TheChek News Flow

How long will Marco Gobbetti stay on as CEO of Ferragamo? That’s a question shareholders may start asking themselves soon. The brand’s sales have been declining every quarter until the end of September. In April and in August, Gobbetti said the drop in revenue was due to weakness in travel retail sales and to a pruning of its retail network. He also argued that the new collections by the brand’s new designer Maximilian Davis had not yet fully hit the stores. This month, the 63-year-old Italian executive also blamed the downturn in consumer spending for the 12 percent drop in nine-month net sales and against the same period in 2022.

What if the problem is deeper and has to do with the brand’s strategy and storytelling?

Ferragamo, known for its silk scarves and bow-tipped ballerinas, has been trying to reinvent itself for years. It hasn’t had much success. Gobbetti, who was previously CEO of Burberry, took the executive reins in January 2022 and Davis, a British national with Trinidadian and Jamaican roots, put his own brand on pause to join Ferragamo three months later. Together, they have been trying to build a new identity. But what is it about exactly?

The new Ferragamo is very black and red, modernist and minimalist with lots of tailoring. Davis’ shows have been getting good reviews and his point of view is stronger and much more convincing and consistent than that of his predecessor Paul Andrew, who is also British. Andrew went in all sorts of different directions in terms of style, steered by the Ferragamo family who could not decide what they wanted the brand to be.

Davis is a talented designer but that does not mean he’s figured out what it takes to make Ferragamo regain its former glory. Or what the brand is fundamentally about. His vision is sharp and edgy from a fashion point of view. His looks are clean and elegant, but there is little reference to Italy, let alone Florence, where the brand was founded in 1927. Maybe that’s the problem. When you buy Ferragamo shoes, bags or clothes, you want to buy a bit of Italy. Even the products don’t have Italian names. One of its new totes is called the Hug bag. Its design is somewhat similar to Hermès’s bags with the same emphasis on buckles.

Ferragamo offers shoes and bags in bright colors that are cosmopolitan and may appeal to young customers, but its personality has become somewhat cold and severe. Its designs do not express the lightness, ingenuity and love of life and the arts that Italy is known for.

Could it be that Gobbetti made the same mistake he did at Burberry — hiring a designer who did not really understand the brand? Designer Daniel Lee, in place for a year, is on a mission to reconnect Burberry with its British roots after years of lackluster performance under Riccardo Tisci. The Italian designer developed an urban, metrosexual and sporty identity for Burberry that did not suit the brand, fashion critics and industry experts say. Gobbetti, who worked withTiscibefore at Givenchy, was the one who chose the Italian designer for Burberry.

Gobbetti thinks highly of Davis. However, talent is not enough to woo consumers and get them to open their wallet. A designer needs to respect a brand’s heritage and master the cultural references of the country it is from. There’s no need to be a citizen of that country to achieve that. Some foreigners understand the culture of a country even better than those who hail from it. John Galliano, the British designer from Gibraltar, did a superb job at Dior and his successor Maria Grazia Chiuri, who is Italian, performed even better. She has tripled the brand’s sales in the past seven years.

According to the data company Launchmetrics, Ferragamo ranked 10th in terms of media impact value (MIV) with its last show during Milan Fashion Week. MIV is a proprietary algorithm created by Launchmetrics to measure and benchmark the impact of media placements and mentions in the fashion, luxury, and beauty industries. The MIV generated by Ferragamo’s fashion show — to which Miss Tweed was not invited — totaled $7.9 million against $49.7 million for Gucci, which topped the ranking of the Milan shows last month. Gucci was followed by Prada, Dolce & Gabbana, Versace and Fendi. During the Italian city’s Fashion Week, there were lots of wealthy Chinese flown in by Ferragamo to see the show and spend their money at its flagship on Milan’s swanky via Monte Napoleone.

“They lost the previous clientele, but they have not yet managed to conquer a new one,” summarized a former Ferragamo executive. “It’s clear to many people that the brand’s storytelling is weak but internally, managers don’t see it as a problem.” Also, Ferragamo’s strength is in bags and shoes, not in ready-to-wear. Yet, the brand wants to position itself as a fully-fledged fashion brand that also sells jewelry.

Miss Tweed asked Ferragamo to explain what its story was. A spokeswoman said it was about craftsmanship and heritage. She did not talk about the brand’s Italian roots or identity. Referring to Davis, she said: “He explored with linear precision that defines his expression, the silhouettes of the heritage of the brand, with a graphic purity reworked in new proportions and with new hardware. He introduced a new creative language for a new audience with a global creative vision in ready-to-wear, shoes and bags, including a contemporary take on Ferragamo’s iconic styles.” That statement does not tell us who the Ferragamo lady is and what her universe is about — things consumer usually identify with.

The company’s poor numbers, on the other hand, are easy to grasp. In the six months to June 30, Ferragamo’s profit before tax fell to €34 million, down from €88 million in the same period last year. Ferragamo’s revenues for 2023 will likely be down against 2022. CEO Gobbetti will argue the best has yet to come and ask investors for patience.

