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The Big Breakup

In a stunning development, Tom Ford and Domenico De Sole resigned from Gucci Group Tuesday, unable to resolve their contract renewal with PPR.

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MILAN — So the Tom and Dom show is over.

Tom Ford and Domenico De Sole — the dynamic duo who built Gucci Group into one of fashion’s hottest houses — stunned the industry Tuesday by announcing their plans to resign, effective April 30. The decision ends months of speculation over their contracts amid growing tensions with the group’s majority owner, Pinault-Printemps-Redoute, about management control and whether Ford could oversee multiple collections.

The move is destined to have far-reaching repercussions and unleashed a flurry of speculation about potential successors — and possible future projects for the two men in their post-Gucci careers.

Creative director Ford and president and chief executive officer De Sole have not given any indication of their intentions beyond April 2004. As part of their exit agreements, the two men will not be impeded by any non-compete clauses and can pursue other ventures in the fashion business. However, sources indicated they are forbidden from poaching any Gucci Group employees for a period of one year.

De Sole was evasive about his ambitions. On a joint conference call with Serge Weinberg, ceo of PPR, with analysts and journalists, a relaxed-sounding De Sole joked that his only plan for the future was “getting instruction from my wife, as usual.” He also said that he negotiated his contract in good faith and did not seek other job offers over the time period.

Ford could not be reached for comment Tuesday. In a statement, the designer said, “It is with great sadness that I contemplate my future without Gucci Group.”

Friends who talked with the designer after the news described him as “devastated” by the developments.

News of the pair’s exit hit the market capitalization of both Gucci and parent company PPR. Gucci shares, which last month rallied on the company’s bullish forecasts for the remainder of the year, lost 2.1 percent to close at 73.65 euros in Amsterdam, while shares of PPR shed 4.8 percent to close at 84 euros in Paris.

Gucci shares closed down $1.11, or 1.3 percent, at $84.96 in New York Stock Exchange trading Tuesday.

Analysts have long said that Gucci’s share price value was so intrinsically linked with the talents of Ford and De Sole that their departure would hit its stock considerably. Such a scenario greatly increases the probability that minority shareholders will sell their stock to PPR next year when the French group must offer $85.52 per Gucci share — a move that will likely delist Gucci from the stock exchange and make it a wholly owned subsidiary of PPR.

PPR expanded its stake in Gucci Group to 67.73 percent with a series of stock purchases on the Amsterdam Stock Exchange from Oct. 6 to Oct. 17. During that time, PPR acquired 89,374 Gucci common shares for a total price of 6.5 million euros, or $7.4 million at current exchange. PPR paid an average of 72.32 euros, or $84.15, a share. According to a Form 13D filed with the Securities and Exchange Commission, the purchases lifted PPR’s total Gucci holdings to 67,570,154 shares. As of Oct. 3, PPR held 67.6 percent, or 67,480,780 shares, of Gucci.

Meanwhile, there are myriad theories circulating about the pair’s future — and that of Gucci and Yves Saint Laurent.

Several industry watchers have predicted that Tom Ford will launch his own brand, with or without De Sole’s involvement, while speculation swirled Tuesday that the designer would exercise his long-voiced goal of heading to Hollywood and becoming involved in films.

News of De Sole’s and Ford’s departures also set off speculation galore about the pair’s potential successors at Gucci. The committee to select their successors is being chaired by Weinberg and its other members are Francois-Henri Pinault, chairman of Artemis, and Adrian Bellamy, chairman of Gucci Group’s supervisory board.

Alexander McQueen, whose house is 51 percent owned by the group, is widely cited as the most likely candidate to take over Gucci. Meanwhile, Viktor & Rolf, Marc Jacobs (although his contract at Louis Vuitton is probably ironclad) and Nicolas Ghesquière, designer at the Gucci-owned Balenciaga, are floated as possible successors at YSL.

