Versace's new girl on top must stem flow of lost sales

Versace shareholders meet in Milan tomorrow to consider last year's results. It is likely to be a sombre family affair - under Donatella Versace, its chief designer, and her brother, finance director Santo Versace, sales are believed to have plunged from €483m (£325m) to €400m, with Versace's pre-tax loss doubling to an estimated €20m, according to industry analysts.

It has proved hard to sustain the magic of Gianni Versace, the man who turned a small Calabrian tailor's shop into a worldwide fashion brand and gave Liz Hurley eternal fame with a pinned-up dress.

Since Gianni was murdered in Miami seven years ago, sales have declined and Versace has fallen from No 2 among Italian fashion houses to No 10.

Half of the shares in Versace are are now controlled by Gianni's niece and heiress, Allegra Versace Beck, since she turned 18 last week.

At her first shareholders' meeting, Allegra will have the opportunity to question her famously disputatious co-shareholders - her mother, Donatella, holds 30 per cent of Versace and her uncle, Santo, 20 per cent - about the results and the future. She is unlikely to be too critical. Neither fashion nor business are reputed to be her first love and Allegra aims to study drama in the US, hoping for a film career. She is said to have been upset on discovering, at the age of 11, that Gianni gave her half his estate - a gesture provoked, it is surmised, partly by the tensions between Donatella and Santo.

Santo insisted that Allegra's majority will enable Versace to move forward. "As the major shareholder, Allegra has to be interested in fashion," he said. "She votes, she drives a car, so she can sign contracts herself."

She is worth around €140m. A proposed flotation of Versace had to be pulled in 1997 because Allegra's shares were held in trust. Investment banks Lazards and CSFB have been tasked with reducing Versace's borrowings. Apax and Cerberus are among the private equity houses which have been talking to the company. Gucci and Dolce & Gabbana are reputed to have had bid offers refused. Italian businessman Matteo Corsini is interested in a minority stake.

But the global luxury goods and fashion business is still recovering from the loss of confidence suffered after 11 September. Other leading fashion houses, notably Gucci and Jil Sander, also face tough succession problems. Gucci, acquired by Pinault Printemps Redoute for €7.2bn, recently lost its renowned creative director, Tom Ford, and a dozen directors, including Domenico De Sole, its chief executive. De Sole has just been replaced by Robert Polet, Unilever's former frozen foods and ice cream boss.

Other fashion houses such as Benetton, Nina Ricci and Lancaster have appointed experienced brand managers from fast-moving consumer goods groups. Yet they often find the tension between the creative and the financial sides of the fashion world difficult.

Yves Saint Laurent, perhaps the greatest modern couturier, retired in January 2002, stating his disgust with commercialism in the trade. "Elegance and beauty have been banished," he said. The Yves Saint Laurent brand belongs to Gucci.

Dispensing with design talent can prove disastrous. Jil Sander, the German designer, returned from retirement last year, having sold her label in 1999 to Prada. She was upset that her upmarket classic brand had been given a youthful make-over featuring garish colours, cargo pants and prominent zips. It was a financial disaster, as well as a design mistake.

Sales have recovered with the return of Sander and her elegant collections. The company, however, has yet to return to profit.