The future of Italian brands: a perspective on talent and succession

Think of Italy. Once you’re past the beautiful landscapes, art, architecture and delicious food, you think of brands, and you think of style. Be it the cocksure, sleek glamour of sports cars like Maserati and Ferrari, the sensual femininity of Versace, Valentino and Prada or the pure understated luxury of Zegna and Loro Piana, Italy and beautiful brands go hand in hand. Just like the sought-after ‘Made in Italy’ label, this sense of glamour, style and inherent appreciation of branding is stitched into the DNA of the whole country.

I believe the Renaissance is likely to have something to do with that, but into the 20th century, the ability to fuse craftsmanship and regional production with creativity, underpinned by a steadfast commitment to heritage and keeping things in the family, has enabled Italian brands to retain their unique perspective for many years. So, what happens when this is no longer the case and eponymous founders move on, pass away, or there are no longer viable heirs to continue the legacy?

Some brands have taken measures to ensure their businesses stay in familiar hands. In April, Dolce & Gabbana rejected all acquisition offers, then transferred ownership into a trust to prevent a sale. Missoni received an injection of €70m from an Italian state-backed investment fund in exchange for a 41.2% stake. LVMH acquired 67% of Emilio Pucci in 2000. Emilio’s daughter, Laudomia Pucci remains as the image director and deputy chairman, which is a rare move for the group. In June, Prada made clear its intention not to sell, and CEOs Patrizio Bertelli and Miuccia Prada are laying the foundations to hand the $11.4bn business over to their son Lorenzo Bertelli.

And what will happen when Mr Armani is no longer in the office Monday to Friday 9am till 7pm? Similar questions pop up around Ferragamo and Etro.

The topic remains at the forefront in this sector and therefore a week ago, MBS held its first dinner in Italy with the title “Il futuro della moda Italiana: una prospettiva sul talento”. Our guests represented a number of brands as well as figures from the private equity world, who also play a key role in the future of Italian brands. We discussed how it would be possible to preserve and evolve vast luxury empires without a logical heir, and considered why private equity funds and large conglomerates are so attracted to the acquisition of fashion houses and luxury brands.

A week ago, MBS held its first dinner in Italy titled “Il futuro della moda Italiana: una prospettiva sul talento”

The recent sale of Versace to Michael Kors was also at the top of people’s agenda for discussion. As most of you remember, in 2014 Versace went through a turbulent time before Blackstone stepped in. The private equity firm agreed to a 20% stake, a deal that valued the fashion house at $1.4bn.

The Michael Kors deal, valued at $2.1bn, is 2.5 times Versace’s current revenue, and 22x EBITDA and is expected to be closed in the fourth quarter of 2019. Under the new organisation, John Idol will remain chairman and chief executive of Capri Holdings and the Michael Kors brand. Versace chief executive Jonathan Akeroyd will continue on, as will creative director Donatella Versace.

When the dust settles, the acquisition is expected to boost Capri Holdings’ revenues to $8bn, with $2bn generated by Versace, making Blackstone and Akeroyd’s stated intentions to reach €1bn in 2018 conservative in comparison.

Many believe the acquisition will provide assurances for the legacy of Gianni Versace and will bolster the turnaround mission that CEO Akeroyd and his team have been delivering since 2016. And let’s not forget that SS18 show, where Donatella reminded us of her savvy and made us all fall back in love with Versace’s unapologetically showy glamour of the 90s when it owned the catwalk and the red carpet. And the revival has continued since.

From a marketing perspective, the pairing of Michael Kors and Versace is a match made in heaven. Donatella and John Idol are likely to want to adopt large scale, impactful strategies that take the sector by storm. Others might argue that the union puts Versace’s heritage at risk and could derail the huge progress has been achieved so far.

Quite dissimilar to Versace, and with nowhere near the heritage, the American fashion brand gained enormous popularity through its affordable and highly desirable range of handbags and accessories, which have recently seen an inevitable decline in sales. Running a legacy brand is a large task for newly-dubbed Capri Holdings. Analysts have questioned how Versace will fit with Michal Kors, where sales are driven by items that typically sell for under $400. When the deal was announced in September, Michael Kors’s shares fell 8%.

Michael Kors gained enormous popularity through its affordable and highly desirable range of handbags and accessories.

Yet Versace is not the first high-end fashion house Michael Kors has acquired as part of John Idol’s strategy to counterbalance the slowdown. Last year, it bought footwear brand, Jimmy Choo for £896m, and in 2018 Michael Kors posted a 26.3% rise in second quarter revenue in 2018; Jimmy Choo made a 17.2% contribution. However, there are three fundamental differences: 1) Versace predominantly focuses on ready-to-wear rather than accessories; 2) Versace has been built on full-price product, whereas, since the acquisition, Jimmy Choo has opened its first outlet store in Texas. Perhaps, this is part of a new strategy, similar to the approach Michael Kors has taken with its brand; and 3) Versace’s current owner and creative director comes as part of the deal, the management of which will be crucial to Versace’s success.

The biggest challenge Michael Kors will face is capturing trust. The culture surrounding Italian luxury houses, steeped in proud family history differs from that of American brands. In Italy, family is really important in society, and if a family does well in business, they don’t feel the need for meteoric growth. But one thing is true, Italian brands need to be more open to international talent. Digital talent is limited in Italy, as is capital to grow and expand. That’s exactly why some brands are inviting international financial advisors and investors to help them transition into new markets.

In fact, Michael Kors’s acquisition of Versace follows the sale of several other Italian brands to non-Italian owners. In 2012, Italian fashion house Valentino was snapped up by the Qatari royal family for $857.5m, and it recently rescinded plans to sell a quarter of the company in an IPO. The Chinese conglomerate, Gangsu Gangtai Holdings acquired an 85% stake in Buccellati last year. However, after a poor performance in the first half of 2018, the holding company is looking to sell.

But this isn’t a universal trend. The Ermenegildo Zegna Group has taken matters into its own hands. It recently acquired American suit company Thom Browne, valued at $500m and a minority stake in Indian menswear brand Raghavendra Rathore Jodhpur.

If our dinner was able to shed light on anything, it is that many Italians welcomed the Michael Kors deal, as it was seen as a positive step towards evolution in a challenged industry. With the recent loss of Wanda Ferragamo and Gilberto Benetton we may not have to wait too long to see how the landscape continues to tackle the issue of succession. Will we see other brands going to multinational groups or will they keep it in the family?