By  on November 1, 2005

PARIS — Building, not cutting.

That's the mantra of Valerie Hermann, the energetic new chief executive of Yves Saint Laurent, who plans to keep investing in product teams, advertising and even the occasional new boutique despite steep losses at the storied French fashion house.

"I'm here to develop products and communications, supported with the right organization," she said. "We are in a phase where we will put the accent on development, on building the turnover."

In her first interview since joining the Gucci Group-owned fashion house last March, Hermann revealed plans to accelerate growth in leather goods, enter the costume jewelry category, add two new "capsule" clothing deliveries a year and broaden the price and range of key categories such as knitwear and leather goods in order to attract new customers.

However, she allowed there are no quick fixes for the brand, and obstacles include a network of gloomy stores that are "a real problem for us. We are putting our customers in the dark."

Not one to mince words, Hermann also acknowledged the daunting feat of doubling sales at YSL to about $400 million, the key prescription for reaching profitability outlined by her boss, Gucci Group chief executive Robert Polet. "I like challenges and [YSL] was a major challenge," Hermann said, explaining her reason for taking the job. "The one who is putting the most pressure on me is myself."

Sure signs of a turnaround have been elusive. Last week, Gucci Group parent PPR said YSL's sales slipped 5.1 percent to 45.6 million euros, or $55.6 million at average exchange, in the third quarter, reflecting poor or late deliveries of shoes and leather goods.

Hermann vowed that any lingering supply-chain and logistics issues would be resolved. And looking ahead, she asserted "there is fantastic potential" given YSL's rich heritage, its "magical" brand name and the design prowess of Stefano Pilati, whom she says finds great reward in seeing real women wear his clothes and carry the brand's handbags.

To that end, Pilati is making his first retail appearances in the U.S., with a cocktail party tonight and a trunk show Wednesday at Bergdorf Goodman in New York, along with another trunk show on Friday at Neiman Marcus in San Francisco.The initiatives come in tandem with some encouraging momentum at wholesale. PPR said last week orders for Pilati's cruise collection, and his Spanish-flavored spring runway line, were up "significantly" versus a year ago. Herman cited strong demand for such items as capri pants, ruffle-front blouses, cropped jackets and metallic leather, chunky-heeled Dada shoes.

Although Pilati received mixed reviews for his bulbous-and-belted debut collection in 2004, retailers said their confidence in him — and the YSL business overall — is mounting.

"We're very enthusiastic about the business going forward," said Karen Katz, president and ceo of Neiman Marcus Stores, who plans to attend the San Francisco event. "We're already at the end of fall selling and we've had a terrific season in the ready-to-wear. Sell-throughs are up very nicely. There's a luxury about it and a great style about it our customer has embraced. We're very anxious to receive the cruise collection."

"Stefano's influence was immediate. We are very optimistic because [the collection] is directional and it's very feminine," agreed Robert Burke, senior vice president of fashion and public relations at Bergdorf Goodman. "It feels to us that all the pistons are firing right now [at YSL]."

Retailer Joyce Ma said she's been keeping an eye on Pilati for years, and YSL just gave her the green light to carry its spring collection in her stores. "This season, I thought the best collections were Balenciaga and YSL," she said. "It just stood out. It was very modern, very romantic and very commercial, as well, for the Oriental ladies. In the showroom, it was very easy to buy. Also, the accessories are very beautiful."

A charismatic executive with a fun-loving streak, Hermann, 42, said her key mission is to "translate the essence of YSL into desirable products." She also is determined to bring back the lighthearted Rive Gauche spirit that went amiss at YSL during the Tom Ford era of monolithic black-box runway theaters and imposing stores.

