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posted: 11/12/2011 5:44 AM

H&M mixes Versace high fashion with low prices

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  • A model walks the runway during the Versace for H&M fashion show in New York.

    A model walks the runway during the Versace for H&M fashion show in New York.
    Associated Press

Bloomberg News

Hennes & Mauritz AB, the world's second-largest clothing retailer, next week starts selling apparel and accessories designed by Gianni Versace SpA, including floor-length "goddess" gowns, dresses dotted with Grecian buttons and fluorescent micro-minis.

The Versace for H&M line, the latest partnership between the Swedish retailer and a luxury designer that boasts high fashion at low prices, will give the Italian label "global visibility" as it targets sales of about $700 million by 2014, Versace Chief Executive Officer Gian Giacomo Ferraris said.

With products ranging from $17.95 zebra-print underwear to $299 studded leather jackets, shoppers can expect "a greatest hits of Versace," Ferraris said in a phone interview. "It's the perfect time for this collaboration" as the 33-year-old company known for risqué, red-carpet couture returns to net profit this year, he said. H&M will preview the line at an event in New York today.

Versace is nimbler today than when Ferraris joined as CEO from rival Jil Sander AG two years ago, when it was struggling to generate enough profitable revenue from products priced beyond the reach of all but the world's richest. He has shuttered a factory, cut the workforce by about a quarter and discontinued businesses such as outfitting designer cars and helicopters. The CEO has also introduced children's wear and a women's line priced between 400 euros ($550) and 1,000 euros.

So far, his plan is working. After reporting a 49.6 million-euro operating loss in 2009, the closely held company founded by slain designer Gianni Versace had earnings before interest, taxes, depreciation and amortization of 22.3 million euros in 2010. Sales rose 9 percent to 292.3 million euros.

Hurley gown

Versace said before the collapse of Lehman Brothers Inc. that it would consider an initial public offering in 2008. Even under family ownership, Versace tries to operate as a public company, Ferraris said in the interview. Prada SpA, the Italian luxury-goods maker that sold shares in Hong Kong this year, boosted profit 74 percent in the first half.

The H&M campaign is the next step in helping Versace reach a wider audience and rekindle interest in a brand that many still associate with the black gown held together by safety pins that actress Elizabeth Hurley wore to a 1994 premiere.

"A number of H&M shoppers won't be aware of the Versace history or reputation," said Jayne Bibby, associate editor retail at fashion forecaster WGSN. "This is the perfect way to show a capsule collection" to new consumers who may eventually trade up to its more expensive products, she said.

Designer Collections

H&M has been pushing limited-edition designer collections since 2004, when shoppers mobbed its outlets to snap up wool coats by Chanel creative director Karl Lagerfeld. The Swedish retailer has shown it can work with luxury designers, maintaining the integrity of the brand by offering good quality at an extraordinary price, Ferraris said.

H&M's creative adviser, Margareta van den Bosch, "saw design and celebrity collections as crucial to establishing the fashion authority of H&M as a brand," said Anne Critchlow, an analyst at Societe Generale who recommends buying its shares.

Other retailers have followed suit, including Target Corp., whose website crashed earlier this year amid overwhelming demand for a line by Italian knitwear company Missoni SpA.

'Free advertising'

Versace's collection goes on sale at about 300 H&M stores and online in select countries from Nov. 17. Versace, based in Milan, has also designed a pre-spring line for the retailer that will go on sale in countries where H&M distributes online from Jan. 19.

Versace plans to introduce e-commerce for its own products next year, Ferraris said.

"The column inches that these collections generate probably help both H&M and the designer," said Societe Generale's Critchlow. "It gives them free advertising."

The collection could be a further boon to results that were already ahead of plan in the first nine months, Ferraris said, citing a full-year target of double-digit growth. The next step is to double sales and widen the Ebitda margin to 20 percent, he said. "This is the minimum required size to be competitive."

That would place Versace on a par with PPR SA's Bottega Veneta, which reported sales in excess of 500 million euros in 2010.

Versace hasn't seen any sign of a slowdown amid the sovereign debt crisis, Ferraris said. Analysts including Vicki Lee at Barclays Capital have speculated the company may be among acquisition targets for PPR, which is looking to add to its luxury portfolio.

"The company is not for sale," Ferraris said.

Medusa head

Donatella Versace and her brother Santo Versace have helped run the fashion house known for its Medusa-head logo since their brother, who founded the brand, was murdered in 1997. Chairman Santo owns 30 percent of Versace, while Donatella, who is creative director, holds 20 percent. Her daughter Allegra owns the rest of the company. The 25-year-old attended her first board meeting in June since becoming a non-executive director.

Allegra's appointment to the board is "a great signal" of the family's commitment to the business, according to Ferraris.

The partnership with H&M, which came about after Van den Bosch e-mailed Ferraris in January, "is mostly a brand-building project" for Versace, the CEO said. It's a "fantastic" opportunity to introduce the brand to a younger, Internet-savvy audience, he said.

The collection features $29.95 floral-print leggings, $69.95 leopard-print skirts and $249 metallic dresses for women. Men can choose among zebra-print shirts, bright pink suits and grey leather pants, according to a catalogue. The range also features home wares such as pillows and bedspreads, a first for an H&M designer collaboration.

Limited risk

Ferraris said it's difficult to gauge how the H&M line will affect sales, though he's confident it won't dilute Versace's identity as a luxury brand. H&M customers will get something different from Versace's other collections, which can exceed 16,000 euros for custom-made dresses, and the range will only be on sale for a limited time. "There is no question of it undermining our luxury products," he said.

The limited nature of the collaboration should mean it doesn't upset Versace's core customer, even if there's always a chance of doing so, WGSN's Bibby said. It hasn't damaged any of the other designers that H&M has worked with, said Critchlow. "They wouldn't be doing it if they thought there was a real risk," she said.

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