MILAN — The impact of currency fluctuations and a proportionally higher tax burden pushed the house of Versace into the red for 2002, but the company believes better times are ahead as it implements a fresh industrial plan.
However, Santo and Donatella Versace again stressed they aren’t in the market to sell a minority stake in the company or pursue an initial public offering for future growth.
They are confident a new four-pronged industrial plan — covering everything from advertising and manufacturing to retailing and licensing — will boost efficiency at the house and return it to the black. In another move to bolster management, well-respected businessman and Luxottica chairman Leonardo Del Vecchio will join Versace’s board of directors, as reported.
“We are going it alone,” Santo Versace told WWD in a joint interview with his sister and the company’s corporate advisers. “We have the strength and the will to do so.”
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Versace posted a net loss of $6.8 million in the year ended Dec. 31, 2002 compared with a profit of $8.5 million in 2001. Trying market conditions, complicated by the war in Iraq and SARS, caused sales to dip 5.4 percent to $564.6 million from $596.8 million, the company said.
Dollar figures have been converted from the euro at current exchange rates. In local currency terms, net losses totaled 5.8 million euros, compared with profits the year before of 7.3 million euros. Sales fell to 482.8 million euros from 510.3 million euros.
Operating profit last year dropped 27.6 percent to $15.7 million from $21.6 million. Net financial debt increased to $151.9 million from $117.6 million.
Donatella Versace, who stressed that she wants to take a more active role in the financial side of the fashion business, described the house as a “potential jewel.”
“We may not have stratospheric sales like some other fashion companies, but we [our designs] are also a lot less safe than they are,” she said, explaining that she and her brother feel a responsibility to improve the company themselves.
Discussing the house’s stable of brands, Donatella said she and Santo have unfinished business to take care of before they would even consider selling a stake in the company or pursue another form of growth.
“We have to wait until all of the lines reach the same level as the top line — then we’ll think about it,” she said, adding that the company has been flooded with offers from potential investors. She declined to name any suitors, but press reports last year had private equity firms like Texas Pacific Group and Doughty Hanson vying for a minority stake.
Versace, along with adviser firms A&G Management Consulting and Hammonds Rossotto, articulated an industrial plan that focuses on the following areas:
- The creation of a global marketing group to head positioning and promotional efforts for all group products. Versace also merged its corporate communications and advertising operations into a single entity to boost efficiency.
- Improving the efficiency of production to free up resources to enable a better focus on customer service and a shortening of the time it takes to get products to market. The company said that over the last two years, it has improved management at its directly operated stores to better understand buying habits and inventories. Versace said these improvements helped boost 2002 sales from directly operated stores by 9.6 percent to $203.8 million. The company said sales from directly operated stores would have risen 14 percent at constant exchange rates. Wholesale sales generated the biggest slice of Versace’s revenue in 2002, dropping 15.1 percent to $270.8 million.
- A “strong and incisive” reduction of general and management costs, with an emphasis on diminishing back office expenses.
- Forming new licensing deals like the most recent 10-year agreement with Luxottica for eyewear. Other existing licensing agreements at Versace include one with Ermenegildo Zegna for select men’s wear items; Ittierre for Versus and the Versace jeans lines, and Rosenthal for the home collection.
Santo said Versace might use the Luxottica deal as a model for other possible partnerships. He also stressed the close personal relationship he and Donatella formed with Del Vecchio, which paved the way for him to join the fashion house’s board.
“There were times when [Del Vecchio] and Donatella were sitting on the floor sifting through different eyeglass frames,” he said.
Del Vecchio could not be reached for comment Thursday about his appointment to the Versace board, but a Luxottica spokeswoman described the move as a gesture of “his friendship toward the Versace family.” The spokeswoman also denied speculation that Luxottica aims to buy a stake in the fashion house. “This is not the intention,” she said.
Fabio Cacciatori, the chief executive of A&G Management Consulting, also is joining the board of Versace in a new appointment. The body will now consist of five members: Santo and Donatella Versace, Del Vecchio, Cacciatori and lawyer Maurizio Bozzato.
On the retail front, Santo said Versace is satisfied with its current network of 120 directly operated stores and instead will focus on opening sales points through franchisees and increasing its presence in multibrand stores.
Versace also plans to use franchisees to break into new emerging markets such as China and Eastern Europe. Versace just opened two stores in Wenzhou and Harbin and it plans to open at least 13 more in China over the next three years.
Versace also is planning to open other stores in Asia through franchisees, including one in Singapore and one in Tokyo’s Roppongi Hills department store complex. Both boutiques are slated to open in early October, and the Tokyo one will be opened in tandem with Japanese joint-venture partner Mitsui.
One industry consultant said geographic expansion makes sense for Versace.
“It’s a very well-known brand both in Europe and the United States, but a bit less so in Japan,” he said.
Armando Branchini, vice president of Milan-based consultancy Intercorporate, said he thought Versace was moving in the right direction, particularly by strengthening its marketing efforts and improving the quality of the retail network.
“They have to listen better and embrace the customer,” he said. “That’s fundamental for Versace.”