Commenting on the company’s nine-month results on Oct. 19, Gobbetti said: “The overall sales performance reflects, at this stage, the ongoing focus on quality of sales and rationalization of distribution networks, as well as the evolution of the offer and the acceleration of the transition to the new creative course, the full potential of which, will become evident in 2024.”

What is striking with Ferragamo is that you have brands such as Gucci, Dior, Louis Vuitton, Celine, Saint Laurent and Prada that have grown exponentially in the past decade, yet Ferragamo today makes less revenue than it did in 2016. Its annual sales in 2022 stood at €1.25 billion, while in 2019 they were €1.37 billion and in 2016, they had reached €1.43 billion. These numbers speak volumes about the brand’s lack of clear vision and strategy.

Ferragamo’s share price has also been on a steady decline, and not only due to the current market correction that has weighed on all luxury stocks in recent weeks. Ferragamo shares stood at €31.85 euros in 2015. When Gobbetti joined in early Jan. 2022, they were at €22.7. They closed on Friday at €11.26, valuing the company at €1.9 billion.

When Gobbetti was hired by the Ferragamo family, he was seen as the savior who could give the brand a new relevance. He also obtained something no CEO of the company ever got before — free reins to run the business. Before Gobbetti, the Ferragamo family kept meddling with design, store openings and marketing. They and would never let the CEO take decisions and craft a coherent roadmap. “The family has given full powers to Marco,” one senior industry source said. His predecessor Micaela Le Divelec Lemmi struggled to get the family’s full backing and cooperation, industry sources say.

For many years, influential members of the Ferragamo family remained in key posts and would not let go of the vision they had of the brand’s golden age of the 1950s and 1960s. Back then, Salvatore Ferragamo was the “shoemaker to the stars” and personally looked after celebrities like Sophia Lauren, Audrey Hepburn and Rita Hayworth. In terms of style and image, they did not want it to stray too far away from that period. As a result, the brand looked old and customers thought it was for their grandmothers.

“The brand was dying a slow death. Inertia was not an option,” said a luxury industry expert who has worked for Ferragamo. “They needed a creative disruption. Now, their problem is rebuilding traffic because they have been irrelevant for such a long time,” he said.

Another problem is that Ferragamo has been stuck with old stock from the previous era that is not easy to get rid of. This also explains the drop in sales. The transition from one designer to another is never easy. Analysts estimate that Ferragamo makes about 15 percent of its sales from outlets, if not more, with many of them in China. Outlets are useful to turn stock into cash, but they can weaken a brand’s exclusive image.

Ferragamo is also suffering from its overexposure to the U.S. market, which performed well in 2022 but has been down this year. It has also built a big presence in China, where demand has not picked up as much as expected. This week, Ferragamo announced it was buying back the stakes it had in joint-ventures with local partners in several cities in Greater China. The companies belong to Peter Woo, who runs a big real estate portfolio in Hong Kong and mainland China and owns the retailer Lane Crawford Joyce Group.Woo has a 5.98 percent stake in Ferragamo and remains a member of the board even after the deal, the company said.

“The conclusion of the transaction will strengthen Ferragamo's presence in the Greater China area, one of the most relevant markets for the group, at a very important time for the brand's relaunch,” Gobbetti said in a statement issued on Wednesday.

Some investors are growing skeptical about Gobbetti’s ability to turn around Ferragamo. The Italian executive dropped the Salvatore part of the brand’s name and replaced its traditional burgundy red with the same flashy red that luxury car maker Ferrari uses. He also threw out its trademark handwritten logo and adopted one that looks like that of several other brands, including Burberry and Balenciaga.

Before joining Burberry in 2017, Gobbetti used to run LVMH’s Celine. He was lucky to work with Phoebe Philo, whose designs were hugely popular. His track record at Burberry is more mixed. Many industry analysts think he jumped ship before completing the brand’s turnaround. Also, he hired Tisci who, it turned out, was ill-suited for Burberry. When he agreed to leave for Ferragamo in 2021, the Italian manager secured a package worth more than €8 million. It included a welcome bonus of €4.43 million and a guaranteed bonus for 2022 of €3 million. That €7.4 million was roughly equal to the company’s operating profit in the first quarter of 2021. At Burberry in 2020, Gobbetti received £2.55 million, including share awards, or nearly €3 million. He said he was going to Italy to be closer to his family.

Luckily for Gobbetti, who spent nearly 20 years abroad, he was entitled to the tax break reserved for Italians who return home. Starting in 2022 and for seven years, he became eligible to pay a flat 15 percent tax rate on his income -- a third of what he was charged in the U.K. or what most wealthy Italians pay. Overall, in 2022, Gobbetti’s total remuneration reached €9.84 million, according to the company’s annual report.

That’s a lot of money for a CEO who relies on consultancy firms such as Boston Consulting Group (BCG) to help define the company’s strategy and fine-tune its operations. Gobbetti also relied on a lot on BCG when he was at Burberry, industry sources say. It’s likely that he will go down in history not as the man who made Ferragamo into a huge success — unless he wakes up and strengthens the brand’s storytelling and image — but as the luxury CEO who was handsomely paid for outsourcing strategy to consultants.