Communication Strategies in Times of Crisis in The Versace Fashion House

After the murder of the Italian designer Gianni Versace at his front door in Miami in 1997, his sister Donatella inherited his fashion empire until his niece, young Allegra, the true heir of the company, was 18 years old.
Gianni Versace was a friend of Elton John, Madonna and Lady Diana Spencer, Princess of Wales. Movie stars like Liz Hurley wore his gowns during the ceremonies held in Hollywood. When it passed to Donatella´s hands, the brand was a symbol of luxury, freedom and glamour.
Alexandra Shulman, the American “Vogue” editor, said about her: “Donatella doesn´t have as much designer talent as her brother. She has never been a designer, and nobody can turn into a designer from one day to another”.
Donatella was named the worst dressed celebrity very soon, and this, together with her problems with cocaine, gave Versace fashion house the fame of being “difficult”. The volume of sales was not like it had used to be, as the the house’s image had changed, and the Versace family lost its friends and connections in the celebrities world, which meant they had no more free publicity on the Oscar’s red carpet.
The crisis began in 1999, when the company accumulated many debts. A part of them was covered after having sold Picasso’s masterpieces, which belonged to Gianni. But the company continued working in red numbers. Versace announced 18 million euros worth of debts by 2002.
In July 2003, during the Paris Fashion Week, the house cancelled its haute-couture show and exhibited its new collection in the Versace boutique in Paris instead. This action helped them to save 375.000 euros in models´ salaries and 150.000 in the show, but it became obvious for the fashion society that the company still remained in a deep crisis. Donatella had her own opinion about that:
I decided to move our collection to the boutique because I think this is the right time to change the direction of the fashion industry. This offer is more accessible, hotter. The show room should be the main character, not the runway. This choice was made not because of the money but because of new times.
The numbers convinced more than her words. Versace lost almost six million euros only in 2002 and had an amount of debts of 287 million by 2003. In January that same year the Italian press distributed the preoccupation moods and the information about the problems in the financial part of the company. After having closed some shops in London and Milan the myth about the Versace well-being became weaker.
The Versace family hired general manager Fabio Massimo Cacciatori in order to build a strong anti-crisis strategy, but he left the company without even getting acknowledged with the situation.
Even so, the Versace house published the following declaration in the mass media: “The family is very grateful to Mr. Cacciatori for his attempts and commitment during the last months. We hope to begin the next stage of reconstruction,” – they said when the company was losing millions of euros each month.
Being frustrated because of this deep financial crisis, Donatella Versace began searching for partners for the strategy alliance. The British newspaper “The Guardian” wrote in 2003:
Donatella didn’t want to stop being the main character and lose a part of her power (she owns 20% of the company, as well as holding the guardianship of 50% of her daughter Allegra) and she preferred to correct the operational costs selling the actives.
That is why it was so difficult to find a buyer for Versace, though the North-American empire Texas Pacific Group offered 186 million euros for 35% of the brand.
In July 2004 Donatella Versace was sent to hospital due to her drug problems. The rumors about this lasted until the Milan fashion show, where she appeared thinner and with less hair.
In August 2004 the Versace Group – having the reputation of “difficult” – took in the ex-director of Fendi, Giancarlo Di Risio, to be the new general manager. Di Risio immediately made an announcement in the media through a press-conference and the official Versace web-page. He said that the financial results they would publish a week later wouldn´t be positive, and that the company would continue losing funds and the income wouldn´t be sufficient, but he also declared that 2004 would be the official ending point to the bad period for Versace. He also confirmed that Donatella had left the clinic and returned to work, which meant he was expecting a period of thorough work and good results. Here is a part of his declaration in ‘Women Wear Daily’:
Versace was being left in the past and family politics distanced the brand from the reality of the luxury market. This is a historical change for the company, which was first managed by a family and then by a board of directors. We are now applying the same principles as in any public company. Our main aim is to bring the Versace Group to the equilibrium.
Di Risio reduced the quantity of the famous “medusa” Versace logos and the production of clothes with the logo on it in general. “Versace has a really strong and original symbol, but it is always necessary to know how to use it well” – confirmed Di Risio. The new general manager of Versace wanted to focus on the high-priced production in order to move the company to another sector of the market.
In 2005 Versace still had 55 million GBP worth of debts, but Di Risio stated that the company was already out of danger.
The group finished the construction of a new boutique in Milan that same year and renewed the store in New York on the Fifth Avenue. So that was the moment when it became clear that the company was out of its crisis.
For the future Di Risio decided to focus on top-products and accessories. The company didn´t mean to change its target public – middle-aged women with a high acquisition power – but to change the perception of the brand. So the two mail advertisement campaigns in 2006 featured Madonna and Demi Moore dressed in classic suits. Di Risio didn´t plan to lower the prices in order to reach a larger amount of clients, but viceversa: he wanted Versace to become one of the most exclusive brands in the fashion world once again.
Conclusions:
1. The type, the price and the level of the product which any fashion company presents in the market can be its way of communicating and helping to build a strategy to solve a crisis. In this example of the Versace Group, in order to get out of the crisis the company had to return to its target public and reduce the quantity of the low-cost products in order to rebuild the image of the exclusive fashion brand. So the change of the target public can get the company out of a crisis and open new perspectives and areas of actions.
Besides, taking into consideration the particular characteristics of the fashion product and the fact that this product is made to build personal images of the target consumers, it is obvious that the image of the brand depends on type, price, level, quality, design and distribution of its product in the market.
2. The personal image of the management of the fashion company is very important during the crisis. Gianni Versace – with his glamour and being a friend of the most respectable and powerful people in the world – maintained its fashion house at the highest level. Donatella Versace – with her disorderly image and drug problems – made the Versace house obtain the strong reputation of “difficult” and it was complicated to find a buyer and a new general director to get the company out of crisis.
3. It is always important to take on the level of the crisis and offer objectives, and an adequate and honest opinion to the public – this is called the ‘transparence strategy’. The Versace family demonstrated the total misunderstanding of the level of the crisis after Cacciatori left. Meanwhile, Di Risio’s first step was to distribute the information about the seriousness of the crisis and to ask the public not to expect immediate positive results, as there was still much work to do. But at the same time he made the society understand that the company was ready to do all its best to rise and that it was not time to speak about bankruptcy.