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Versace's Latest Plan: U.S., Accessories Keys To Breaking Even in '07

Versace chief executive officer Giancarlo Di Risio said losses widened and revenue dropped in 2004, but predicted the firm would break even in 2007.

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Giancarlo Di Risiosays Versace is planning more resorts like this one on Australias Gold Coast
MILAN — Versace, famous for both its fashions and its expenditures, is ushering in a new era of restraint.

Versace chief executive officer Giancarlo Di Risio said that 2004 marked a turning point for the company. Although losses will widen and revenue will drop in the full-year results Versace is slated to release next week, Di Risio said it's all just part of the restructuring process as the company works toward the goal of breaking even in 2007.

"This is a historic transformation from a family-run company to a manager-run company. We are abiding by the same principles as a publicly listed company," he told WWD, characterizing fiscal 2004 as the end of an "unhappy period for Versace."

Di Risio also confirmed widespread speculation that Versace has scrapped its plan to sell a minority stake in the company. For now, Versace is targeting financial stability. Only in 2007 at the earliest can the company decide whether it wants to link up with an investor or pursue an initial public offering, he said.

"Our priority is to bring the company into a state of equilibrium," he said.

Di Risio could not be drawn out on specific figures for 2004, but financial sources estimate Versace's sales will fall 20.6 percent to 320 million euros, or $396.8 million, while its net loss will widen from 26.5 million euros, or $29.7 million, in 2003.

(Dollar figures have been converted from the euro at average exchange rates for the periods to which they refer.)

In 2001, the last year the company turned a profit, revenue totaled 510.3 million euros, but sales have dwindled each year since then. Last year, Allegra Beck Versace, Donatella's daughter and Gianni's niece, turned 18 and inherited full control of her 50 percent stake in the company, marking a shift in power and a new era at the company she owns along with her mother and her uncle, Santo.

Di Risio emphasized Versace is making progress, correcting problems of late deliveries, producing more focused and commercially viable collections and chipping away at its debts by selling off assets like the watch and beauty businesses, which it subsequently licensed. Recent appointments in the U.S. create a structure to "reconquer" that market, he said.
Di Risio stressed that an energized, focused post-rehab Donatella Versace has helped the company churn out a more sophisticated and "exploitable" product range. Fall-winter 2005 wholesale sales are up 53 percent overall and up 38 percent in accessories specifically.

One of Di Risio's key moves since becoming ceo was cutting back on the proliferation of Medusa heads adorning products of both the signature collection and the diffusion lines. Now only top-line goods carry that unmistakable trademark and Di Risio said that was an important step toward safeguarding the brand's cachet.

"Versace is one of the very few companies that has a symbol as strong as the Medusa," he said. "But you have to know how to exploit it."

As for debts, Di Risio said they stand at 80 million euros, or $100.7 million at current exchange rates, down from the 127 million euros, or $159.8 million, as of his arrival last September. He said the goal is to reduce debt to less than 40 million euros, $50.3 million, by the end of the year.

"Already as of today we can no longer talk about the company having an at-risk situation in terms of debts," he said.

Versace will see its 2005 and 2006 revenue drop as the company's sales-generating base changes, said Di Risio. At the same time, losses will start to narrow, allowing the company to break even in 2007.

Versace sold its watch and beauty businesses in late 2004, which will bite into 2005 numbers, Di Risio said. Revenue in 2006 will suffer as Versace decides the fate of its secondary lines, he added. Already Versace has canceled its women's Versace Classic line and replaced the men's with a new higher-positioned brand known as Versace Collezioni, making its debut for the fall-winter 2005 season. Licenses with IT Holding for Versus and Versace Jeans Couture expire in 2007.

It has been unclear whether Versace wants to cancel the Versus line. Traditionally shown on the runway in tandem with the main Versace collection, the company has cut the diffusion line from fashion shows the past two seasons. Di Risio said there are no plans to end the line but also indicated that efforts aren't being channeled there.
"Right now we are focusing on the top line," he said.

Di Risio said he's banking on sales growth from 2006 onward by expanding the still small accessories business and increasing the flow of royalty income from licensed products such as watches and fragrances. Versace sold its Swiss watch division to Timex and its beauty arm, Giver, to Euroitalia and then struck eight-year licensing deals with the respective buyers for those products.

Versace will also get royalty proceeds from the world's second Palazzo Versace Resort, which will open in Dubai in 2008 (see related story below). The firm already operates a six-star resort on Australia's Gold Coast, stocked with Versace products — from furniture to bath gel.

The fashion house has said for years it wants to grow its still-minimal presence in accessories and Di Risio reinforced this priority. He said the firm has stopped considering accessories as mere companion pieces to apparel but rather as underexploited territory. Currently accessories comprise just 4 percent of Versace's revenue, but Di Risio said that could rise to as much as 30 percent in the future.

In particular, Versace is working to boost the accessories presence in its stores as it renovates retail spaces to a new concept featuring black lacquered panels, white leather furnishings and gold detailing. Stores on Milan's Via Montenapoleone and New York's Fifth Avenue will be the first to incorporate these design elements. Workers are putting the finishing touches on the Milan boutique, which houses a first floor dedicated entirely to accessories.

The company tapped Rocco Magnoli, one of the original architects of the New York flagship, to help modernize his original creation. Gianni Versace was particularly passionate about the New York store, which opened in 1995, just a couple of years before the designer's death. Di Risio said renovations on the New York store are slated to begin this August.

"The Fifth Avenue store is particularly special because Gianni really wanted it," the ceo said.

Di Risio highlighted how recent appointments in the U.S. are sure to grow Versace's business there. Currently the U.S. generates only about 11 percent of Versace's revenue.

Earlier this month, Versace named Patrick Guadagno, an alumnus of Dolce & Gabbana's D&G, as U.S. president and chief operating officer of the wholesale division. The firm also tapped former Fendi executive Roberto Lorenzini to head up the retail business, giving him an analogous title.
Back in Milan, Versace welcomed a new worldwide communications director this month. Isabelle Harvie-Watt Clavarino, a 14-year veteran at Giorgio Armani, replaced the outgoing Jason Weisenfeld. She will coordinate all advertising for the brand.

Paul Beck, the company's former publicity director and Donatella Versace's former husband, recently returned to the company at its newly opened New York press office. Di Risio said that Beck will oversee "special projects." Versace has yet to fill the post of U.S. public relations director.

Armando Branchini, vice president of consultancy Intercorporate, said he thinks Di Risio, a former IT Holding and Fendi ceo, is a strong managerial choice for Versace and that a 2007 break-even date is doable given the brand's name recognition and underexploited areas, such as the U.S. and accessories.

"I think it's realistic. They can do it," he said.

Still another luxury goods consultant, speaking on condition of anonymity, said he thought the 2007 break-even point wasn't aggressive enough.