This article on the handover of a family-run fashion business appeared in Fortune and is archived below.
January 22, 2007
The family-owned Italian shoe business, now in its third generation, tries on its first outside CEO.
By Stephan Faris
Last summer Wanda Ferragamo ordered a special gift for her 22 grandchildren and 23 great-grandchildren. The fashion-family matriarch took a plastic Weeble, the egg-shaped doll that wobbles but doesn’t fall down, and had it recast as foot-tall artisinal silver statues. Hand-soldered lace curled around 45 bellies. “My Dears,” read the inscribed dedication, “regain your balance and continue straight on the path of principles and moral rectitude shown to you.”
“This will be a souvenir for the years to come, when I will be in a better world,” says Ferragamo, 85, sitting in an ornate visiting room in a Florence palazzo hung with Italian tapestries. It was a typical mix of nurture and discipline from a woman who will leave behind more than silver dolls. Since the death of her husband, Salvatore Ferragamo, in 1960, Wanda has headed the company that bears his name, building his chic shoe firm–with the help of her six children–into an international luxury brand. In the first half of 2006, Ferragamo pulled in $380 million, up 12% from the year before. Net profit in 2005 was $46.8 million.
Yet as the company has grown, so has the family. Ferragamo has 63 potential shareholders, all Wanda’s descendants and their spouses. The stock had been divided equally among her six children–she owns no shares–but with the death of her eldest daughter in 1998, ownership has begun to fragment, prompting the company to announce a public offering. “The idea is not to trap them in the company as shareholders,” says Ferruccio Ferragamo, Wanda’s oldest son. “If we’re public, they can buy, sell, increase, decrease their stake in the company without friction among them.”
Wanda wants not only to protect the family from the company but also to shield the company from the family. In October, Ferragamo tapped Michele Norsa, former head of Valentino, to oversee the transition to a public company. As the first nonfamily CEO in Ferragamo’s 80-year history, Norsa replaced Ferruccio, 61, who took over as chairman of the board. Wanda became honorary president. “It is the right step to take for a company that’s thinking about going public,” says James Hurley, a luxury-goods analyst with the Telsey Advisory Group, a New York City consumer-retail research firm. “It adds a level of confidence with investors to know that there’s somebody with a high level of experience.”
Norsa, 58, brings a cherubic smile and easy confidence to a company with robust revenues, a strong international network, a reputation for quality, and a brand that is well known but not firmly positioned. “There are values in the brand that have not been communicated,” says Norsa. “Heritage, quality, and belonging to the world of celebrities–the first step is to maximize the existing values.”
His first order of business will be a publicity push to make the brand hotter–to build a reputation for accessories and apparel and expand from its mostly older demographic. But in the short term, Norsa says, Ferragamo’s offerings are unlikely to change much: “Product change is much slower than change in communication.”
Ferragamo is known more as a shoe company than a fashion house. Footwear makes up 38% of sales. A conservative style and a reputation for comfort make the shoes attractive to older women, but they aren’t well known among the younger set. “It’s the only brand of women’s luxury shoes using different widths,” says Norsa. “The width of the shoes allows you to keep a customer for the whole of her life. My mother is 92, and she has been wearing Ferragamo shoes for the last 60 years. Now I can’t imagine we can address the teenagers. But we should focus on the women from 30 to 55, which represents the belly of the market. They dress like their daughters. They are beautiful.”
It doesn’t help that Ferragamo’s best-known spokesmodels began their careers in black and white. “Ferragamo has a tremendous heritage,” says Norsa. “My office is full of pictures: Audrey Hepburn, Greta Garbo, Marilyn Monroe, Sophia Loren. This is a strong way of communicating, but you have to keep it alive. You cannot live with the celebrities of the past.” The brand, he says, should associate itself with the likes of Gwyneth Paltrow or Argentine model Valeria Mazza. “They’re both in their 30s, they have children.”
Norsa’s experience at Valentino, where he is credited with boosting international sales, will be crucial at Ferragamo, which gets 49% of its sales from Asia and 26% from the U.S. “When I go into the showroom here and I see people who are selling to places that they don’t even know where they are,” he says, “this is something that needs to be changed.” To thrive, he says, Ferragamo must continue to adapt to local tastes, tailoring everything from fabrics to shoe sizes to the size of its logo, and rethinking displays designed for the tall, thin windows of Europe’s high streets for the broad storefronts of Asian shopping centers. “Companies able to react better,” he says, “will get market share.”