Some sources suggested PPR might look internally to replace De Sole as ceo, possibly tapping Mark Lee, president and ceo of YSL Rive Gauche, or Giacomo Santucci, president and ceo of the Gucci division. Still others noted that PPR would likely seek an external candidate with strong experience heading a major luxury goods brand or a multibrand group. Two names that kept popping up Tuesday were Burberry ceo Rose Marie Bravo and Louis Vuitton chief Yves Carcelle. Neither executive could immediately be reached for comment.

On the conference call, Weinberg gave little indication of who will take Gucci’s reins in both a creative and managerial sense. He said that a committee has “started an examination of the possible candidates,” but gave no further details on possible timing. “We’re not going to comment on that subject in the interim,” he said. “It’s a wide-open situation.”

Weinberg did however, state that Gucci will retain its own ceo and board, ruling out the possibility of merging Gucci and PPR, as well any the possibility that he could take on the Gucci ceo role himself. Ironically, even as De Sole and Ford pushed for management control of Gucci, a separate board for Gucci was always PPR’s plan no matter how many shareholders accepted its offer for the remaining stock.

Weinberg and De Sole took pains to describe their parting of ways as amicable, even suggesting PPR would consult with De Sole and Ford for advice on successors to pave a smooth transition.

But the gulf in strategy is clear. Weinberg said PPR believes in a “strong identity” for each of its brands, a concept that is “very different from what is already existing.”

As reported, sources close to Weinberg said that one of the major stumbling blocks in the talks between the two groups was over keeping Ford in the designer’s spot at both YSL and Gucci. As the group struggled over the last two years in the face of Sept. 11, 2001, SARS and the Iraq War — and as YSL took longer than anticipated to take off under Ford’s guidance — PPR became increasingly convinced that Ford could not oversee both brands.

Going forward, the French group plans to appoint a designer for Gucci and another for the YSL brand, sources said. Ford’s post, as creative director of the group, will disappear.

Sources close to the talks with Ford and De Sole said PPR entered into contract negotiations with a view of retaining the two men. However, there was speculation that PPR contacted some designers as possible successors to Ford in the months leading up to the separation.

In the end, the issue of control became the straw that broke the proverbial camel’s back. PPR remade its entire business in order to pay for the Gucci acquisition — selling off the timber interests on which it was founded by François Pinault, as well as its operations in office supplies and credit and financial services. It eventually will end up paying just over $6 billion for Gucci, and insisted that De Sole and Ford be subject to its management control. Meanwhile, the duo insisted that it was their ironclad grip on the brand and its subsidiaries that built Gucci into the $2 billion powerhouse it became, and that the only way forward was for them to have total control.

As reported, compensation and the organization of the company were also topics for discussion, but the two parties ended up deeply divided. PPR officials preferred to accept the consequences of their departure rather than face unacceptable conditions.

When asked on the conference call to discuss the specific differences of opinion, De Sole and Weinberg declined to discuss the issue further.

“We said as much as we would like to say on the issue,” De Sole said curtly.

Several observers said PPR has its work cut out for them.

“The news is a big blow for PPR,” said luxury analyst Claire Kent of Morgan Stanley in London. “We think they will find it extremely hard to replace Ford. Apart from his obvious design talents and vision for the Gucci and YSL brands, he also inspired a lot of team spirit within the group. That’s possibly irreplaceable.”

Karl Lagerfeld agreed. “They are wrong to let them go,” he said. “I wish them luck. It’s not easy to find someone like Tom, who has done a great job with the image of Gucci and done such a sparkling, sexy job with YSL. Try to replace [American Vogue editor in chief] Anna Wintour. It’s the same thing. There’s not so many like her around and not so many like Tom. I just hope Tom does something funny because I think he’s too young to retire from fashion.”

At the minimum, luxury analysts warn of uncertainty regarding the development of the Gucci and YSL businesses in the short term. “Over the longer term, though, we acknowledge that this news might be viewed with a certain degree of relief, given the notorious problems between the two men and PPR,” analyst Nathalie Schneider of HSBC in Paris said in a research note.

