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Trapani Ties Success to Diversification

EVIAN, France — If keynote speaker Francesco Trapani could sum up his growth strategy in one word, it would likely be "diversification." <br><br>Diversification in all areas of his company has been a goal of Trapani’s for years. As chief...

EVIAN, France — If keynote speaker Francesco Trapani could sum up his growth strategy in one word, it would likely be “diversification.”

Diversification in all areas of his company has been a goal of Trapani’s for years. As chief executive officer of Bulgari SpA since 1984, he has directed one of the most significant growth periods in the company’s history by following that mandate. In 1995, he oversaw the company’s listing on the Milan Stock Exchange and the International SEAQ in London. Since then, the stock has increased in value by more than 300 percent.

Trapani has also made it a point to move the company in new directions, in an effort to broaden its market presence. Among these directions: adding financial-planning mechanisms, a long-term strategy of expansion based on product diversification, global distribution and professional organization. During his keynote address at the WWD Beauty CEO Summit here, Trapani explained the opportunities and risks that he sees in his fragrance business.

“In the early Eighties, the company was a tiny company with only one family of watches,” he said. “At that time, we were selling these products only through one distribution system, the monobrand Bulgari stores. And at that time, we had only five stores. In the second part of the Eighties, we started developing the business a bit more aggressively than in the first part.”

That still meant maintaining a very conservative marketing approach, he said — offering the same marketing mix, the same assortment of products and the same system of distribution, but expanding the business in the areas in which it was not present. “The company was growing fast in terms of sales and profits. Then, in the beginning of the Nineties, with the economic crisis in America and the rest of the world and with the Gulf War, the luxury business started suffering.” As a result, executives took a hard look at the company’s structure and brand awareness, he noted.

That examination proved that the company had a great deal of opportunity in improving its brand awareness. “We decided to change drastically our strategy in order to become much more aggressive. In 1991 and 1992, we started implementing the new strategy, which was calling for three main things.” They were product diversification, enlargement of the distribution network — both in terms of more retail stores and the creation of a wholesale distribution network —?and significant investment in advertising and communication in order to increase awareness of the brand.

Then, Trapani decided to enter the fragrance business, spurred on by two goals. “We wanted on one side to increase our sales, and hopefully, the profit — but on the other side we were looking for an increasing awareness of the brand. Things were going well; in following years, we were able to develop the business, continue opening stores, enlarge our product portfolio and go into other businesses including eyewear and leather goods. We listed the company in 1995, and it was a great success.”

To put that success in perspective, he said, in 1992 before implementing the new strategy, the company was doing about $80 million in turnover. Today, he said, it is doing $800 million.

Turning back to fragrance, Trapani said, “We went into the perfume business because we wanted to enlarge our awareness, but at the same time we knew that this was an industry in which you need to invest huge amounts of money in order to create the demand, and you need to have a large organization, especially in the distribution area, to create the kind of volume you need for a good return on the investment. We didn’t have the money necessary to make big investments in this industry. We decided to follow what we call the push strategy.”

That amounted to, he said, starting with a very selective distribution network of between 3,000 and 4,000 doors on a worldwide basis, and giving the retailers a territorial exclusivity. “In this case, they were not discounting our products, because they didn’t have competition from other retailers,” he explained. “When the client was coming into the retailer’s store, and he was undecided, the retailer was pushing us more than some others because he was making more money.”

The strategy was successful, he said, and the company began seeing added growth and profits in fragrance. “Then, we arrived at the period from 1999 to 2001, when we launched Blu Pour Femme and Blu Pour Homme, which were very successful and gave us the critical mass necessary to change from a push strategy to a pull strategy. At that point, we were investing aggressively in advertising and we expanded our distribution to about 13,000 or 14,000 doors worldwide.”

Still, the company’s dedicated fragrance division is quite lean, he said. “We have 160 people working in it. Because it is very lean, it is very flexible and able to react quickly to new market needs. We can conceive and launch a new product in 12 to 14 months. And yes, the mother company of the perfume division is a listed company, but the Bulgari family owns 55 percent of the company. We have a stable controlling shareholder, and this gives us the possibility to better balance short-term and long-term perspective.”

One important factor, Trapani said, is the cost of doing business. “It is going up and up, for two main reasons,” he said. “Each year, we see a huge number of new launches —?I think last year we saw about 150 major launches. That means that to be seen, you have to invest a lot of money, or else you are lost. A second reason for costs going up is that there are more and more large retail companies, and they are looking for more profit. They want a larger margin, and this gives a pressure to our margin.”

The way to counter this problem, he said, is to have “a strong concept and an outstanding execution. We cannot afford to launch banal products. This is something that maybe a huge multinational company can afford, because they have huge means. This is not true in our case.”

Trapani believes that the strategy is working. “Last year the perfume division’s profits were up 31 percent; this year we are up 15 percent and it is not the year of a major launch.”