Fendi Moves Beyond Turbulent Past, Into Spotlight in China

MILAN — When Fendi stages a fashion show on the Great Wall of China this fall, it will be a watershed moment for the country — a dry run of sorts before the entire world descends on Beijing for the Olympics in 2008.

But the show isn’t just a milestone for China; it also is one for Fendi. The company has had a turbulent past: feuding sisters, a multibillion-dollar bidding war and nearly losing its ready-to-wear designer, Karl Lagerfeld. But fashion’s bellwethers, be they balance sheets or runway reviews, indicate Fendi is firmly moving into a much more stable and profitable era.

This year, the fashion house, owned by LVMH Moët Hennessy Louis Vuitton, will roll out a long-awaited fragrance and open stores in new markets from Turkey to Qatar. Fendi is also mulling forays into fine jewelry and hotels and bolstering its Web site to provide better links to e-commerce partners like Neiman Marcus, Saks Fifth Avenue and Net-a-porter.

“It’s a very positive moment. Whatever is happening is happening with a lot of passion,” Fendi chief executive Michael Burke told WWD in an interview at the company’s bustling showroom. “That’s what really makes me feel so confident about Fendi becoming what [LVMH chairman Bernard Arnault] predicted it would become, because it’s not laborious. It’s happening in an organic way, a natural way.”

Fendi’s numbers indicate the financial health of the company is improving. Burke said sales last year came in at roughly 300 million euros ($378 million), would grow at a “substantial double-digit” rate for the current year and were on track to meet LVMH’s original goal of hitting 500 million euros ($664 million) by 2008. Burke said Fendi wanted to grow by an average of 20 percent to 25 percent each year for the next five years.

Fendi broke even on an operating level in 2005, six years after LVMH initially invested in the company, and the Italian fashion house is “more than halfway” to meeting its goal of a 20 percent operating margin, Burke said. Those results stand out because multibrand groups have had a mixed track record turning around acquisitions. Gucci Group’s Yves Saint Laurent is still in the red and Prada stumbled with Jil Sander and Helmut Lang before ultimately selling both brands.Admittedly, LVMH will need to wait awhile before getting a return from the more than 1 billion euros it spent to buy Fendi. In 1999, LVMH and its former partner Prada famously teamed up to outbid Gucci and buy 51 percent of Fendi at multiples many considered exorbitant. The deal exemplified the Nineties luxury M&A boom at its peak.

“I think we paid the right price at the right time for a unique asset. How many Fendis are there?” asked Burke, a loyal LVMH executive who racked up years of experience at Louis Vuitton and Dior before joining Fendi. “It was the absolute right decision. With what has happened over the last three years, we’ve clearly demonstrated that the investment was a good investment.”

Burke attributed much of Fendi’s financial success to Arnault’s ability to be an “enlightened shareholder.” The French tycoon has been able to see beyond the numbers and give Fendi the time it needed to grow, Burke said.“In our industry, when you are under time pressures on certain issues, you make the wrong decisions,” he said.

Balance sheets obtained by WWD also show financial progress for the company. Fendi Srl, the company comprising only its Italian operations, swung into the black in 2005. It posted a net profit of 12.5 million euros ($15.25 million) after narrowing its losses over the past few years.Still, it’s been a bumpy journey for Fendi, which has accumulated a string of losses and digested a series of management changes. After LVMH bought Prada’s Fendi stake in 2001, Prada chief Patrizio Bertelli exited the scene and Giancarlo di Risio, now the ceo at Versace, led the company for less than two years before LVMH tapped Burke as ceo in 2003. Burke, an Arnault protégé, had a long to-do list when he arrived, namely cleaning up Fendi’s disorganized production and distribution chains and fielding a cacophony of viewpoints from Fendi family members and Lagerfeld.

In fact, keeping Lagerfeld on board proved to be one of the more daunting tasks Burke has faced thus far. “It almost came to that point…and we know the rest of the story,” the ceo said.

In 2004, the designer publicly aired his grievances about a revolving door of managers at Fendi, disorganization within the company and shortcomings in the design department. Burke said he worked hard to meet Lagerfeld’s needs as well as those of accessories and men’s wear designer Silvia Venturini Fendi. The ceo wanted to foster a closer collaboration between the two designers, who were working in separate studios and very often in different cities.“I’ve listened to many of Karl’s frustrations. Karl was more vocal about them than Silvia,” Burke laughed. “But Silvia was very, very clear about them in a less vocal way, and I tried to address all of them.”

The measures included setting up a proper design studio in Rome as part of Fendi’s new headquarters, which was completed in 2005. Prior to that, there was a disjointed network of Fendi offices round Rome. Burke also stressed the importance of giving Lagerfeld and Fendi the power to hire younger apprentices and lending them moral support and a sounding board for their concerns.