The exit of Ford and De Sole is just the latest twist in one of fashion’s longest-running soap operas. Ford was brought into the house by Dawn Mello in 1990 when Gucci was still controlled by Investcorp and the late Maurizio Gucci, who later was murdered in Milan in a contract killing arranged by his wife. De Sole joined in 1984, first as head of its American operation, and in 1994 moved to Milan to become its chief operating officer. In July 1995, he was named group ceo and Gucci went public later that year in one of fashion’s hottest-ever IPOs.

But it was the January 1999 takeover attempt of Gucci by its arch-nemesis, Bernard Arnault and LVMH Moët Hennessy Louis Vuitton, that put the company on the path that led to the resignations of the two men on Tuesday. In March 1999, Gucci called on PPR to be its white knight. The cash injection Gucci received allowed it to pursue its multibrand strategy, acquiring first Yves Saint Laurent and YSL Beauté and going on to add 51 percent of McQueen, Bottega Veneta, Balenciaga, 50 percent of Stella McCartney, Boucheron, Sergio Rossi, Bedat & Co. and Roger & Gallet.

Asked if the market should expect any disposals from its stable, Weinberg told the conference call that PPR was deeply involved in all the acquisitions and to “not expect divestitures of existing brands.”

Reached late Tuesday, Balenciaga designer Nicolas Ghesquière said, “I am very grateful to Domenico De Sole and Tom Ford for bringing Balenciaga and myself within the Gucci Group. What they have achieved has been remarkable and it’s definitely one of the most exciting adventures in fashion in the last five years.”

Tomas Maier, creative director of Bottega Veneta said, “Domenico and Tom were visionary in their decision to acquire Bottega Veneta and then maintain the skilled artisans that are essential to the success of the brand. I was honored to be chosen as creative director of the house as I love Bottega Veneta and the quality artisinal approach. As a professional I very much appreciate their trust and willingness to allow me to work so independently within the group.”

One of the key questions concerning analysts is whether the exits of Ford and De Sole will lead to a further exodus of talent, since most designers and managers were handpicked by the pair.

Michael Boroian, managing partner at Sterling International, a Paris-based executive search firm, said that it doesn’t seem likely that top management will leave Gucci Group in the short term. “They are tied in with stock options,” he explained. “No one is leaving overnight.”

According to sources, PPR is said to have made efforts to secure such key executives as Lee, Santucci, and Chantal Roos, president and chief executive officer of YSL Beauté. Roos could not be reached for comment. Lee was traveling and also could not be reached.

Still, one established consultant in Milan noted that longtime De Sole allies such as chief financial officer Robert Singer and Lee would likely leave Gucci at some point.

Sources described a scenario of panic at Gucci headquarters in Florence on Tuesday, with the design department up in arms over the imminent leadership change.

Since PPR has been a party to Gucci Group’s direction over the past three years, no dramatic change in strategy is expected. Sources close to PPR indicated it plans to maintain Gucci Group as a luxury concern and will seek to strengthen the autonomy and identity of its brands.

However, it is clear that PPR will seek to undo what it perceives as too much sameness between its brands and retail concepts, a natural consequence of Ford’s role as group creative director. For example, Ford collaborates with architect Bill Sofield for store concepts for the Gucci, Boucheron and Bottega Veneta brands.

Boroian said that the control Ford and De Sole applied to their brands failed to give managers proper autonomy. “Mark Lee is the top merchant I know in France and one of the top in Europe,” he said. “He can only apply that talent so far with Tom Ford playing such a major hand. It’s like having a racehorse pull a wagon of milk.”

Laurence Danon, president of PPR-owned Printemps department stores, described the corporate culture within PPR as one of autonomy and driven by entrepreneurial sprit.

