Dilemma: Can Cavalli Be Revitalized Like Versace?

Italy fashion brand Roberto Cavalli is in deep trouble. The company most likely to buy the brand is now on the surface.

Reuters (Reuters) reported that Damac, a real estate development company based in Dubai, is said to be the biggest shareholder of Cavalli and the most popular buyer of Clessidra in Italy private equity company. Clessidra has been holding majority interest in Cavalli since 2015.

Two other buyers, the Italy OTB fashion group and the US Bluestar Alliance brand management company, also submitted a binding quotation to the Italy bankruptcy court. The bankruptcy court of Italy will decide which company will become the ultimate buyer. However, according to sources, Cavalli Board believes that Damac has the strongest ability to enhance brand continuity.

When asked why she wanted to buy Cavalli, which was in trouble in recent years, Renzo Rosso, President of OTB group, told BoF that buying Cavalli helped improve the business structure of the group. At present, the group owns Maison Margiela, Diese L and Marni. Rosso is puzzled by the number of Cavalli executives who have recommended buyers to Italy bankruptcy court.

According to sources, the court will announce the final buyer of Cavalli in June 28th.

Damac has worked with Cavalli many times, including Cavalli, a luxury villa and a hotel in Dubai. The villa will be completed in December 2020, and the hotel is expected to open in 2023. As a real estate developer, Damac is most famous for collaborations with international celebrities and celebrities in the development of hotels and other stylish real estate, including Versace, Fendi, Tiger Woods (Tiger Woods), and of course, Trump (Donald Trump), which is mainly located in the Middle East. It is worth noting that Cavalli has established similar cooperation with real estate developers from all over the world from Bahrain to Mexico.

To be revitalized like Versace, Cavalli needs to make great efforts.

But ultimately, a company that buys Cavalli will not be able to easily reverse the unfavorable situation faced by Cavalli. After exhaustion of funds and bankruptcy proceedings in the US in April, Cavalli launched a revitalization plan under the leadership of former Versace CEO Gian Giacomo Ferraris, which has gone bankrupt and liquidated the US business, cutting nearly 100 employees. A few days later, Cavalli filed for bankruptcy protection in Italy in order to work out a revitalization plan and find buyers who are willing to implement the plan. The Italy court gave Cavalli and its board four months to find suitable buyers.

What does Cavalli or other buyers need to do to make the Cavalli a luxury brand leading the market? Today, Cavalli is one of the few famous brands that are known enough to support business expansion. But to succeed in reinvigorate the brand, it is estimated that we need to invest 50 million to 100 million euros in capital. If the brand restarts business in the key market of the United States, it will need more capital.

Blackstone Group, a private equity firm, bought a minority stake in Versace in 2014, after which it invested about $287 million, and Versace valued nearly $1 billion 400 million in the investment. The investment is huge, but it is worth it: in 2018, Capri Holdings, the parent company of Michael Kors, bought Versace for $2 billion 100 million, and the Blackstone Group received a handsome return on investment.

Blackstone's private investment companies usually exit after three or five years of investment. Even for such companies, Capri group's acquisition of Versace is a surprise. But little is known about Ferraris's efforts to revive Versace before Blackstone's capital injection. Ferraris joined Versace in 2009. He spent five years before Blackstone became a shareholder, laying the foundation for Brand Revitalization by reducing expenses and streamlining operations. When he joined, Versace earned 270 million euros a year, but the loss was 80 million euros.

Versace took nearly ten years to revive, so Cavalli investors must be patient.

Versace took nearly ten years to revive, so Cavalli investors must be patient. In addition, Cavalli does not have the two advantages of Versace: first, the strong creative team led by Donatella Versace, and the two can be traced back to the popular cultural background of the peak of Versace in 1990s. Therefore, investors in Cavalli need patience especially.

Versace was caught in a financial crisis after the murder of founder Gianni, but his sister Donatella became Versace's Creative Manager on her own strength. She has proved to the outside world that what she can do is not just to keep Versace from falling behind others. Versace is also one of the largest fashion brands in the world. The story behind the brand is enough for several books and even for a TV series.

Though popular with celebrities, Cavalli does not possess the mysterious feeling that Versace emits. Although the designer of the same name still owns a small share of Cavalli, he has already withdrawn from the design team. His successors, including Peter Dundas and Paul Surridge, are unable to make breakthroughs in their creativity.

If Damac wants to succeed in revitalization of Cavalli, the key is to retain Ferraris executives and find the right creative director. But even if these two conditions are satisfied, Damac still needs to be patient. To expand business, multinational fashion enterprises need higher brand awareness, creative influence products and strong accessories business. Building a strong accessory business is not easy. Even Versace, the progress is slow.

OTB group is the only high-end fashion group willing to buy Cavalli. This fact shows that today's fashion industry is more inclined to avoid risks and pay more attention to results. To be revitalized like Versace, Cavalli needs to make great efforts, but efforts will not necessarily be rewarded.