BALLY TO BLAST INTO LUXURY LAND

Byline: Samantha Conti

SCHONENWERD, Switzerland — Texas Pacific Group wants to bring Bally into luxury’s major leagues — and it’s not wasting any time.
Two months after TPG announced it was buying Bally, the new creative team had pumped out a handbag collection and Norwegian photographer S+lve Sundsb+ was shooting the spring 2000 ad campaign.
“We wanted to get the message out fast that times were changing at Bally,” said Scott Fellows, the company’s creative director and former marketing chief at Ferragamo. “We knew things wouldn’t be perfect, but we couldn’t afford to wait.”
Broadcasting Bally’s new, if incomplete, message was crucial for TPG, which has ambitious plans for the ailing company. It wants to transform the 150-year-old Swiss name into Europe’s next big luxe brand and position it alongside Gucci, Ferragamo and Louis Vuitton.
The Bally purchase is TPG’s first foray into luxury land. It has a controlling stake in J. Crew and an investment portfolio that includes Virgin Entertainment, Continental Airlines and Del Monte. In 1996, it rescued the Italian motorcycle company Ducati and successfully floated it on the stock market last year. TPG plans to propel Bally back into the black in three years, and its strategy is twofold: streamline operations and inject a shot of youth into Bally’s stodgy image. At the same time, the company has no plans to bury its past.
TPG plans to focus on the “Swissness” of the product, emphasizing not only luxury, but also comfort and practicality.
Bally was founded in this Swiss hamlet in 1851 by Carl Franz Bally, whose family owned a ribbon factory. That year, Bally returned from a trip to Paris with a stash of handmade shoes — a gift for his wife. Soon after, he developed the first mechanized shoe manufacturing technique with help from local cobblers.
“The strategy lies in believing and behaving like a luxury brand,” said Gerald Mazzalovo, Bally’s president and chief executive officer, during an interview at his offices here. “That means having selective distribution and making your customers feel privileged to be wearing Bally.”
Mazzalovo, the former president and chief executive officer of Loewe and a former Ferragamo executive, plans to downsize Bally’s distribution network, especially in Europe, over the next six months.
“This company is losing money, so our first objective is to stop the bleeding,” Mazzalovo said. “That means closing stores, slashing the list of wholesale clients and drastically reducing our production cycle.”
He said he planned to shut 120 stores in nonstrategic cities such as Metz and Djon in France, leaving Bally with 180 directly operated, freestanding stores and 100 franchise shops. Wholesale accounts will be reduced from 1,800 to 180.
Mazzalovo added that Bally would continue to sell to U.S. stores such as Nordstrom and Bloomingdale’s. Bally has about 48 store accounts and 200 wholesale customers in the U.S., a market that generates 25 percent of the firm’s sales. Mazzalovo said the U.S. and Japan were the markets with the “highest potential” for growth.
Carlo Pambianco, a consultant for the fashion and textiles industry in Milan, said the ambitious repositioning of Bally would take at least three to five years.
“Moving Bally from the ‘quality zone’ to the ‘luxury zone’ means getting into the heads of a lot of consumers all over the world and telling them that Bally is changing,” Pambianco said.
“Management would do well to focus on communication and downscaling the distribution network.”
When TPG purchased Bally last year, the company put its annual losses at approximately $62.5 million, based on current exchange rates. Bally’s 1998 sales — the last full year reported — were $500 million. Mazzalovo declined to give any sales projections.
TPG reportedly paid more than $200 million for Bally; an initial $65 million went toward the purchase from Oerlikon-Buhrle Holding AG. The remaining $135 will be invested in the restructuring, sources close to the company said.
This summer, Bally will move its headquarters from Schonenwerd, outside Zurich, to Caslano, which is near the Italian border and about an hour’s drive from Milan.
“Caslano is closer to the whole fashion supply system,” said Mazzalovo. “We’ll also be in a better position to attract first-class talent. If we want to play the fashion game, we have to be closer to the Milan fashion hub.”
The new headquarters, near Lake Lugano, will house the creative, design, commercial and communication offices and will turn out about 200,000 pairs of shoes each year. It will also house one major distribution center, instead of the seven the company had previously, as well as a museum and archive.
The Schonenwerd offices will continue to oversee human resources and accounting, and will house the main Bally outlet store.
Mazzalovo said he planned to institute a module system of production that allows more flexibility. His goal, he said, was to reduce the time to market of Bally core products to just four weeks.
Mazzalovo wants merchandising to be the backbone of Bally’s international structure. He plans to appoint five divisional merchandise managers, one for each product category, who will work closely with regional buyers and store managers. Bally currently produces footwear, ready-to-wear and accessories for women and men. Mazzalovo said it was crucial there be clear dialog between the design and merchandising teams.
Mazzalovo and Fellows are trying to communicate with the rest of the company, and everyone down to the store employees, what the new Bally is all about.
When they began their road show, the two weren’t exactly expecting a captive audience. Before TPG roared in, Bally’s former owners, the Swiss technology firm Oerlikon-Buhrle Holding AG, had hired five chief executives in seven years and company employees had heard enough of relaunch talk.
“This time, I think they understand why we’re making these changes and that they’ll actually be involved in the process,” Fellows said.
Employees and customers have been able to see some changes firsthand. Fellows’s design staff has already turned out four new groups of handbags for spring, which are in stores now.
“There wasn’t any color in the stores, and the handbags added color,” said Fellows.
Fellows said the average retail price of a Bally bag is about $400 and that figure will be “marched up to about $500” as the company revamps the line.
As accessories go, Bally is off to a healthy start for fall 2000 with designs that are both functional and stylish: python bags with crocodile-tail shoulder straps, felt totes with an Alpine feel and mail bags with simple brass hardware.
Fellows said his vision of Bally is “chic, comfortable, with a sleek, sporty edge.”
“If Gucci is about evening, Bally is about day,” he said. “I want customers to come to Bally to get that chic shoe they’re going to end up wearing every day. The Bally shoe will always be appropriate, but never dull or boring.”
He is putting together a design team that will include two designers each for the men’s and women’s footwear lines. Each of the rtw lines has its own designer, as does the handbag line. The major impact of the new design team should be evident in the spring 2001 collection, he added.
Bally’s rtw, Fellows said, will fill “the hole in the market” between designer collections and Banana Republic or the Gap.
“The world does not need another designer rtw collection right now,” he said. “It wouldn’t be appropriate for Bally to do one.”
The creative director said about 50 percent of the collection would be made up of knitwear, 25 percent would be leather outerwear and the remaining 25 percent would be key items that include raincoats, trousers and skirts.
“I want the collection to be made up of those perfect pieces you can’t live without, key items with pizzazz to wear every day,” Fellows said.
Rtw now accounts for 5 percent of sales, but Bally management would like that figure to increase to 15 to 20 percent in the long term. Footwear generates 70 percent of sales; the balance comes from accessories.
One of Fellows’s first efforts in rejuvenating a classic Bally model came earlier this year with the Havana loafer, launched 20 years ago. What was once a comfortable, sober and unassuming shoe now comes in 13 colors for women and nine for men. A miniature version of the loafer, along with a Bally gift certificate, even made it into this year’s prestigious gift basket presented to nominees and presenters at the Oscars.
Companies have to compete to get their products into the basket, and Bally considers it a coup that the Havana loafer made the grade.