“Recently I decided to change our advertising,” she said. “It was my decision. I choose the architect for the new beauty floor. When Serge [Weinberg] gives you his confidence, you have an incredible amount of autonomy. He encourages autonomy and he encourages vision. We are very performance driven and Serge’s culture is very visionary. He likes his managers to communicate on their own terms and to assume responsibility for their brands”

As for the future of Ford and De Sole, several observers suggested that the two men are still trying to figure out their next steps. De Sole could provide valuable management experience both to companies within the realm of fashion and outside it.

Ford, 42, is still young and could appeal to any number of fashion houses seeking marquee talent. Then there’s Hollywood, which Ford has continually said he’d like to explore further. And Hollywood loves Tom Ford.

His CV of red-carpet credentials is as long as his ties to A-list pals, including screenwriter/producer Mitch Glazer, husband of actress Kelly Lynch, and CAA power agent Bryan Lourd.

“Los Angeles won today,” enthused Lourd, among Ford’s closest Angeleno friends. “It’s L.A.’s good fortune that he’s made this decision today. Show biz would be lucky to have him.”

Though Lourd insists he and his old friend have yet to even discuss signing on with an agent, Lourd confirmed that Ford “has not signed anywhere. If he’d be anywhere he’d be with me. Or I’d kill him,” he teased.

Talk of Hollywood projects, he continued, is “all premature right now. He’s definitely going to be here a lot more. He’ll end up splitting his time between here and Europe. Obviously he’s going to finish out his contract [with Gucci].”

But would Hollywood really welcome Ford? “Sure. He’s already got a whole lot of friends here from over the years. Tom’s gong to be able to do whatever he wants. He’s incredibly gifted. Who knows what he’ll end up being here.”

In a WWD interview last March, Ford mused on the possibility of a future without fashion. “I still love what I’m doing; I’m very into it. But I could not imagine designing forever,” he said. “I might buy another company. Or I might build another company. Or I might make a movie. I don’t really know. Honestly, I don’t. I’m not at that point yet. But of course there are things that interest me. I mean, luxury goods still interest me incredibly.”

But each of these possibilities has its own set of obstacles. Which brands that would actually catch De Sole’s and Ford’s eye are actually up for sale?

There doesn’t appear to be much space for new designers or managers at fashion labels of Gucci-like caliber such as Giorgio Armani, Prada, Richemont or Gianni Versace. Few believe that the pair could ever mend fences with Arnault and become a part of LVMH — although some observers believe Arnault might be interested in meeting at least Ford, which would rile his big rival Pinault.

One of the most circulated theories is that Ford, either with De Sole or on his own, will start his own label. Back in March, Ford told WWD that he wasn’t interested in having a collection under his own name. At the same time, he didn’t rule it out.

“Everybody has moments of indecision, but Tom knows what he wants and has a great sense of confidence. He always knew what he wanted to do and said to me years ago that he wanted his own line. Money is not an issue and he could find backers any moment,” said Richard Lambertson, who was design director at Gucci from 1990 to 1993 and hired Ford as women’s ready-to-wear designer.

Cash is no stranger to either Ford or De Sole, thanks to hefty paychecks and stock options. Ford made approximately $38 million by buying and selling shares in April and May this year. That comes on top of the estimated $23 million he netted last year. De Sole stands to gain about $14 million if he cashes in his remaining 550,000 exercisable options when PPR launches its bid for Gucci at $85.52 per share. He may still have more options left over from contracts previous to 1999, but a spokesman was unable to quantify them.

Standard & Poor analyst Alessandra Coppola said she thought the pair would most likely seek to turn around a tarnished brand or start up a business together.

“These things happen when you have something better in mind,” she said.

Others were more skeptical. Armando Branchini, vice president of consultancy Intercorporate, said that Ford could probably find other potential investors to start up his own label but it would be challenging for him to create a major player to rival the likes of Prada, Louis Vuitton or Gucci.

“When you’ve built up such a big business, you wouldn’t turn around and start from zero,” he said.

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