LONDON — Has Texas Pacific Group overshot the mark with Bally?

The U.S.-based private investment partnership bought Bally in November 1999 with the aim of transforming it from a fusty Swiss brand that made sensible shoes into a hip and trendy fashion label.

It succeeded — and that may be the problem.

On Wednesday, the company sought to quash continued reports that Scott Fellows, Bally’s creative director, was leaving the company and his contract, which runs until the end of the year, would not be renewed.

Marco Franchini, the company’s chairman and chief executive, released a statement that repeated Bally and Fellows continue to work together. "The Bally design and image direction have recognizably been created by Scott Fellows. He continues to contribute to the creative strategy and the development of the Bally brand, and to be a member of the board."

However, industry sources told WWD that Bally and Fellows had reached a "mutual agreement" not to renew the creative director’s contract and that Fellows would likely be replaced by Melissa Mesh. She is a freelance designer who has worked for Bally in the past and is credited with creating its popular Busy B bag, with its chunky graphic prints and red-and-white striped handles.

One source, who spoke on condition of anonymity, said while Fellows had successfully repositioned the brand, his designs alienated its traditional customers. "Bally was getting rid of the old customers faster than it could get the new ones in," said the source. "Scott was very radical in changing the product."

The source offered an example. "Bally had large leather goods such as attaché cases that were solid sellers, but the company replaced them all with shoulder-strap bags. In retrospect, there was no reason the old and new designs couldn’t have been sold together."

Fellows could not be reached for comment.

Under Franchini, the firm will likely aim for a more commercial approach, said another source.

"Now that the repositioning is done, Bally wants a product that’s actually going to sell. They will focus more on the commercial aspects of the business — merchandising rather than pure design."As reported, Franchini was named chief executive and chairman of the board at Bally International AG, in April with a mandate to roll out Bally units around the world and work on product positioning. Before joining Bally, he was Gucci’s general manager for Europe.

The first Bally new-generation store opened in Berlin in the spring of 2001 and a second one will open in Lugano, Switzerland over the next 12 months.

In April, the managing director of Texas Pacific Group, Abel Halpern, said Franchini’s appointment signaled TPG’s determination to push ahead with Bally’s relaunch — despite the tough moment for luxury goods sales.

"Our strategy for Bally hasn’t changed since we purchased the company: We are still focused on building an image-driven luxury brand that will generate luxury margins," Halpern said. "After Sept. 11, we had to shift our tactics somewhat, however. We had to hunker down more."

At the time, Halpern said spring 2002 would be a "difficult" season for Bally, but was confident that business would pick up in the fall. Bally is a private company and does not disclose sales, earnings or projections. He also denied that Bally was up for sale. "We’re in the business of private equity which means we have to understand the interplay of economic and industry cycles in the fashion, luxury and retail businesses," said Halpern.

"Yes, we’re in a trough right now, but we’re going to come out of it. Bally has the capital structure to be able to survive," Halpern added.

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