Arrivederci, Donatella Versace

0:00Hey, Kate. What's up, Ryan? Thanks for popping in the studio. My absolute pleasure. I understand that you have something that you want to share with our listeners. I do. It's kind of a big thing. After six years on the show, I am taking a new job and will be leaving our podcast. I'm going to be the Wall Street Journal's new corporate news editor. Congratulations. Thank you. How does it feel? All the feels, Ryan. I've got all the feels because working on this podcast with you and all of our producers and editors and engineers has been the best. and bringing the news every day, telling our listeners about the money, business, and power stories has been so much fun.

1:03And I'm going to miss doing this with you and especially connecting with our listeners every day. It's been so much fun to work with you, Kate, over the last six years on this show. And I know that I can speak on behalf of everybody when I say we're going to miss you a lot. I don't know who's going to miss you more, me or our listeners. Well, I mean, you still get to hang out with me. Yeah. It's going to be the listeners because I'm going to be in your office every day. And I also promise to bring you a steady stream of stories about money, business, and power. Please do. And don't worry because I'm sticking around for a few more weeks, but my time with the show will officially conclude at the end of April.

1:48Well, I'm glad that we have you for a few more weeks. And I want our listeners to know that the show is not changing. Co-host Jessica Mendoza and I will still be here telling the most important money, business, and power stories out there. And I'll be listening. Aw. Aw. Well, thank you, Kate. It's been a pleasure. Thank you, Ryan. All right, now on to today's episode, which is fittingly about another icon handing off something that she helped build. Here it is.

2:19The high-end Italian fashion brand Versace is known for its dramatic clothing It's lots of bold colors, vibrant prints, outrageously sexy designs That's our colleague Suzanne Kappner, who covers the fashion industry And she says people on the internet still talk about some of Versace's most famous looks If you remember that safety pin dress that Elizabeth Hurley wore back in the 90s I can't say that I do personally. The black evening gown was made from silk and lycra, strategically held together with oversized novelty gold safety pins. The first of the dress was seen in all of the international press.

3:00It's been in the Metropolitan Museum. It's been worn by Lady Gaga. That dress kind of, you know, was a moment for a lot of us. The only piece of Versace that I think that I know or remember is that J-Lo dress, that green one with like the plunging neckline. That one, that jungle dress, yes. When you think of iconic outfits worn in the 2000s, this Versace dress worn by Jennifer Lopez always makes the list. It was cut up to here and cut down to there with just like a jeweled panty underneath. Honestly, when I think of J-Lo, I think of this dress. Yeah, I think I was in seventh grade when she wore that dress.

3:35Yeah, that was in 2000. You're a baby.

3:42But the era of such bold Versace designs might be over. Recently, the fashion house made a big announcement. Donatella Versace, who'd been the creative mind behind her family's brand for nearly three decades, is stepping down as creative director. The news followed growing tensions between her and the brand's American corporate owner. It's really this culture clash, one between the Americans and the Italians, and then two between the corporate suits and sort of the creative types. And now, with Donatella stepping aside, Suzanne says Versace is at a turning point. You know, the house had been under creative control by Versace since it was founded by her older brother Gianni in 1978.

4:31So Versace going forward is going to look different than Versace of the past. Welcome to The Journal. our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, March 25th.

4:52Coming up on the show, the end of the Versace era at Versace.

5:11Donatella Versace has been part of the brand's identity since it was founded in Milan by her older brother, Gianni Versace, almost 50 years ago. How central is Donatella Versace to this Versace brand? Well, I mean, she is the Versace brand. She's incredibly central.

5:30She's very recognizable for her platinum blonde hair and her dark eyeliner. You know, you would know her almost as a celebrity, almost as one of Versace's celebrity clients. that's how recognizable she is. Donatella's celebrity status was integral to the brand's early growth. She made important relationships with fashion editors and celebrities to help build the brand's profile. But it wasn't until Gianni's murder in 1997 that she was sort of thrust into, you know, the crucial key role of chief creative officer. July 15th, the fashion world is rocked by the murder in Miami Beach of Italian designer Gianni Versace.

