By  on June 23, 2008

BOLOGNA, Italy — With record sales last year, a new store concept, 50 boutiques in the pipeline and a higher-end product, Furla is weathering a saturated market and challenging economic times.

Paolo Fontanelli, who became chief executive officer in July, and Giovanna Furlanetto, chairman of the family-owned company, outlined Furla's growth strategies and retail plans.

Fontanelli highlighted Furla's profitability, which he said is a focus for management even more than sales growth. Earnings before interest, taxes, depreciation and amortization shot up 60 percent last year to 23.9 million euros, or $32.7 million at average exchange. Sales grew 16.2 percent to 150 million euros, or $205.5 million, compared with 2006, but at constant exchange, revenues would have grown 19 percent. The company had free cash flow of 17 million euros, or $23.2 million, compared with 5 million euros, or $6.2 million, the previous year. Fontanelli attributed the performance to tight cost control.

Despite the economy, Furla stands by its recent strategy to raise product quality, even if that means hiking prices by 15 percent in a number of markets.

"We tested the Giovanna Furlanetto for Furla products, positioned at the top-end of our range, for about two months and we were surprised by the results," said Furlanetto. "There was no resistance to the price and that egged us to evolve the product with more complex craftsmanship and higher-end hides."

Case in point: Furla's first crocodile handbag launched this spring, and retails at 7,000 euros, or $10,229 at current exchange.

At the same time, Furla is evolving its store concept and expanding its retail network, which accounts for 33 percent of sales. The company counts 64 directly operated and 160 franchised stores and about 1,000 points of sale.

Fontanelli said Furla just inked a joint venture with Hong Kong's Sidefame for distribution in that area. The next step is the opening of a flagship in Hong Kong next year.

Russia, however, steals the thunder from any other market, she said, with its "enormous potential" and a growth rate of between 60 and 70 percent over the last three years. By the end of next year, Furla plans to open four more stores in Russia, where it already has six units.Fontanelli also is looking at China as a strong market. The company plans to open 20 stores in China over the next three years, in addition to the three existing ones. As a first step, one store will open in Shenzen in July and one in Shanghai in September, with another slated to open in Beijing at the Oriental Plaza in the fall. In order to penetrate this market, which is still male-driven, Fontanelli said Furla is expanding its men's offerings with the goal of having men's account for 10 to 15 percent of sales in three years.

In more developed markets, a store will open in London's Regent Street next year, and Furlanetto said she is rethinking Furla's wholesale distribution in the U.S.

"I notice there is a strong support to the American brands, and I feel that the perception of our product and what it stands for is often off-mark there," said Furlanetto. "You can't compare our Made in Italy products with those coming from China. It's like comparing apples and oranges."

The U.S. accounts for 18 percent of sales.

"We are evaluating up to which extent we want to limit our profitability for visibility in some department stores," said Furlanetto, noting that markdowns and inadequate presentation at times undermine the brand.

Furlanetto said there are still a number of cities in the U.S. in which she wants to open stores, such as Boston and Las Vegas. In January, Tommaso Brusò was appointed ceo of Furla USA.

Furla's new generation of stores will be modeled after the renewed Milan flagship, which was unveiled in February and replaces the previous concept that dates back four years ago.

"This store reflects the evolution of our handbags," said Furlanetto.

The concept blends Thirties and Forties inspirations with a contemporary edge, with aluminum, mirrored, lacquered and shiny surfaces in black and white. A shiny iron laminated wavy structure in black, stretching for about 26 feet, takes center stage on the ground floor.

The lower floor partly lodges products by Furla's Retail Design Hub, in a reddish brown color palette and natural birch. This project, launched last year, has been helping Furla raise the design content of its collections and to boost its footwear business, while allowing the designers tapped to take advantage of the brand's visibility around the world. Max Kibardin, who was one of the designers who signed his shoes with his name for Furla for two seasons, was asked to stay on and design shoes under the Furla label.While handbags account for 75 percent of sales and remain Furla's core business, the company has been pushing its shoe collection over the past year. In September, Furla will stage an event in New York to exhibit the Hub's products.

In a separate project, but one connected to Furlanetto's passion for contemporary art, Furla is setting up a foundation that will be located next to the firm's headquarters outside Bologna. Furlanetto said this will be "a more influential container" compared with the existing Premio Furla, which awards contemporary artists and was set up in 2000.

Compared with the existing Premio Furla, the foundation will have "a more international visibility and will be more authoritative, allowing us to collaborate with important galleries around the world," said Furlanetto, adding that it is modeled after the British Turner Prize. For a start, the foundation will exhibit 25 works of art, and next year will stage a show by Palestinian artist Mona Hatoum at the Venice Biennale.

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