After acquiring YSL in 1999 in a drive to create a luxury group to rival LVMH Moët Hennessy Louis Vuitton, Gucci Group immediately applied its direct-control mantra for production and distribution, terminating more than 150 licensing pacts and establishing a network of stores in the best locations worldwide. But that radical attempt to engineer a Gucci-esque rejuvenation drove YSL deeply into the red.Losses narrowed slightly in the first half, to 40.1 million euros, or $51.6 million, but the long, slow road to profitability has been burdensome for YSL staffers, Hermann acknowledged. "I am amazed at the tenacity of the team," she said. "Globally, there is a wish to succeed."

Hermann said it would be easy to quickly reduce losses by closing stores and cutting the advertising spend, which market sources estimate is in the range of 15 percent of sales, well above Gucci Group averages of 7 to 8 percent.

However, she said cost controls are centered more on squeezing suppliers and eliminating any waste, rather than unraveling YSL's positioning next to key competitors such as Chanel and Christian Dior via its store network and communications.

"It's more clearing what can be cleared without damaging the brand," she explained, seated in a conference room decorated with Seventies and Eighties portraits of the retired couturier, Yves Saint Laurent, himself. "It doesn't prevent me from looking store by store if the location is right, if the traffic is sufficient or if the management team in the store is right."

During a wide-ranging conversation, Hermann stressed she would "take the good work Mark has done to the next step," referring to her predecessor, Mark Lee, now ceo of the Gucci brand. That includes continuing to diversify a collection once heavily concentrated on cocktail and eveningwear and reclaiming YSL's legacy as a purveyor of a complete wardrobe for modern, active women.

Sales at YSL last year totaled 169.2 million euros, or $210.5 million. Europe accounted for 42.2 percent of sales; North America, 30.2 percent; Japan, 13.3 percent; Asia/Pacific, 8.8 percent, and the balance in the rest of the world.

Like Polet, Hermann declined to give any break-even target for YSL. And she attributed the losses largely to operating 63 stores in prime locales. "With the fixed costs I have, I need more volume," she said.

That said, Hermann said there are no plans to scale back the network, even if she shuttered a location in the Americana Manhasset in Manhasset, N.Y., last June and a location in Brussels in September. The latter store was closed, she said, because the location was poor and it had an outmoded design concept.But YSL could very well open another Brussels location, she noted. Indeed, Hermann disclosed plans to open a boutique in Taiwan next March. Other projects for the first half of 2006 include a larger location in Tokyo's Aoyama district and a large franchise location with Mercury Group in Moscow.

For the immediate future, most of Hermann's initiatives center on product development, her forte.

She joined YSL after an eight-year career at rival LVMH, most recently as president of John Galliano and head of women's rtw at Dior. There she earned a reputation as a talented manager, dynamic leader and formidable merchant, able to translate Galliano's often-outlandish ideas into commercial products.

At YSL, Hermann already has expanded assortments of small leather goods and increased the range of heel heights and wearing occasions in the footwear collection.

While prices and positioning of the brand won't change dramatically, Hermann said the range would be broadened to include "access" items such as twinsets. Ditto for accessories.

"We need to have a bag around 560 euros [or about $680]," she said, noting the current average price at YSL sits around 850 euros, or about $1,030 at current exchange.

Alongside the runway collection, Hermann introduced the first capsule collection of "essential" pieces in black and leopard print — trenchcoats, chiffon shirts and jackets. She said such items would freshen sales floors midseason. "The customer needs newness, and understandable newness," she said.

At present, about 50 percent of YSL revenues are from rtw; 45 percent, from bags and shoes, and the balance, from other accessories such as scarves, gloves and jewelry.

Hermann said rtw would remain the leading image vehicle and a core category, but high-margin accessories must grow faster. To that end, YSL recently tapped Raphaelle Hanley, who had worked at Louis Vuitton since 1998, to head up leather goods design.

YSL's latest volley is the Muse, a style from the cruise line that already has been seen dangling from the arms of Demi Moore and Sharon Stone.

Hermann also recently tapped a chief financial officer from Taittinger —Laurent Aymard — and she hinted there would be more appointments in the product-development arena in the coming months. "I'm a team player," she said, "and I need a strong team."

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