6:10After Gianni's death, Donatella took his place as creative leader of Versace. In that role, she went on to create some of the brand's most iconic looks and ad campaigns, featuring stars like Madonna, Lady Gaga, and Beyoncé. And, you know, from everybody I talk to, people have the nicest things to say about her, that she is just, you know, a sweetheart and professional, and, you know, she's sort of mild-mannered. She's not like the screaming diva type. You know, people who've worked for her just really sing her praises.

6:43But by the early 2000s, Versace the business was having a hard time. It was struggling to compete against bigger brands like LVMH and Kering, which were starting to acquire family-run fashion houses like Christian Dior, Yves Saint Laurent, and Gucci. So Versace was like one of the last remaining independent players. And it was really dwarfed by these giants that had formed around it. And the family, Versace family, had to sell some Picasso paintings, some leases on its stores. They sold Johnny's Miami mansion to kind of help plug operating losses. So, you know, they struggled for a while. Despite its troubles, Versace wasn't really looking to sell.

7:30But then Donatella Versace met John Idle. John is a businessman who has been very successful. He is very smooth. If you see pictures of him, you know, he looks like a CEO out of Central Casting, you know, very buttoned up in his suit. And he started his career at Ralph Lauren. And then he became CEO of Donna Karan in 1997. 1997 and went on in 2003 to join with some investors to buy the Michael Kors brand. And he, along with the designer Michael Kors, really grew that into just a powerhouse of a brand. How did he do that? The way he grew Michael Kors was he really sort of democratized the brand and made it more affordable to younger, less affluent customers.

8:26He opened outlet stores. He introduced kind of lower-priced products that were sort of entry-level for the brand to sort of attract that younger customer. And that's how he sort of broadened its appeal and turned it into a large business.

8:45With Michael Kors, Adelaide bought a small business and turned it into a global, multi-billion dollar company. And in 2018, he tried to persuade Donatella that he could do the same for Versace. Donatella met John for dinner in Milan. And after that conversation, she said she was convinced that John could really bring some business acumen to help grow the business, particularly its online sales and to help open stores. And she agreed to sell the company to what was then called Michael Kors. Michael Kors, like others in the fashion industry, is trying to fire up sales by tacking on big-name brands like the globally revered Versace, where vinyl skinny jeans sell for$12 ,500.

9:32Michael Kors bought Versace for just over$2 billion. Idol took over the business side of things, and Donatella stayed on as the brand's creative director. After the sale, Adol changed the name of his company from Michael Kors to Capri, named after an island off the Italian coast. Initially, the Versace executives I spoke with were happy and excited that they had this new parent to bankroll, you know, an expansion that they were going to be able to roll out new product categories, open new stores, really build the business. They would have the resources to do things they hadn't been able to do before.

10:09But not long after the acquisition, a seam started to tear in their relationship. An early warning sign was that the American executives and Italian designers had a hard time even talking to each other. You know, the American executives would come into design meetings, you know, the designers would be trying to explain their inspiration for the latest collection, and the Americans would say, look, what are the key performance indicators? And the designers would be like, Like, I don't, we don't know what you're talking about. You know, it's just, they weren't speaking the same language. They're using some business terms, your KPIs.

10:43Right. American businessmen love those, you know, those jargony terms. We sure do. To grow a true luxury brand, you know, takes decades, not quarters. And people say, well, Americans, they look at the next financial quarter. Europeans look, they're thinking along about generations. You know, they just take a much longer term view of things. And then, Idol and Donatella started butting heads on the brand's creative vision. That's next.

11:27After the pandemic, the luxury fashion market started to change. Coming out of COVID, two things happened. And one, this so-called quiet luxury trend became very popular. And this was like understated, no logos, you know, very kind of sleek, minimal design, minimalistic designs. The highest quality materials, but very sort of understated. And then secondly, luxury industry started to go into a bit of a slump. You know, people, they had stocked up on a lot of luxury goods during the pandemic. They started spending on other things like travel and entertainment. And luxury sales started falling at a lot of brands.

