Will Cavalli Be Able to Pull Off a Versace?

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MILAN, Italy — A front-runner to buy struggling Italian fashion house Roberto Cavalli has emerged.

Dubai-based real estate developer Damac is said to be the buyer preferred by Clessidra, the Italian private equity firm that has majority-owned Cavalli since 2015, according to a report from Reuters.

Two other binding offers — from Italian fashion group OTB and American brand-management firm Bluestar Alliance — have also been submitted to the Italian bankruptcy court, which will have final approval on which company walks away with the business. But the Roberto Cavalli board believes Damac will bring the most continuity, according to a source with knowledge of the thinking.

When asked on Thursday why he was interested in Cavalli, which has suffered in recent years, OTB President Renzo Rosso told BoF it would help to round out the group's portfolio, which currently includes Maison Margiela, Diesel and Marni. However, he was puzzled as to why Cavalli management's was part of the committee selected to make the recommendation to the court.

The final decision will be announced in court on June 28, a source told BoF.

Damac has a previous history with the brand, having partnered to create Cavalli-designed luxury villas in Dubai 2017 — which will be completed by December 2020 — and a Cavalli-designed hotel, also in Dubai, projected to be open by 2023. The developer is best known for partnering with internationally recognised brands including Versace, Fendi, Tiger Woods — and yes, Trump — to open hotels and other lifestyle properties, primarily in the Middle East. (Cavalli, it should be noted, has these sorts of partnerships with real estate developers throughout the world, from Bahrain to Mexico.)

Pulling off a Versace will require a monumental effort.

However, Cavalli's new steward will not have an easy time turning around the label, which was already in the midst of a turnaround, led by former Versace Chief Executive Gian Giacomo Ferraris, when it ran out of cash and was forced to file for Chapter 7 bankruptcy in the US in April, liquidating its operations there and terminating nearly 100 employees. Just a few days later in Italy, the company filed for bankruptcy protection so that it could come up with a plan and find a new owner willing to implement it. The Italian courts gave the company and its board four months to find an appropriate suitor.

So what will it take for Damac, or any other buyer, to make Cavalli a leading luxury label in today's market? Cavalli is one of the few remaining independent brands with strong enough global brand recognition to scale, but it is estimated that it will take €50 million to €100 million more in investment to complete the Cavalli turnaround — and now, perhaps more, given that it will need to re-establish its business in the US, a key market.

Blackstone Group, the private equity firm that grabbed a minority stake in Versace in 2014, invested approximately $287 million in the brand at a valuation of nearly $1.4 billion. A significant amount, but worth it: In 2018, Versace sold to Capri Holdings, owner of Michael Kors, for $2.1 billion, delivering a tidy return.

Even for a private equity firm like Blackstone, which usually prefers to exit an investment in three-to-five years, the Versace-Capri deal was a boon. But what is less understood is all the work that Ferraris did prior to the Blackstone investment. The executive arrived at Versace in 2009, a whole five years before Blackstone was in the picture, laying the groundwork by cutting back spending and streamlining operations. (When he arrived, the company was generating €270 million a year, but operating at an €80 million loss.)

It took nearly 10 years to turn Versace around... Cavalli's investor will have to be the patient type.

It took nearly 10 years to turn Versace around, which means that Cavalli's investor will have to be the patient type, especially given that Cavalli lacks two things Versace has in spades: a strong creative vision led by Donatella Versace and pop-culture relevance going back to the brand's heyday in 1990s.

Versace suffered financially after the murder of the house’s founder, Gianni, but his sister Donatella emerged as a creative force in her own right, proving that she was more than able to keep up. Versace is also simply one of the biggest fashion brands in the world, with a backstory compelling enough to be the subject of several books and even a television series.

Cavalli, while a celebrity favourite, does not possess the same mystique. And although the namesake designer still owns a small percentage of the brand, he is no longer involved. His successors in design — Peter Dundas, then Paul Surridge — were not able to achieve a creative break through.

For Damac to succeed, keeping on an executive like Ferraris, and finding the right creative director, will be key. But even then, it will take time. Global fashion businesses with scale need strong brand recognition, creatively impactful collections and a robust accessories business, something that is not easy to build. (Even Versace is only now making headway in accessories.)

The fact that OTB is the only high-fashion group in the running to buy Cavalli shows how risk-averse and results-driven the industry has become. For Cavalli, pulling off a Versace will require a monumental effort and even then, a return is far from guaranteed.

THE NEWS IN BRIEF

FASHION, BUSINESS AND THE ECONOMY

Chanel 2.55 bag | Source: Getty

Chanel surpasses $11 billion in sales and dismisses sale rumours. After a year of tremendous upheaval — the passing of Karl Lagerfeld and speculation that the Wertheimer family might be preparing an exit — sale rumours have been rife. But Global CFO Philippe Blondiaux reiterated in an interview with BoF that the luxury house is not for sale. Chanel continues to dominate the luxury market amidst the increased scrutiny. In 2018, the company generated $11.1 billion in global sales, up 10.5 percent year-over-year, with operating profit hitting nearly $3 billion, up 8 percent from 2017.

Inditex is still betting on brick-and-mortar retail. The Zara owner has shrunk its network in Spain — by far its biggest portfolio globally — by 297 stores, or 15 percent, since 2012. Shutdowns have led some investors and analysts to worry about slowing sales growth at a company whose business has been built on a rapidly expanding store network. But the company has actually increased overall selling space in Spain by opening or expanding flagship outlets, and net retail space in Spain also increased in the last financial year.

