BUSINESS ITALIAN STYLE
THE FAMILY HAS ALWAYS BEEN AN INSTINCTIVE, INTRINSIC PART OF THE ITALIAN PSYCHE. BUT TODAY, GLOBAL COMPETITION IS FORCING MANY FAMILY-RUN BUSINESSES TO RETHINK THEIR ORGANIZATIONAL STRUCTURE.
Byline: Samantha Conti
In the Seventies, when Giorgio Armani was showing his collection to American buyers under a bare light bulb, and Gianfranco Ferre and Gianni Versace would bump into one another on the train as they traveled between Milan and their respective jobs designing for other people’s companies, fashion was still unmapped territory where only a few had settled.
The pioneers — Valentino, Pucci, Capucci, Gucci, Galitzine and Ferragamo — were all established names, but their volumes were small and their clientele was limited to wealthy signoras, principesse and stylish globetrotters from Europe and the U.S.
The designer ready-to-wear business was still in its infancy, and the men and women who were helping it walk all had a similar DNA. They were entrepreneurs — creative types with a knack for business, or business minds with a flair for design. They were families, with names like Benetton, Missoni, Versace and Fendi, or they were designers closely allied with business-minded partners: Armani and Sergio Galeotti, Ferre and Franco Mattioli, Mariuccia Mandelli and Aldo Pinto. The formula was family — or a family-like partnership — and the result of that groundwork is Italy’s $13.5 billion luxury goods business.
Not that the fashion’s formulas were any different from other Italian business models: Fiat, though now run by outside managers, is still synonymous with the Agnelli family, while companies such as Pirelli, Barilla and Ferrero are still run, wholly or partly, by the clans that founded them.
As in most aspects of Italian life, “The family structure is, for the most part, the rule in Italy,” says luxury consultant Carlo Pambianco. “[The family] has always been a source of incredible creativity and passion, which is automatically transferred to the company.”
Paolo Gerani, whose family owns Gilmar, puts it another way: “Where else can you find a built-in, motivated team that doesn’t blink an eye at working 12 to 14 hours a day?”
But as the market consolidates and becomes more competitive, fashion’s families are being forced to evaluate their businesses and decide how they can reshape them in order to compete. “Italy’s family-run companies need to grow and adjust to new market conditions,” says Pambianco. “Eventually, they will have to open up the family structure to outside managers and gain access to new financial resources if they want to grow. They can also seek a stock market listing or sell to a big group. In any case, they will be forced to change.”
The Versaces, Ferragamos and Geranis are just some of the families that are thinking about how to face the future. “At a certain point, all companies have to accept the idea that they may be forced to look outside for additional talents and management resources if they want to continue growing and achieving excellence,” says Santo Versace, the chairman of the family-held company. “Members of the [founding] family can still hold top positions, but they will have to prove that their managerial skills are on a par with international professional managers.” He said that over the last few months, the company “went to great lengths to revise the organizational structure of key corporate functions — and we are not done yet.”
Versace, however, plays down the importance of seeking outside financial partners: “What companies need most are excellent products, outstanding quality, tightly controlled distribution and customers that appreciate and buy the products. In my opinion, having a financial partner does not necessarily mean you are going to survive.”
Versace says companies can seek a stock market listing, raise money in private capital markets or reinvest the cash generated by the business. He speaks from experience. Versace, which posted sales of $430 million in 2000 — a 3.2 percent rise over the year before — in 1999 issued five-year eurobonds to help refinance the group’s debts. Ferruccio Ferragamo, managing director of the Florence-based leather goods and rtw company, says family management gives a company stability.
“Today, especially, managers come and go, and there is a big race to absorb know-how and then run to the next company. There is more rotation in fashion than on a soccer team,” he says.
But Ferragamo, one of the six children of founder Salvatore Ferragamo who are now running the company, also believes the family formula has its limitations. “We all tend to think similarly, so maybe having a broader view would be a plus,” he observes.
Ferragamo notes that the company has recently hired “new blood” in the form of marketing, brand and distribution managers. In 1999, the company brought in Nicole Fischelis as senior vice president of fashion worldwide and a year later hired Marc Audibet as design head of the women’s studio, reporting to Giovanna Ferragamo.
Ferragamo, which had sales last year of $600 million, was among the first Italian companies to grow through acquisitions. In 1996, it bought the house of Emanuel Ungaro — although Ferragamo affirms that he’s in no rush to buy more companies.
“I’m not crazy about conglomerates because I think they’re difficult to maintain and there’s the risk that the different companies cannibalize one another,” he explains. “We bought Ungaro because we felt like we could integrate it well into the Ferragamo structure. We’re not desperate to make acquisitions. We will, however, consider buying companies that would allow us to swap know-how and grow the business overall.”
Gilmar, the brands of which include Iceberg, Gerani and Victor Alfaro, is also reconfiguring its structure in a bid to stay in step with the times.
“A family structure has so many advantages, it’s when you want to grow that things get tricky,” says Gerani. “You need to blend the family culture with the managerial culture. Frankly, it’s a challenge for the family to find illuminated, open-minded managers — and to know how and when to delegate.”
Most recently, the family hired Manlio Cocchini, a manager from outside the fashion industry, as managing director. Cocchini’s mandate is to help the company double its sales of $150 million over the next three years.
The Gerani family also wants to grow through acquisitions and was even rumored to be buying the knitwear and rtw firm Les Copains — although both companies denied there was a deal in the works.
“We have ambitious growth plans over the next two years, and we’d eventually like to go public after that period,” Gerani says.
In a twist on the family theme, Gerani said that making acquisitions in Italy has been difficult precisely because of the reluctance of the smaller, family-run companies to sell.
“Italians have a great sense of property, it’s a power thing. They built the company and it’s their baby, their passion — and they have trouble giving it up. It’s a sad move for them,” he says. Gilmar, however, is pressing ahead with plans to acquire companies specialized in accessories and knitwear and form joint ventures with its current licensees.
As Italy’s families grapple with questions of how to restructure their business organizations for the future, that other very Italian institution — the designer-entrepreneur duo — is also undergoing changes. Gone are the days when a pair could start a business on a few lire and a prayer. “The couple has become a triangle,” says Armando Branchini, vice president of InterCorporate, a luxury goods consulting firm. “Today, the designer and the business brain provide the vision and animal spirit of the project, while the big group or industrial partner provides the cash and the infrastructure .”
Branchini cites such designers as Victor Alfaro, who has a joint venture with Gilmar; Rifat Ozbek, who sold a controlling stake in his company to Aeffe, and Antonio Berardi who designs the Exte line for IT Holding, which in turn produces Berardi’s line. The list goes on: There is the Helmut Lang and Prada joint venture, and the most recent sale of Alexander McQueen to Gucci. It appears, too, as if Gucci is also interested in the 29-year-old designer Nicolas Ghesquiere, although both Gucci and Ghesquiere have declined to comment on the negotiations.
“For the very first mile, the young designer needs a business angel — someone, a small group, to help him or her get off the ground,” says Andrea Ciccoli, a luxury goods consultant with Bain, Cuneo & Associati. “But to make it to the prime time, the designer must ally himself with a big luxury group, a financial or distribution partner.”