12:10One estimate shows that between 2022 and 2024, the number of luxury goods sold globally collapsed by more than a fifth. At Versace, the pressure was on. And John Idle stepped in and started weighing in on designs. What was Idle's vision for Versace? Here's where the clash starts to kind of develop. He wanted to make it less Versace, more Palm Beach, less South Beach, so to speak. Tone down those bright colors, get rid of those bright prints, make it more like Dior, you know, little black dresses, elegant, sophisticated, not, you know, as flashy as it had been. How did Donatella Versace respond to these ideas?

12:56Well, you know, it's like, you know, calling your baby ugly, right? It's like, you know, I think she was not pleased, especially because, you know, her idea of partnering with John was that he was going to bring his, you know, his business chops to the partnership, not weigh in on all the creative stuff. I mean, he was not trained in as a designer. He does not have a background in design, yet he would, you know, go to design meetings and he would give lots of feedback. In one instance, Idle had men's silk shorts removed from mannequins in Versace's store windows because he thought they were too flamboyant.

13:33Why? Why did he want to get involved in the sort of creative side if he had sort of pitched the deal as business? My sense is, you know, he had a sense of what would sell, and he would go into design meetings and he'd say, this is not going to sell. And sometimes he was right and sometimes he was wrong. Idle also wanted Versace to add a new insignia. similar to Michael Kors' M.K., or Louis Vuitton's L.V. So the design team came up with a Baroque V that Versace then started putting on handbags. I think Donatella tried to deliver what he wanted, and then if it didn't work, she would revert back to more traditional Versace designs.

14:16And if you look at runway shows, you can see this fluctuation. One season, it's a lot of black and browns, And the next season, it's all the bright colors again. And then, you know, it's back to the blacks and the more muted designs. So, you know, this was like a brand kind of going through this transformation that created a lot of confusion about what Versace stood for. What did all this flip-flopping mean for Versace's sales? Well, they turned off a lot of their core customers and they didn't attract enough new ones. So, you know, the changes are not showing up favorably in the numbers. In the first nine months of the fiscal year, the sales are down something like 20%.

15:01The company's stock is down, too. Since Capri acquired Versace in 2018, its stock has fallen about 40%. So Idol is now looking for another merger. He tried combining Capri with the fashion house tapestry, but that deal got blocked by regulators. Now, Suzanne says he's been having talks about possibly selling Versace to Prada. And then, a few weeks ago, came the big announcement. Donatella Versace, who has been at the helm of Versace for more than 25 years, is stepping down. Dario Vitale, former design and image director at MiuMiu, will take on Donatella's role from April 1st. She says, in my new role as chief brand ambassador, I will remain Versace's most passionate supporter.

15:49Versace is in my DNA and always in my heart. So now we are really going to enter a new era for Versace where there is no Versace at the helm. What did Donatella Versace say about why she decided to leave? So the day before her last fashion show in Milan, Donatella spoke at a Vogue event and I thought what she said was very telling. She said being told what to do, being told what's going to sell. If you try to please too many people, too many managers, creativity is gone. So it sounds like she might have felt a little bit like her hands were tied creatively. Yeah, I think she was being given a lot of direction by the managers of what to do.

16:31But she really, you know, has been the creative vision behind Versace now for the past, you know, almost three decades. After Donatella stepped down, Idol told the Wall Street Journal that he's confident in the vision he'd set for Versace. He said, quote, We recognize that brand evolutions take time and that challenges are inevitable along the path to success.

16:55I guess it's the end of an era for Donatella Versace. She's kind of the last of a breed of designers that have, you know, their own name on the front door. Because, you know, we've seen in recent years these conglomerates snapping up all the family-owned fashion brands. What are Idol's plans for the company now? Like, where do you think this company might go? Well, assuming he doesn't sell the brand, you know, he has said he's dedicated to, you know, keeping Versace, you know, at the high end of luxury. He doesn't want to cheapen the brand. He wants to make it even more luxurious, focus on craftsmanship and, you know, elegant designs.

17:39So I think you're going to see more of that and less of the bright prints and the Baroque patterns and the kind of outrageous, flamboyant designs that Versace was known for in the past. And, you know, Versace now is going to be sort of a little bit less like Versace.

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18:30That's all for today, Tuesday, March 25th. Special thanks to S &P Global Market Intelligence for investor meeting audio. The Journal is a co-production of Spotify and The Wall Street Journal. Thanks for listening. See you tomorrow.