China, US trade teams to hold talks. Trade talks between the world's two largest economies collapsed last month, with US President Donald Trump accusing China of watering down its commitments. Trump raised tariffs on Chinese goods and has threatened even more. Top Chinese and US officials will now hold trade talks, the Chinese commerce ministry said, adding that China hopes the United States will listen to its industry and stop threatening tariffs. Meanwhile, hundreds of US businesses from local bridal shops to multi-billion dollar retailers have submitted comments to the US Trade Representative's Office opposing Trump's plan to slap tariffs on another $300 billion of Chinese imports.

The CFDA/Vogue Fashion Fund announces 2019 finalists. The latest group of emerging American designers — with a range of experience and focus points, from streetwear to sustainability — will compete for mentorship, exposure and cash in the 16th iteration of the program. The CFDA/Vogue Fashion Fund's new finalists include designers who have dressed former First Lady Michelle Obama, worked for Kanye West on his Yeezy line and partnered with 4 Ocean, an organisation that removes trash from the sea.

Ami launches womenswear line. The menswear line by Alexandre Mattiussi is launching womenswear as a category for its Spring/Summer 2020 collection with a co-ed show on Tuesday. The upcoming show will feature 20 looks each for men's and women's, with the same affordable price points and clean aesthetic that Ami is known for in the men's market. Rather than showing during the women's season, both collections will be shown side by side, with the Autumn/Winter 2019 capsule already counting Matches Fashion and Liberty London as stockists.

Mulberry hurt by House of Fraser collapse. The British luxury bag maker swung to an annual loss as it took a £3 million ($3.77 million) hit from the collapse of department stores group House of Fraser, adding to general weakness in its home market. Mulberry bags sell for around £1,000 and reported a loss before tax of £5 million for the year ending in March, compared with a pretax profit of £6.9 million a year earlier. The company said it had faced fixed asset impairment costs of £800,000 from the House of Fraser collapse.

THE BUSINESS OF BEAUTY

Gucci Westman and her Westman Atelier products | Source: Courtesy, collage by BoF

Gucci Westman's makeup brand Westman Atelier launches in the UK. The celebrity makeup artist, who has worked with the likes of Annie Leibovitz and Peter Lindberg on countless Vogue covers, launched her brand Westman Atelier last spring but until now it had only been available in the US. The brand is now available in the UK exclusively with Net-a-Porter. With the tagline "conscious crafted beauty," the brand uses clean ingredients and comes in stick form, the inspiration for which came from Westman's experience as a makeup artist.

L'Oréal names first female president of its biggest beauty brand. Viguier-Hovasse, who has been running the company's Garnier unit, succeeds Pierre-Emmanuel Angeloglou at the head of L'Oréal Paris becoming the first female president of the world's biggest beauty brand. Angeloglou is taking on a new role with LVMH's Louis Vuitton as head of strategic missions in fashion and leather.

Kim Kardashian is releasing foundations for the body. The reality star has revealed the latest products coming to her beauty brand KKW Beauty. The Body Collection will consist of three makeup products for your body – a foundation, a powder and a shimmer. The collection is garnering mixed reactions on social media, with users expressing concern about the potentially harmful message of body makeup, as well as the practicality — leaving marks on furniture when sitting down, for example. Kardashian revealed that she is an avid user of body makeup to cover her psoriasis.

PEOPLE

Bartolomeo ‘Leo’ Rongone | Source: Courtesy

Kering taps Saint Laurent COO to lead Bottega Veneta. The brand has a new chief executive to continue the transformation Kering is plotting for the luxury house. Bartolomeo 'Leo' Rongone will take the lead on September 1, succeeding Claus-Dietrich Lahrs who spent three years in the top job. Owner Kering is trying to jumpstart the otherwise sleepy Italian luxury brand. Last summer, the conglomerate said goodbye to longtime lead designer Tomas Maier and hired Daniel Lee, an unknown former director of ready-to-wear from Phoebe Philo's Celine, as creative director.

Gloria Vanderbilt, child heiress turned jeans queen, dies at 95. The New York heiress, actress, author and entrepreneur died on Monday. A descendant of Cornelius Vanderbilt, a shipping and railroad magnate, she inherited about $4 million at age 21, much of which was spent by the time she was in her 40s. Her fame spiked in the late 1970s when she designed jeans for women that carried her signature on the rear pockets. She appeared in television commercials and at department stores as part of a marketing campaign that sold millions of jeans, from which she earned $10 million in 1980.

Tapestry appoints CFO. The Coach and Kate Spade owner has shuffled its board of executives — Joanne C. Crevoiserat has been named CFO, joining from Abercrombie & Fitch where she held the same post. Tapestry has also promoted Andrea Shaw Resnick, the company's CFO since February, to global head of investor relations and corporate communications.

MEDIA AND TECHNOLOGY

Shopify is setting up a fulfilment network in US, just like Amazon. The online platform plans to spend $1 billion to set up a network of fulfilment centres in the US to help merchants using its e-commerce site deliver products more quickly and cheaply. Shopify, which celebrity Kylie Jenner uses to sell cosmetics, is the top-performing stock in Canada this year.

Farfetch signs onto Facebook's new cryptocurrency project. The social media giant has made a renewed push into payments with plans for a cryptocurrency called Libra, set to be governed by the Libra Association, a group of companies with an equal say in how the cryptocurrency is managed. Farfetch joins almost 30 companies that have signed on, including Vodafone, and Facebook hopes another 70 or more will enter the fold in the future.

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