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Domenico Dolce and Stefano Gabbana are about to cap off their year with a $15 million present to themselves.

This story first appeared in the December 3, 2007 issue of WWD. Subscribe Today.

The designers spent that amount to refurbish and expand their New York flagship at 825-827 Madison Avenue, which opens today. The 12,960-square-foot store marks an important step in the duo’s drive to boost their business in the U.S., including more store openings. America currently accounts for 13 percent of the company’s wholesale revenues.

“I’m excited,” said Gabbana, during a visit to the New York store Sunday. “It’s more beautiful than the Milan store that opened a year ago and is amazing.”

“I loved working on this project,” added Dolce. “When I worked with the architect, you’re planning everything, and the reality is so beautiful.” The designers said they haven’t been to New York since March.

Industry sources estimate the expanded New York flagship will generate in excess of $20 million in its first year.

“We are very attentive to how the U.S. performs. We look at all the sell-in and sell-out reports. Our next step is to open in Chicago and San Francisco because U.S. clients are very loyal towards a designer,” said Gabbana.

He and Dolce are breezing in and out of Manhattan for the store’s opening, which crowns a year for the brand highlighted by continued skyrocketing growth in profits and sales, and a much-praised spring collection of tulle veilings and hand-painted floral patterns and brushstrokes, served up on full-skirted party dresses.

According to the firm’s sixth annual report, net profits for the 12 months ending March 31 advanced 38 percent to 149 million euros, or $191 million. Consolidated revenues amounted to 1.05 billion euros, or $1.34 billion, a 30 percent hike. (Dollar figures have been converted at average exchange rates for the period to which they refer.)

The balance sheet also highlights wholesale revenues of 1.35 billion euros, or $1.73 billion, a figure that includes sales of all Dolce & Gabbana and D&G products generated by the group and by licensees.

And one of its cobranding deals exhibits the growing demand for the label. In June 2006, Dolce & Gabbana linked up again with Motorola to launch a limited-edition MotoRAZR V3i phone that retailed worldwide for about $550 and included a swinging gold pendant with the initials DG, three disco polyphonic ring tones and a voice that announces the name of the fashion house when the phone is switched on or off. It clearly was a hit -— a $256 million one, the amount sold over the last 12 months, equivalent to more than 465,000 phones.

And the momentum continues to build for all the brand’s products. Wholesale revenues for D&G, the designers’ younger line they took in house starting with the spring 2007 season, have leapfrogged at an average annual rate of 24 percent. The line represented 44 percent of wholesale revenues, or 600.8 million euros ($769 million), last year. Overall, women’s wear accounts for 62 percent of Dolce & Gabbana wholesale revenues.

In terms of geographical areas, Italy has the lion’s share of Dolce & Gabbana’s growing business with a 30 percent stake of wholesale revenues, followed by the rest of Europe, which generates 39 percent of sales. Underexploited areas the company plans to target, in addition to the U.S., are Japan, which now represents only 4 percent of sales, and the rest of Asia and the rest of world, which together account for 14 percent of wholesale revenues. And while America may be a priority, Dolce & Gabbana isn’t ignoring those other underexploited markets: the brand’s first directly operated store will open in New Delhi early next year.

The group currently employs more that 3,000 people and directly manages 93 stores and 11 factory outlets.

The expanded Madison Avenue flagship houses both the women’s and men’s collections and exudes the same lavish and moody blueprint that highlights Dolce & Gabbana shops worldwide. A scenic black glass stairway, towering Murano glass chandeliers, high-gloss lacquered wood, mirror-finish stainless steel and basalt floors greet customers stepping into the women’s store. The first floor is primarily dedicated to accessories and the main collection, while the second floor houses a shoe salon jazzed up with chain mail curtains, two floor-standing baroque chandeliers and black and clear glass display tables.

The third floor is evening wear and a small alcove dedicated to innerwear, a category the designers are pushing. A VIP room and two large changing rooms guarantee privacy.

The store is part of the group’s ever-increasing capital expenditure program, which totaled $128 million last year and covered retail expansion, showrooms and the restaurant Gold. According to sources, a chunk of that money also is destined for a new building the designers recently bought in Milan that is adjacent to their show space on Viale Piave. The new site is expected to be turned into showroom space. “As the company is in continual expansion, we’ll take the necessary steps to support it, logistically as well,” said Cristiana Ruella, managing director.