Since then, Burke said Lagerfeld’s and Fendi’s working relationship has improved enormously and the collections prove it. The ceo noted a “crescendo” building from Fendi’s spring 2006 season on through fall 2007’s offerings of ultraluxurious furs, oversize belts and varied handbag offering.

“It’s night and day. Before, there was respect, but a tremendous amount of distance,” said Burke, who repeatedly calls both designers geniuses. Silvia Fendi said she and the rest of the design team felt newly energized in their new studio.

“There is a more interesting creative buzz because [Lagerfeld] knows what I’m doing and I know what he is doing. We are really working together now,” she said. “When Karl is [in Rome], it’s very easy because we share the same table, but otherwise I go to Paris very often or meet him wherever he is.…Before, we didn’t see each other as often.”Burke declined to talk specifics on Lagerfeld’s contract, which was renewed in 2005. But he made it clear the German designer would always be welcome at Fendi. “Eternity, as far as I am concerned,” he said of the length of Lagerfeld’s tenure. “It’s as long as he wants to….If [Karl] wakes up one morning and he doesn’t feel like he wants to do it anymore, that’s when he’ll stop.”

In the meantime, Lagerfeld is helping Fendi snag some major orders. Bergdorf Goodman picked up the rtw business for the spring 2006 season. It has since set up a dedicated Fendi corner on the second floor of the store. Neiman Marcus is also carrying Fendi apparel.“Our enthusiasm began with that spring 2006 runway, when we saw a marked change,” Bergdorf Goodman president Jim Gold said. “You [could] tell that Karl Lagerfeld was putting much more time and energy into the collection. Before, there was such an emphasis on furs; now, there’s more of a mix.”

And despite the logistical challenge of managing two creative minds rather than just one, Burke said he believed the team approach was the right one for Fendi.

“These houses are so complex now. The market is so global and we have to be proficient in so many different categories, sometimes at different price points also,” he said. “It’s becoming more and more difficult for one individual to be able to handle one brand.”

Unsurprisingly, Burke doesn’t take issue with designers managing more than one brand, as Karl Lagerfeld does with Chanel, Fendi and his own label. Word has it this was a sticking point for former Fendi ceo Di Risio, who wanted a designer wholly dedicated to Fendi. Di Risio declined to comment on his tenure at the brand.

“If it were [Lagerfeld’s] second priority, I don’t think he would have been involved in the product development of the perfume and he would not have conceived the entire concept. He would not have conceived of the ad campaign and he would not have shot the ad campaign and he would not be very involved in the upcoming launch,” Burke stressed.

As for that fragrance, which will be presented to the trade in June and hit stores in September, details are scarce. The designer shot the ad campaign on location in Rome. Burke said Venturini Fendi and Lagerfeld worked together on the perfume’s concept, bottle and packaging. It will be the first Fendi fragrance produced through LVMH’s new perfume subsidiary since Fendi ended its licensing pact with Gucci Group’s YSL Beauté.

Burke said the company would be extremely cautious and selective about other product and brand extensions because he still sees plenty of untapped potential in rtw and accessories, especially footwear. That said, he said he thought a move into fine jewelry would be a logical and strategic step for the brand. He said he hoped that project would get under way next year.Fendi’s first hotel, most likely with a spa, could also materialize in the next few years. Burke said he was initially hesitant about the idea, but developers and hotel operators were “aggressively courting” the brand and he had since warmed to the concept. Such a move would follow Bulgari, Giorgio Armani, Missoni and other luxury brands’ forays into hospitality.

“It could be in a European city, it could be in the Middle East, it could be in the Caribbean. These are all places we’ve looked at,” the ceo said.

But Burke stressed the core apparel and accessories businesses were the most imminent priorities at Fendi. The company will open 18 stores and corners this year, including locations in Geneva, Istanbul, Doha in Qatar and several Chinese cites. It is also continuing to renovate existing stores to its lighter and airier Palazzo concept. This year, Fendi will tackle its store on Rodeo Drive in Beverly Hills, as well as the Paris and London flagships.

The ceo said another priority was China, where business is booming. “It’s doubling every year,” he said. “It reached break-even in 2005 and profitability in 2006.”

Given those results, it’s not surprising Fendi wants to capitalize on its momentum in China with the Great Wall event. But it’s not just about business or brand awareness for Burke, whose periodic tangents about Bertolt Brecht and Chinese dynasties give him an academic air rare in ceo’s.

“I think being able to have a Karl Lagerfeld Fendi fashion show on the wall is a symbolic gesture, I think, of openness, a meeting of cultures through fashion,” he said.