In the Black, YSL Plots Ambitious Growth

PARIS — While the global economic crisis has thrown many high-flying luxury brands into a tailspin, operating under trying circumstances is old hat for the folks at Yves Saint Laurent.

“We’ve always been in crisis,” said Valerie Hermann, who arrived as chief executive officer of YSL in early 2005, a year after losses had ballooned to 76.4 million euros, or $95 million at average exchange rates. “I think we have a team which is quite well prepared to go into this crisis.”

And there is a motivating victory to celebrate: As reported last month, YSL reached breakeven in 2008, surprising many in the market. Gucci Group, which acquired YSL in 1999, has resisted setting a profitability deadline for the storied fashion house after a radical attempt to engineer a Gucci-esque renovation drove YSL deeply into the red.

Gucci Group ceo Robert Polet has not wavered from his 2004 statement that YSL would likely turn profitable when revenues reached about 300 million to 350 million euros, or $375 million to $437.5 million at current exchange. The milestone was reached as revenues rose 18.8 percent to 263 million euros, or $328.7 million, suggesting the good news came earlier than expected.

Hermann credited product expansion, particularly in the high-margin leather goods business, for propelling the brand into the black — with tight cost controls playing a supporting role.

“We went from a situation where it was mainly ready-to-wear and one bag, to ready-to-wear, bags, shoes and small leather goods,” Hermann said in an interview, seated in the meeting room situated between her office and that of creative director Stefano Pilati, her design counterpart in the turnaround effort. “Are we a monoproduct brand? Not any more.”

The executive was referring to the Mombasa, a hit bag from the Tom Ford-era YSL that was the couture brand’s first real volley into accessories. (Previously, costume jewelry by the late couturier’s muse Loulou de la Falaise was the main statement.) While Ford’s horn-handled shoulder jewel is still available in stores, it’s the Muse, Muse 2, Downtown and Tribute bags that have given YSL further legitimacy, along with influential shoe styles such as the Tribute, a platform sandal.

When Hermann arrived at YSL from Dior, succeeding Mark Lee, leather goods accounted for 31.9 percent of the company’s revenues, with rtw at 44.5 percent, shoes at 13.1 percent and other products, including royalties, at 10.5 percent. Last year, leather goods generated 35.9 percent of revenues, with rtw at 30.8 percent, shoes at 16.7 percent and other products at 16.6 percent.

While product expansion, including the Edition 24 line of wardrobe staples, plus evening and unisex capsules, bumped up the top line, Hermann nurtured the bottom line with close attention to open-to-buys, inventory levels, pricing and margins. Healthy sell-through took priority over loading up stores with merchandise.

“The best way to improve the results was to increase the turnover, with a good margin,” she stressed.