A significant chunk of the new showroom space in Milan could be devoted to pre-collections, a growing part of the brand’s business, as they are for many designer labels. A opening lunch will be held today at the store, during which the company will preview its pre-fall 2008 line.

“I still remember when [Barneys New York’s] Gene Pressman called us up years ago saying it was time for us to start doing pre-collections,” said Dolce. “We learned a lot from America in terms of marketing. In the beginning the idea made us nervous because we weren’t used to it.”

Since pre-collections increasingly fatten the top line, they allow the designers to display their full creative impulse on the runway without bending to commercial dictums. “The show is the crème de le crème of all our creative work, it’s an extreme moment of inspiration that serves us, the press and the entire world. It’s a way to show how fashion moves forward,” said Dolce.

“It’s an evolution and the fashion message must be as focused as possible,” added Gabbana.

While the duo likes to blur the sacred and profane line on the catwalk, a walk through the showroom teeming with 1,000 pre-fall pieces reveals how they translate runway edge into commercial clout.

Spring’s tulle overlayering, for example, is stripped off hand-painted frocks and applied to gray cashmere sweaters, boiled wool egg-shaped coats and white stovepipe jeans. Sunshine yellow and avocado green silk dresses in all shapes and form feature piping or frayed edges, while sleek tunics over an infinity of bottoms are a Dolce favorite.

Precision-cut tailored looks for working women abound, while brand staples such as leopard prints, trenchcoats and bustier dresses are added to the mix to satisfy longtime fans.

“Let me tell you one thing: at the end of the day, a woman needs to get dressed in the morning and she’s fine with a soft cashmere sweater, a pencil skirt and great shoes,” said Gabbana. “Another challenge is to always create a new basic.”

But, he added, the market also needs runway buzz.

Which is why the designers took a U-turn for spring, leaving behind fall’s metallic dominatrix clad woman in form-fitting crumpled fabrics, including whips and shine.

“When you do the future, people get scared because they seem to be afraid of looking ahead to see what may happen. I thought the fall fabrications were some of the most innovative to date,” said Dolce. “But when the future is done in a more romantic or bohemian way, it’s more comforting.”

Dolce and Gabbana concurred that today’s fast and furious fashion pace is a constant challenge as they churn out pre-collections, main lines, cruise and runway shows with clockwork precision and an attention to detail that borders on the manic.

“Luckily there are two of us,” quipped Gabbana.

Indeed, with a great-minds-think-alike approach, the two are perfectly complementary. Since launching their line in the mid-Eighties, they’ve blazed a trail for duets in fashion, now followed by everyone from the likes of Proenza Schouler to Mert Alas and Marcus Piggott in photography.

Not that being part of a duo is always easy. “Our [design] approach hasn’t changed, we still fight,” laughed Gabbana. “We just had a fitting and there was an excess of tailored looks that I wanted to eliminate to respect budgets. He didn’t.”

Regardless of who has the last word, their antennae are always up, feeling what the customer will want next. Take handbags, a growing category for the brand since wholesale revenues of leather goods and footwear rose 19 percent last year to 194.4 million euros, or $249 million.

Dolce & Gabbana has two special bag projects beginning this spring aimed at the super wealthy seeking exclusivity in return for spending $40,000 on a bag. The one-of-a-kind collection features 41 styles that meld innovative techniques and classic materials such as antique Venetian brocades, crocodile and python.

“We wanted to protect those clients who spend a lot for a bag and who don’t want to see it on everyone else,” explained Dolce.

The selection includes contrast color-blocks or tulle overlay with staple Dolce & Gabbana details such as front pockets, zips and flaps. The owners’ names can be embroidered inside and there’s an eight week wait from order time.

The designers also are introducing a limited edition array of bags for spring made up of 11 of their iconic styles revisited in croc and python. Only 10 bags per style will be produced.

“Every day we have thousands of ideas, we would never stop,” said Dolce.

As for the pressure posed by young, up-and-coming designers, it doesn’t ruffle Dolce or Gabbana’s feathers. “Competition is tough these days but there’s room for everyone,” said Dolce.

“Especially if the threat comes from talented designers, it stimulates us to do better because you can never rest on your laurels,” added Gabbana. “And, you know what? Regardless of everything, we still have lots of fun.”