Reading the Tea Leaves at Salvatore Ferragamo

MILAN — More questions than answers are swirling over Salvatore Ferragamo.

The confirmation of Paul Andrew’s exit from the Florence-based company effective in May left analysts scratching their heads once again — while barely moving shares on the Italian Stock Exchange on Thursday, as they closed down 1.22 percent to 16.24 euros. WWD was the first to report in January that market sources indicated Andrew’s contract was up at the end of February and that Ferragamo would not renew it.

The Ferragamos are “unreadable,” said one analyst, who spoke on condition of anonymity. “It’s getting increasingly more difficult to understand their decisions.”

The exit of Andrew as creative director pushes the firm’s long-awaited turnaround of the brand even farther away, continued the analyst, but at this point the turnaround “is urgent — there is not much time left if they want to catch up with competitors.”

While Ferragamo said the brand will now be designed by its in-house team, the analyst said this would only be acceptable in the short-term, and that appointing a creative director will eventually be necessary.

Another analyst, who also asked not to be named, concurred. “Ferragamo must act quickly. If the company had grown in line with its competitors since the IPO [in 2011], it would now have additional revenues of 600 million euros. The brand awareness is spectacular, similar to Gucci’s, and it has not been tarnished. But there are two main problems: product and digital — [the Ferragamos] still have to understand this channel properly.”

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The analyst saw Andrew’s exit as a positive step in a change of direction. “He did not really bring any newness, but Ferragamo must hurry, the turnaround is now urgent. And although the family has always denied a sale, if that eventually does happen, I am sure they don’t want to have to sell at a discount.”

The analyst praised chief executive officer Micaela le Divelec Lemmi for being honest with investors shortly after her appointment in the summer of 2018, “having the courage to say that Ferragamo needed time and a lot of work, that it would be faster to improve the bags compared to the shoes. With COVID-19, there is no more time. And you can’t simply cut costs, as we were told during the last call. You need to grow.”

The analyst was also underwhelmed by the lack of changes revealed at the end of March, when Ferragamo Finanziaria SpA, which controls the Salvatore Ferragamo company with a 54.28 percent stake, deposited  the list of members who will be proposed during the general shareholders meeting for the renewal of the board scheduled on April 22. As reported, Ferruccio Ferragamo, the company’s longtime chairman, will be succeeded by his brother Leonardo and, contrary to the speculation circulating for months here, executive vice chairman Michele Norsa and le Divelec Lemmi made the list and will stay on.

In their report following that announcement, Jefferies analysts Flavio Cereda and Kathryn Parker, stated: “So what does this mean? Everything and nothing. On the one hand, the need for change would be reinforced by these developments…. On the other hand, the board of directors reshuffle seems very mild and hardly conducive to a change in direction. Is this a phase one or two or is this the fourth attempt by the family to redress issues without outside help? A quote from [Giuseppe Tomasi di Lampedusa’s book] ‘The Leopard’ summarizes this status well: ‘If we want things to stay as they are, things will have to change.’”

In their latest Jefferies report on Thursday, Cereda and Parker said Andrew’s arrival back in 2016 as women’s footwear designer was “controversial” as he was “a part-time appointment retaining his role at his namesake company and based in New York,” which was then put on hold when he was promoted to creative director in February 2019. “Product offering and newness failed to deliver better news flow and is still seen as a weakness. There is no news on his possible replacement ahead of the board of directors due April 22, thus reinforcing the impression of a degree of confusion amidst a desire for change. We retain our view that a new direction is a must, not a choice, for what remains one of the most famous luxury brands globally that has been plagued with significant underperformance in recent years.”

In a positive light, Luca Solca, senior research analyst, global luxury goods at Bernstein, believes “Ferragamo needs to rebuild, especially in terms of product and communication. If Paul Andrew’s exit is the prelude to a new creative and marketing season, which can give a renewed impulse and energy to a brand that appears worn-out and a step behind compared to the most important trends in the past few years — then this is a good thing.”

A shoe designer, Andrew was promoted to the role of creative director in February 2019. He had joined Ferragamo in September 2016 as women’s footwear director and was promoted a year later to women’s creative director.

Andrew’s collections for Ferragamo have been met with mixed reviews, and observers said he never really carved out a strong image for either his design philosophy or for the brand itself compared with competitors like Gucci or Prada. He admitted to WWD in 2018 that there was a learning curve in fine-tuning ready-to-wear as his expertise was in shoes. In footwear, he relied on founder Salvatore Ferragamo’s staggering archive of 15,000 shoes, revisiting, for example, a style with a woven upper and spinning it into woven flat booties and clog-like sandals. He presented sculptural heels, some inspired by Brancusi, striped ’40s wedges, platform thongs that looked like Japanese geta and new takes on the signature Vara bow pump with a low heel, molded hardware bow and wrapped ankle straps.

Last year, WWD saw Andrew bringing fresh energy to his men’s fall 2020 collection, “probably the best he’s designed since he landed at the brand,” but the women’s collection a month later was reviewed as needing additional lightness with some “awkward” designs. However, in February, for fall 2021, WWD stated that “Andrew projected the Salvatore Ferragamo brand in a more fashionable and younger dimension, reacquainting the Florentine fashion house with its original spirit.”

This discordance was reflected in the reaction to his departure. A Milan-based luxury goods consultant saw Andrew’s exit as positive news. “He is a lovely person, but he has never had a strong style identity nor the personal energy to fight for his ideas within the company.” The market, he contended, never really rewarded Andrew’s designs. “Some fresh air will do Ferragamo good.”

The consultant also believes Ferruccio Ferragamo “played a strong role in having Paul on board” and that his own exit may have influenced the designer’s departure. “Ferragamo has many opportunities but surely there is a problem of product and of digital — and I don’t mean its own e-commerce but working with specialized platforms. The family never really believed in it, but you can’t control everything.”

“It would be interesting to know if Andrew left or if it was Ferragamo’s decision because they are looking for something different,” one analyst said. “Whatever the case, this is not positive news. We need to understand who they will manage to find to succeed him.”

In the 12 months ended Dec. 31, Salvatore Ferragamo revenues fell 33.5 percent to 916 million euros, but the company reported a progressive improvement in the second half and a positive performance of the brand’s stores in the first nine weeks of 2021, topped by solid growth in China and South Korea and an 85.6 percent gain in the digital channel.

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