While I'm not entirely gung ho about private equity firms taking over large fashion houses, here's a great argument for the cause. The stock market favours the luxury goods sector at this point, hence heavily indebted luxury houses are taking advantage of this situation to convert debt into equity.
Take for example Versace. The clothes that once made the brand were struggling to make money. The fashion house was saddled with more than $146 million in debt and heading to a net loss of $124 million for the year, on revenue of $416 million. High-end retailers like Bergdorf Goodman had stopped carrying the brand. All that changed after the company hired Giancarlo Di Risio as CEO in 2004.
Fashion is passé
Di Risio arrived with a new mantra. Clothing that is too fashionable, he told his lieutenants, is bad for business because it eats up capital and goes out of style quickly. Accessories and other leather goods are a better bet because they have a longer shelf life and fatter profit margins. He homed in on the company’s shoes and handbags, which have higher profit margins because they cost less to produce than clothes but are easier to sell to a wide array of customers.
Versace soon swung back into action, posting a $25.4 million profit after years of losses, shaking off millions in debt. In fact, more than 30% of its $383 million in revenue came from accessories, compared with 4% when Di Risio arrived.
He also expanded the label’s push into home furnishings — a business that generated sales of $82.5 million in 2006, up 55% from the year before. Shifting the company's attention away from clothes to accessories, home interiors and other lifestyle products has brought in new streams of revenue and offset fickle fashion cycles. "Fashion does not exist at Versace," he said.
Who'd have thought?
For the enire article, go here.
Source: Myglobalhustle
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