Fashion & Finance “An explosive cocktail”

1. Fashion & Finance “An explosive cocktail” Lesson 11 Corporate Finance Castellanza, 17th November, 2010

2. 2 Fashion & Finance: “An explosive cocktail” Summary 1 Two worlds that meet together 2 Why so explosive? 3 Emanuel Ungaro’s history 4 The Ferragamo strategy 5 Some figures 6 The decision to sell 7 Other examples – success stories

3. 3 1 Two worlds that meet together larger size of the companies; new geographic markets; necessity of management and organization – not only style; interest of “external” investors; finance as a tool to grow. Fashion & Finance Two different worlds that started to talk each other due to the changes in business arena

4. 4 2 Why so explosive? fashion is a world of “primadonna”, “stars”; finance is a world of “primadonna” as well; in many cases people tend to “invade” the competencies of the other; success stories are those in which the competencies and the roles of the single individuals are respected and valued. Why very often fashion & finance are an explosive cocktail?

5. 5 • 3 Emanuel Ungaro’s history 1958 Emanuel Ungaro at the age of 22 started his career working alongside the designer Cristobal Balenciaga in Paris. 1965 Opened “Emanuel Ungaro SARL”, avenue Mac-Mahon in Paris. Transformed it into “Emanuel Ungaro SA” and opened the current house at 2, avenue Montaigne, Paris. 1967 1968 Opening of the first ready-to-wear boutique, UngaroParallele, on the ground floor of the Fashion House. First contact with licenses. UngaroParallele was opened in American Department Stores (Neiman Marcus, I. Magnin, Saks, Bloomingdale’s, Bonwit Teller) and in Japan (Takashimaya). Start of agreements with the licensor GFT. Creation of the Ungaro pour Hommes line. Opening of the Emanuel UngaroHomme store at 2, avenue Montaigne. Opening of the first Emanuel Ungaro store in New York. 70s

6. 6 • 3 Emanuel Ungaro’s history – cont. 80s Creation of the Ungaro Diffusion line in Europe. Creation of the fragrance for women, “Diva”. Opening of the Emanuel Ungaro showroom in Milan. Creation of the Emanuel/Emanuel Ungaro Bridge line. 1996 Salvatore Ferragamo Group acquired Emanuel Ungaro SA. From 1997 to 2003 Creation of Fever collection. Creation of the Emanuel Ungaro Shoes and Handbag line, made by Salvatore Ferragamo. Creation of an Emanuel Ungaro Eyewear line, in partnership with Luxottica. Creation of the Ungaro Sun (Swimwear) line. Opening of the Emanuel Ungaro boutiques in London Rome, Moscow, Beijing, Shenzen, Singapore, Taipei and a new accessories boutique in Paris.

7. 7 4 The Ferragamo strategy Emanuel Ungaroisone of the most famous Fashion House in the world. The Company designs and commercialises clothes and accessories and is specialised in Haute Couture and Ready To Wear. During the last forty years, the Emanuel Ungaro House expanded to include boutiques and license agreements worldwide. Emanuel Ungaro is registered at the Chambre Syndicale de la Haute Couture. In 1996 Salvatore Ferragamo Group, which is one of the most important and internationally famous Italian luxury company, acquired the whole share capital of the Company. Salvatore Ferragamo is also the licensee for the Emanuel Ungaro footwear and handbags collection.

8. 8 4 The Ferragamo strategy – cont. The arrival of Ferragamo as new shareholder led to a strategic shift in 1997, with a focus on internalising the activities of the Company to better control the operations and the brand image of Emanuel Ungaro. The main components of the Ferragamo strategy were the following: Product: reshuffle of product portfolio, keeping the top lines but eliminating the bridge and the diffusion lines and developing of accessories line (bags & shoes). Production: have a better control of sourcing and reduce the licensing activities (e.g Japanese lines). Distribution: reduce the retail franchising activities and launch an aggressive retail strategy with the opening of several direct operated shops in key locations and the refurbishment of the existing boutiques.

9. This effort implied closing significant sources of profit (licenses and franchises) and investing in high fixed costs. This strategy, that was not supported by an appropriate product range, together with the increased competition in the luxury industry since the late 1990s and the economic slowdown since 2001, has put Emanuel Ungaro in an difficult financial situation. In detail the main consequences of this strategy are: Increase of the Company revenues due to the expansion of retail network, that substituted the loss of Company and brand revenues caused by the decrease of the licensing activity. Significant decrease of profitability due to the increase of rental and personnel costs not entirely offset by retail gross margin. The disappearance of the bridge line in the United States and the gradual exit from the Japan marketplace 9 4 The Ferragamo strategy – cont.

10. 10 5 Some figures The economic results of Emanuel Ungaro for the years ending December 31, 2001-2004 are summarised below

11. 11 6 The decision to sell Poor results led the Ferragamo Board of Directors to decide to sell the Company. Not all the Directors agreed Deloitte was engaged in 2004 Sale was concluded in 2006 • Acquirer: Mr. Asim Abdullah (Global Asset Capital, Llc), a High Net Worth Individual who made a fortune with Internet

12. 12 7 Other examples – success stories Valentino D&G Armani Gucci LVMH • New investors - external management