(c) 2009 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.ROME -- Newly announced job cuts at Gianni Versace SpA show how the economic downturn is forcing independent fashion labels to cut costs and stem losses in order to survive in an industry dominated by conglomerates that can better absorb downturns in demand.
Versace, the Milan-based fashion house known for its Medusa-head symbol, said it was cutting a quarter of its work force, or 350 jobs, as part of a two-year restructuring plan that will also include a review of the company's store network around the world. Versace has gone through struggles since the fashion house's celebrated founder Gianni Versace was shot to death in 1997, and every few years the company has changed management and announced plans to try to improve performance.
Still, the latest cost-cutting plan is a clear sign that the global cutback in spending on luxury goods is hitting small family-owned companies the hardest. Last week, Prada SpA began calling employees back to full-time work after cutting some work days for 210 of its 3,000 Italian workers, according to a spokesman.
Chanel, which is owned by the Wertheimer family, slashed 200 jobs, or 10% of its factory work force, last December.
Bigger multibrand players in the industry, such as LVMH Moet Hennessy Louis Vuitton SA and PPR SA's Gucci Group, are weathering the slump better -- partly because their different brands can lower fixed costs by pooling resources such as materials purchasing or ad buying.
For example, Yves Saint Laurent, Stella McCartney and Alexander McQueen -- which are all part of PPR's Gucci Group -- have closed boutiques within the past year in crucial luxury markets such as Japan and Russia. But operating profit at Gucci Group inched up in the first half.
At LVMH, small brands such as Celine are living off the riches of the group's profitable labels such as Louis Vuitton. Though Celine is keeping its costs down by not opening new stores, the label has avoided the deep restructuring of independent brands such as Versace.
In an interview, Chief Executive Gian Giacomo Ferraris -- who joined Versace in July -- said the company doesn't plan to rein in spending on designs. Rather, the cuts will focus on production, distribution and logistics, which he said could be outsourced to third parties.
The label recently closed its last stores in Japan.
Mr. Ferraris said the company expects to post a pre-tax loss of 30 million euros ($44.4 million) on revenue of 273 million euros. In 2008, Versace had a net loss of 7.5 million euros on sales of 336 million euros, according to a spokesman. In March, Versace reported a 9 million euro net profit for 2008. A spokesman, however, said the company had changed the way it reports results; the previously reported profit figure included income booked with the fashion house's holding company.
"A responsible manager, a responsible board, a responsible shareholder cannot permit this situation to go on, because then we would face other kinds of problems like insolvency," Mr. Ferraris said. Mr Ferraris added that the company isn't at risk of insolvency.
Mr. Ferraris said the decline in revenue this year stemmed from a 30% downturn in sales in the company's wholesale business. The financial collapse of IT Holding SpA, which produced clothing for Versace under brand licensing agreements, also deprived the company of royalty payments, he said.
Donatella Versace, the late Gianni's sister, is the brand's designer and holds a 20% stake in the company. Her daughter, Allegra Versace Beck, holds a 50% stake. Santo Versace, brother of the late designer, owns 30% of the company.
Credit: By Stacy Meichtry and Christina Passariello
My Research
