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Versace shows a clean pair of heels on catwalk and in the boardroom

After dark times following the murder of founder Gianni, the fashion firm has turned the corner and is back in profit
  • @LauraHChesters

As turnaround tales go, the Versace story has it all – murder, drugs, fashion, glamour. Versace, the fashion house, has been in rehab, just like its creative director Donatella. And just like Donatella the brand has emerged triumphant. It last week posted its first profit in four years and is now catching up with competitors – a new website, new stores, new collections.

With her unforgettable poker-straight platinum locks, sky-high heels and pillow-like lips Donatella took over designing after her brother, and founder of the label, Gianni Versace was murdered in Miami 15 years ago.

But behind the scenes, beavering away for the past three years, has been chief executive Gian Giacomo Ferraris – the company's doctor, who has performed a financial rescue and a self-imposed clean-up of the business.

Before his arrival there were dark days at the Milan-based powerhouse.

Donatella was Gianni Versace's muse and best friend. During the label's heyday of the 1980s and early 1990s the brand and the family were on a high. They were the toast of the international catwalks and socialised in the best celebrity circles, counting Elton John and Princess Diana as close friends.

But after Gianni's death Donatella, obviously devastated, began a spiral into a life controlled by drugs and drink to dull the pain of her loss.

Her designs and the brand inevitably suffered. The collections' colourful patterns, curls and over-the-top black-studded leather began to look off the pace compared with the clean-cut lines of other designers in the early 2000s.

Sir Elton John eventually encouraged her to go to rehab. It was successful, but by 2009 the business was a mess. It was haemorrhaging cash and its banks were breathing down its neck.

Gian Giacomo Ferraris recalls: "I joined in the centre of the economic crisis. What had happened was very complex but the main issue was the company had broken its banking covenants and had more than €100m (£83.6m) of debt, sales were dropping and I had to act immediately."

Versace had farmed out most of the control of its products to franchising and licensees who were making bags, belts and shoes and selling them across the world without Versace being in control. The strategy was flawed – not only because the lack of control meant the brand could be damaged by overselling to the wrong retailers – but also because it isn't as profitable as doing it yourself.

Serious surgery was needed. Fast.

The calm and straightforward Mr Ferarris might first appear the antithesis of the typical Italian fashion maestro. An engineer by trade, he has worked on restructurings, cost cutting and turnarounds at luxury brands before. He began his career at Ermenegildo Zegna in 1987 but cut his teeth at US consulting firm, Kurt Salmon. Following that his CV reads like a fashion week brochure, including stints at Jil Sander and Gucci-owned YSL, Balenciaga, Stella McCartney, Alexander McQueen and Bottega Veneta. At Versace he simplified and consolidated IT, logistics, manufacturing – culling its expensive systems and facilities – and in the process slashing nearly a quarter of its workforce. He says: "Tough action is necessary and I have justified the tough action with the results you see."

And one look at the results last week certainly shows he has made his mark. Net profits hit €8.5m for 2011, compared with a whopping loss of €21.7m in 2010. Revenues jumped 16.4 per cent to €340.2m for 2011, up from €292.3m in the previous year.

He says: "I acted immediately to cut losses and I touched every single area of the business except the creative team and product development."

Donatella, for her part, in February this year returned to the Paris couture schedule after an eight-year absence and used the couture collection that her brother Gianni had produced.

The fact that Donatella felt comfortable to revisit it is evidence of the more comfortable place that she, and the business, finds itself. Not the tormented and problem-riddled former Versace.

The move to bring in Ferraris in 2009, echoes a growing trend for fashion and luxury brands to be run by corporate people who have more experience of balance sheets than fabric swatches.

Many of the once-family-owned designer brands are now predominantly owned by one of the large conglomerates of LVMH, PPR or Richemont. Even those still independent, like Versace, have drafted in their equivalent Ferraris to make sure someone has their eye on the bottom line.

But how does a management guy, a suit, get on with the temperamental and creative outbursts of a fashionista like Donatella?

"Everything I did was with the support of Donatella and the board. I worked with her," explains Ferraris.

He then slips into the whimsical language of the fashion world he belongs to saying: "Donatella was the muse of Gianni, her brother. I have her, I have the archive, I have the historical story of the company.

"Donatella is my cradle. This maison has to have a voice and she is the soul of Gianni. With her help we changed things in creative development. We have created diffusion lines and we have returned to the core competencies – ready to wear, accessories, shoes, couture."

But does Donatella really turn up to management meetings and strategy meetings? Is she not better suited to the catwalk rather than the boardroom?

"I have to thank Donatella as she has taken on the role of managing the four lines. She is very business focused, she is a driven entrepreneur. I have never had any issues of creative against management. From the moment I came here the feelings have been positive.

"At every monthly meeting she arrives prepared and focused and brimming with ideas."

Now the restructuring is on track the focus is on expansion. Donatella's original baby – Versus – her "diffusion" line, the cheaper, younger more rock and roll collection given to her by Gianni, has its own new star. Donatella brought in British fashion designer Christopher Kane and it is this brand that is one of the key areas of growth. It is looking for more of its own stores and is in talks to open a Versus store in Mayfair in London.

During 2011, Versace ended agreements with Versus' licensees, taking back control of the brand. It has refocused on its key lines Versace mainline, Versace Donna, Young Versace and Versus.

In the first three months of 2012 sales through its directly operated stores, which account for around 50 per cent of revenues, were up on last year. But the huge growth potential for the business is new markets including Brazil and Korea as well as existing businesses in China, the US and Japan.

Ferraris travels the globe constantly but makes sure he still has the hands-on approach back in Milan, where he also lives.

"There needed to be more personal interaction between the levels of management and staff. This is in my DNA. Yes, it takes a lot of time but communication and the personal touch must be done."

Shops and shows are par for the course at a fashion brand but Versace has realised it needs to step into the current century with a better website. It will relaunch in Europe and the US in September and later will set up in Asia.

Last autumn the house designed a sought-after collection for high street favourite H&M to rave reviews.

So now Versace resembles a corporation, rather than a family business, is the next step an IPO?

Rumours have been floating that Versace could follow fellow Italian family companies Prada and Salvatore Ferragamo, who listed in Hong Kong and Milan respectively. But management is claiming this is not on the cards.

The business is still owned by the family and the family says it wants long-term control. Allegra, Donatella's 25-year-old daughter, inherited 50 per cent when she was 18 years old, as stipulated in her uncle's will.

Ferraris insists he has now "secured the long-term future of the company", so with the finances in order, it is up to Donatella to make sure Versace stays a hit on the catwalks.