On May 25th, Bloomberg News reported on a power struggle within Versace, pitting designer Donatella Versace (who owns 20% of the company) against Giancarlo Di Risio, the CEO who was hired to steer the company back into profitability after a number of bad design and marketing decisions put the Versace brand in financial trouble in the early 2000′s.
“The family brought in the former Fendi SpA chief in 2004 to stem losses. He worked closely with Donatella to make the collections less flashy and returned the label to profit, helped by sales of accessories and new booming markets, such as Russia.”
But Donatella is said to be displeased with some of Di Risio’s latest decisions, including cost-cutting in the marketing budget and hiring an outside designer (hot Brit of the moment Christopher Kane) to design a new collection for the brand’s lower-priced cheaper-quality label, Versus.
The installation of Kane at Versus was touted as a positive move for Versace, but Donatella apparently chafed at the idea that Kane was given full creative control over the direction of the Versus brand, locking her out of the creative decision-making process for a brand produced under her family’s name.
Video clip below of Kane’s own Spring/Summer 2009 collection:
Just one day after the Bloomberg article hit the web, the Wall Street Journal reported that the Versace board approved a restructuring deal that sidelines the CEO. The scuttlebutt is that Di Risio will be resigning in the next few days.
“Versace tapped Bain & Co. to craft a new strategy for the fashion house two months ago as tensions between the designer and Mr. Di Risio rose, the people said. Amid falling profits, Mr. Di Risio has pushed Ms. Versace to simplify her designs, so that the house could introduce new accessories and clothes with lower prices, according to one person familiar with the matter. The two have also disagreed over how to cut costs at the fashion house, the person said.”
News articles are still touting that nothing is amiss in Versace land, though Business.Scotsman is hinting that the former CEO of Pringle of Scotland might be in consideration to replace Di Risio: “The Versace board is expected to meet today to discuss the departure of current chief executive Giancarlo Di Risio, but it is understood that the fashion house’s approach to Winser is in very early stages.”
And the Financial Times seems convinced that Di Risio is on his way out the door: “The split has its roots in the global economic crisis, which is hitting the luxury goods market hard. Ms. Versace always felt it necessary to spend lavishly on promotions and parties, and Mr di Risio began to urge caution as the recession bit.”
Case in point regarding the “urging caution” aspect, there was a bit of a tussle when Di Risio objected to the fee of a top photographer Donatella wanted for the next Versace ad campaign: “The CEO was recently unhappy that Donatella’s choice of photographer for an ad campaign was Mario Testino, who charges at least 100,000 euros ($140,000) a day.”
CNN report on “iconic” fashion photographer Mario Testino
But what’s a high flying luxury label if it starts behaving like a poor country cousin, cutting back on parties, hiring bargain-basement photographers, and even shifting focus to expanding its lower-cost, lower-priced lines while pulling back on its high-end goods?
Di Risio may be right in the short term — the entire luxury industry is going through a contraction, and he wants to make sure that Versace is able to weather the storm; but Donatella is right, too, with the marked difference that she’s right for the long term of the business and the family name. Versace cannot keep its high-end image or its high-end clientele if it cuts back on glitzy parties, splashy ad campaigns and celebrity pampering to focus, instead, on ramping up production of low-end accessories and logo t-shirt dresses.
Angelina Jolie in a Versace gown at Cannes, 2009
The glamor of the high-end, the excitement of owning even a small piece of the same lush glow of wealth and international acclaim that surrounds, say, Angelina Jolie as she strides down the red carpet at Cannes, is what keeps consumers shopping at the low-end Versus line. After decades in the business, Donatella Versace knows this and is rightly concerned that if Versace loses its high-end luster, it will lose not only its wealthy clientele — it will lose everything.
Di Risio is an excellent businessman, but the luxury industry is as much about emotions, hopes, aspirations and calculated image as it is about the bottom line, and once a luxury brand starts behaving like a mass-market chain store, it loses its grip on what makes it desirable.
