By  on January 10, 2005

NEW YORK — Valentino SpA is moving full steam ahead.

With plans to open a flagship in Tokyo’s Ginza in 18 months; sell its women’s products in China this year; unveil a boutique in Costa Mesa, Calif.; launch a fragrance called V next month in Europe to be followed by U.S. and Asian distribution in July, and significantly roll out its collection accessories and handbags worldwide, the fashion house is clearly in growth mode.

Michele Norsa, managing director and chief executive officer of Valentino SpA and president and ceo of Marzotto Apparel, and Graziano de Boni, president and ceo of Valentino USA and Marzotto USA, last week spoke about Valentino’s successful turnaround over the last two and a half years since being acquired by Marzotto in May 2002 for $210 million (including Valentino’s net debt of $179.2 million).

In 2004, Valentino’s sales increased 10 percent and the company was “close to break-even,” said Norsa. “For 2005, we should have a reasonable profit.” Considering that in 2002 Valentino lost about $50 million on $130 million in sales, and in 2003 lost $22 million on $180 million in sales, the executives are naturally pleased with the company’s progress.

Overall, the Valentino brand generates $666 million at retail.

In the U.S. alone, Valentino’s sales — which account for 25 percent of its global business — increased 40 percent in 2003, and more than 50 percent in 2004, said de Boni.

“While the main line is still the majority of our business, we’ve had exponential growth in shoes and accessories; we’ve introduced Valentino Red and Valentino Roma, and the prêt-à-porter is our number one line. Under that [main Valentino] umbrella, we’ve been able to build a business,” said Norsa.

What’s particularly encouraging to the two executives is that they’ve been able to attract a younger customer to the Valentino brand. Norsa noted that in 2004, the boutiques did 50 percent of their business with new, younger customers, and 50 percent with established customers. “We have turned around the business without getting rid of old customers. We’ve added customers in the same way that we’ve added products,” said de Boni.As Valentino has become a designer of choice for a new crop of stars — such as Kate Hudson, Cate Blanchett and Kate Beckinsale — the brand has also broadened its price points and appeal to women who aren’t walking the red carpet. The company has expanded Valentino Red, a younger, everyday contemporary line that sells to stores such as Bergdorf Goodman and Intermix here, and Valentino Roma, an evening and daytime diffusion line that is priced 50 percent below the main collection.

Fragrance is another area of opportunity for the Valentino franchise. After severing its fragrance deal with Unilever a year and a half ago, Valentino struck a deal with Procter & Gamble, which will introduce a new fragrance, V, in time for Valentine’s Day. It will launch at Harrods in London and La Rinascente in Milan next month, as well as the Valentino boutiques in Italy, Spain, the United Kingdom and Germany. In July, it will be distributed in the U.S. and Asia. “For us, it’s a fundamental step, compared with all our competitors, such as Yves Saint Laurent and Chanel. They all have huge fragrance businesses,” said Norsa. “Ours was invisible.”

For the launch, P&G will spend in excess of $30 million worldwide in advertising this year, said Norsa. Print ads, photographed by Steven Meisel, will feature Eugenia Volodina, a Russian model. Dominique Isserman shot the TV campaign, which will run throughout Europe.

Valentino has scaled back its licensees over the past several years, and in addition to fragrances, currently has deals for eyewear (Safilo), watches (Sector), ties and fabrics (Ratti), Valentino Red (SINV) and furs (Ciwi Furs). The company produces its accessories and handbags in-house. “This kind of product [accessories and handbags] is part of our core business,” said Norsa. He said the company has been fortunate because its products haven’t been knocked off by counterfeiters, as many of its competitors have.

Norsa believes there are approximately two or three more licensing opportunities that would be of interest to the company, namely fine jewelry, tabletop and home furnishings. “When he is not designing clothes, Valentino is designing homes,” said Norsa. He noted the designer is still very much involved in the business. Both he and his business partner, Giancarlo Giammetti, signed new contracts in 2003, but Norsa wouldn’t disclose details.As for Valentino’s Japanese strategy, last month the company bought a 51 percent interest in Valentino Boutique Japan Co., its import and sales agency, which was owned and managed by Mitsui & Co. and two other Japanese clothing companies. Mitsui bought out the shares owned by the two firms, Aoi Co. and Sann Freres SA, and now owns the remaining 49 percent.  Previously, Valentino didn’t own any of that operation.

During the past six years, the Japanese operation made money but it didn’t invest in the business, said Norsa. “We wanted to invest a significant amount of money in the business,” he said, noting it plans to spend $13 million over the next three years in Japan. Most of the funds will go toward the retail operation, where it intends to refurbish existing locations and open the Ginza flagship in the next 18 months. The company already has five boutiques in Tokyo.

“Japan is the second-largest luxury market in the world, and it’s very important in influencing the rest of Asia. It will remain a reference point for all of Asia’s rich people. It’s very important to be there,” said Norsa, adding that one of the reasons brands love to build stores in Japan is because they can build whatever they like. “There are not the kinds of restrictions that you have elsewhere. That’s why the architecture is so exciting,” he said.

Norsa sees tremendous potential in the handbag and footwear business in Japan. Previously, the Valentino business there wasn’t focused on those categories, but rather on women’s ready-to-wear. 

Valentino also plans to add several more shop-in-shops to the 20 it already has in Japan. Norsa believes there’s limited space in Japan, and only room for another five or 10 more. He noted that Valentino’s business in Takashimaya and Mitsukoshi was up 40 percent last year. Overall, apparel sales in the Japanese market have declined the past two to three years, but Valentino’s business managed to inch up 2 to 3 percent, said Norsa.

The Asian market, in fact, presently represents 15.6 percent of the company’s sales.Norsa also sees potential in China. So far, most of Valentino’s products in China have been men’s wear and men’s accessories. “Our range of [women’s] products is still relatively expensive for China,” he said. He noted that the products do very well in Hong Kong, where the company has three Valentino boutiques. Earlier this month, it tapped a new chief executive officer of the Asia-Pacific region, Giovanni DiSalvo, who previously worked for Prada in Hong Kong. Valentino’s top priorities will be to open stores in Plaza 66 in Shanghai and China World in Beijing, where brands such as Louis Vuitton, Dior, Giorgio Armani, Hugo Boss, Zegna and Ferragamo have boutiques.

On the U.S. retail front, the company plans to open a boutique in Costa Mesa in the second half of this year, and is looking at sites in Chicago and Dallas. “We now have five boutiques in the U.S. [New York, Bal Harbour, Fla., Palm Beach, Calif., Las Vegas and Beverly Hills], and by the end of the year, we should have six, or maybe seven,” said Norsa. In addition, Valentino plans to renovate its New York store over the next 18 months on Madison Avenue and 65th Street.

Currently, Valentino’s U.S. business is equally divided between its own boutiques and wholesale accounts. Under its previous ownership, Holding di Partecipazioni, Valentino did 95 percent of its U.S. business in its own stores, and only 5 percent with its wholesale accounts.

With so many new projects under way, Norsa said the biggest challenge facing the company is “the weakened dollar by far.”

“It’s almost a nightmare. We’ve made a big effort not to increase prices in the U.S. It’s an effort. We have to become more competitive in logistics and manufacturing. Our volume is growing and we have to use economies of scale. It’s a big challenge,” said Norsa.

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