VERSACE REPORTS TOUGH ’99

Byline: Samantha Conti

MILAN — The Versace group had the wrong product in the wrong places at the wrong times in 1999, or so it seemed.
In the fiscal year ended Dec. 31, sales fell 7 percent to $399 million. Extraordinary gains due to recent changes in Italian accounting rules lifted net income 8 percent to $8.5 million.
Santo Versace, chairman of the family-run company, blamed the decline in sales on a weak euro as well as continued “uncertainty and instability” in Asian markets. Last June, during the presentation of the company’s 1998 results, Versace stated clearly that he wasn’t expecting growth in 1999 and that sales would pick up in 2000.
Daniele Ballestrazzi, Versace’s finance and administration manager, told WWD in a telephone interview that Versace may have suffered more than other fashion companies in Asia: “We were very dependent on apparel sales in those markets. Other companies fared better because they were focused on accessories.”
Ballestrazzi added that orders from Asian clients in 1999 “were still based on the fear everyone felt in 1998. I think everyone reduced their orders and were sorry later when they saw business picking up in the region.”
Versace’s 1999 annual report, issued to WWD on Tuesday, also underscored the company’s increasing desire to tighten control over production and distribution. Last year, Versace bought back a series of Gianni Versace and Versus franchises in the U.S., Europe and Asia and canceled a series of key licenses in order to take production in-house.
The report also talked about plans to launch a new men’s fragrance this year, and a skin care line in 2001.
In 1999, wholesale sales in nearly all product categories suffered. The report said clothing sales dropped 21 percent to $122.4 million, fragrance sales slid 16 percent to $58 million and sales of the home line fell 8 percent to $4.5 million.
On a brighter note, accessories sales rose 1 percent to $43 million while sales of Versace’s fine jewelry and watch line rose 50 percent to $6.6 million. (Dollar figures are translated from the Italian lira at current exchange.)
Those figures include products made by companies wholly or partly controlled by Versace. They do not include merchandise made and sold by Versace’s licensees. Royalties from licenses generated 10.2 percent of the company’s sales last year, the report said.
As for fragrances, the report noted that the drop in 1999 reflected the company’s “tardiness in renewing its product range” and the postponement until 2000 of the men’s fragrance launch.
In 1999, 58.8 percent of sales came from products made by Versace-owned companies, 23.4 percent came from wholly-owned boutiques, 10.2 percent came from royalties, and the remaining 7.6 percent came from franchisee fees, sales commissions and money earned from the sale of various properties.
The report also outlined Versace’s steps to strengthen control over retailing and distribution. Last year, the company bought back Versace and Versus franchises in San Francisco, Berlin and Munich; Brussels and Antwerp, Belgium, and Taipei and Kaohsiung, Taiwan. The company closed stores in Chicago and Pesaro, Italy, and found smaller spaces for its stores in Milan and Porto Cervo, Sardinia.
The store strategy has already begun paying off: Versace said that in 1999 retail sales from its wholly-owned boutiques rose 10 percent to $93.2 million. Controlling distribution, however, will take much more time — and money. There are 230 Versace sales points around the world, most of which are franchises.
Versace is slashing licenses and taking production in-house. Starting with the fall-winter 1999 season, the company handed its licenses for women’s and men’s shoes — which had been produced by Sergio Rossi and Cesare Paciotti, respectively — to Diver srl, which belongs to the Versace group. Diver, the report said, will become the “one and only production center” for Versace leather goods.
Versace has formed a joint venture with its eyewear licensee Gruppo Italocremona for the production and distribution of Gianni Versace and Versus sunglasses and prescription lenses. The new company, I.C. Optics, is controlled equally by Versace and Gruppo Italocremona.
The company took back the license for the Versace Sport line, as well. It will now be produced by Alias SpA, the company that makes the top Versace women’s clothing lines. Alias, also part of the Versace group, will begin producing the sport line with the fall-winter 2000 season.
The statement added that Versace is also consolidating the various management, distribution and financial companies within the group.
Operating profits in 1999 plummeted 59 percent to $15.7 million. Ballestrazzi said the drop was due to the “decreases in sales, coupled with similar operating costs as in 1998. It was a company decision not to scale back on expenses — especially in advertising and marketing. Scaling back is not the way to react to a crisis situation.”
Indeed, Versace spent $58.2 million, just 3 percent less than in 1998, on advertising and promotion last year.
Ballestrazzi added that the rise in net income was due to lower taxes — because of the decrease in sales — and new accounting practices that allowed the company to report extraordinary gains of slightly more than $6 million. The marked difference between operating profit and net profit was due to net financial charges and exchange rate conversions.
The report added that in January 2000 Versace paid out dividends of $14 million to shareholders. Versace’s main shareholder is the late designer’s niece Allegra Beck, followed by Donatella and Santo Versace.
The company releases sales and earnings information because of its issuance last year of five-year eurobonds to raise $103 million. As reported in these columns last year, an earlier plan to go public, abandoned following the designer’s 1997 murder, should be reactivated in two years.
This year, Ballestrazzi said growth would be spread among all product categories and, in particular, apparel and accessories. “We foresee a turnaround in 2000 — and that’s not just wishful thinking. Asia and Europe in particular will feed our growth.”
He added that there were no plans for more store closings. “The format of new Versace stores will be smaller than the existing megastores. We really plan to fine-tune our approach to retail.”.
Ballestrazzi said he did not foresee an immediate pickup in U.S. sales. “I don’t think the U.S. is in an aggressive mood, so I think we should maintain our current position there. We’ll be concentrating on rebuilding the equity of the trademark in that market.”