More than that is LVMH’s commitment to renovate the entire store network, which reflects the outdated “dark concept” and an earlier blond-wood incarnation.

Burke acknowledged Fendi opened too many stores too quickly, as did many luxury brands accustomed to the pre-2001 luxury boom. “Everyone got ahead of themselves. But opening stores is not the most difficult part of the business,” he said. “Now we’re opening the right stores with the right size. And we had to hire retailers who have an appreciation for the product.”

Besides the palazzo, Burke said he’s invested heavily in senior management, hiring presidents for America, Japan and Asia regions, and top-caliber store managers to bolster its company-owned boutiques.

Fendi also hired back some of the key artisans in its fur atelier who had been let go during the aftermath of the Prada/LVMH takeover.

The palazzo brings Fendi’s four far-flung Roman ateliers under one roof for the first time. “You need to put them all together so they participate in the life of the product,” Burke said. “That’s what the palazzo is all about.”

A gracious family home until the 1920s, the building boasts expansive rooms with elaborate gingerbread moldings, hand-painted silk panels and an central atrium funneling natural light down to all floors. But the original features will be juxtaposed with modern ones, including a 23-foot chandelier designed by architect Peter Marino to punctuate the ornately carved wooden staircase.

A new-look Fendi boutique spread over two floors, designed by Marino, will be the centerpiece of the property, blending curving walls in travertine with others made of rusted steel.Fendi plans to transfer in stages product lines from its other Roman store, on Via Borgognona, whose ultimate future use has not yet been determined.

The palazzo will also house showrooms and offices for communications, product managers and key executives.

In tandem with the May grand opening, Fendi plans to inaugurate an exhibition showcasing the house’s rich archives in neighboring Palazzo Ruspoli.

Also, capitalizing on the rivers of traffic that flow in the square in front of the store, Fendi plans to mount an outdoor exhibition there featuring photographs by William Klein.

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