Norsa isn’t taking over from just any CEO, but from a family accustomed to governing by consensus, with a penchant for obsessing over details. “It was difficult to have lunch at my grandmother’s house and not fall into the business trap,” says Ferruccio’s son James, 35, who heads the women’s leather department. The Ferragamos would often delay major decisions, arguing until the whole family was in agreement, says John Davis, an expert in family business at Harvard Business School who has studied the company. “When this family pulls the trigger on a decision,” he says, “it’s a fair assumption that they’ve really thought it through.”
Norsa’s appointment is an unusual move in a country dominated by family capital. Of Italy’s 100 largest firms, 40 have families as major stakeholders and in management positions, including pasta maker Barilla and former Prime Minister Silvio Berlusconi’s media empire, Fininvest. (Another 40 are multinationals, and most of the rest are state-owned.) In midsized and small companies, the proportions are even larger. “Family capitalism is present in every sector and every dimension of Italian business,” says Andrea Colli, a professor of economic history at Milan’s Bocconi University. For family companies like Ferragamo, he says, the trick is to maintain traditions while managing the ascension of a third or fourth generation: “With globalization, they need entrepreneurs, not merely successors.”
At Ferragamo, family control will be ensured by keeping 52% of the firm in the family’s holding company. “That is like a safe box,” says Ferruccio. The IPO, expected to take place within two years, will involve some part of the remaining 48%. “We have to give guidance from the top,” says Ferruccio, explaining why the family insists on keeping majority control. “We are a luxury brand. We are ‘Made in Italy.’ And of course under this guidance there is an iceberg. It means accepting that our costs are high. But we have a tradition to respect, and we think it plays an important role in the balance of image and profit and maybe brings the company to a longer life.”
Except for a line of watches manufactured in Switzerland, Ferragamo produces everything in Italy. In a factory northwest of Florence, where the firm’s top-end Tramezza shoes are made, 16 artisans work by hand or on machines little larger than those in a hobbyist’s garage, pushing, pulling, pounding, pressing, and grinding the leather layers into shape. Together, they assemble 100 pairs a day, applying the polish by hand and buffing them by machine. “It’s not a cold relation between the operator and the product,” says Luigi Pollice, 44, a technician whose father worked for Ferragamo for 30 years. “There are only two shoes that must be exactly alike: the right and the left. Every shoe is a work of art.”
Born in 1898, Salvatore Ferragamo made his first pair of shoes when he was 9, working in secret the night before his sister’s first communion to fashion a pair of white slippers from scraps begged from a cobbler in his hometown of Bonito, near Naples. His passion took him to Boston and then to Hollywood, where he made custom shoes for Marlene Dietrich, Jean Harlow, Joan Crawford, and Charlie Chaplin. In 1927, Ferragamo returned to Italy, setting up shop in Florence to capitalize on the city’s craftsmen. That year his shoes became the first to be imported into the U.S.
Ferragamo, who studied human anatomy, mathematics, and chemical engineering while in California, filed some 300 patents, almost all for his shoes. He pioneered the open shoe for women, developed the steel-reinforced stiletto heel, and created the “invisible sandal,” woven from what looks like fishing line. Faced with material shortages during World War II, he turned to cork and invented the wedge heel. By the time he died in 1960, he had produced more than 10,000 shoe styles.
There had been little planning for a successor. Wanda was 38, with six children ranging from 2 to 17. It was August, and the company was closed for the month. But when it reopened, she sat at her husband’s desk. Her only business experience had been to watch him at work. “I felt I was the depository of his dreams.”
Ferragamo had 120 employees and $20 million in annual sales at the time. Wanda was joined by her oldest child, Fiamma, whose debut collection, presented in London the year after her father’s death, showed she had inherited his talent. Wanda’s second child, Giovanna, launched the firm’s ready-to-wear collection the following year, while Ferruccio rose through the ranks of management to become CEO in 1985 Daughter Fulvia ran the silk-scarves division, and sons Leonardo and Massimo concentrated on the expanding Asian and American markets. Ferragamo now has more than 2,000 employees, and its products are sold worldwide in 450 locations, 221 of them directly operated by the company. In New York City the flagship sails on Fifth Avenue. In Beverly Hills it commands Rodeo Drive. In London it’s on Bond Street. In Tokyo it sits in the Ginza district.
By dividing responsibilities along product lines for her daughters and by geography for her sons, Wanda minimized the friction that might otherwise have arisen. But when it came to the third generation, the company was less inclusive, limiting the number of grandchildren who could join the company to three. Applicants were asked to have a university education, to have worked for at least two years at another firm, to be proficient in English and computers, and to undergo a vetting by a company outsider. “The purpose has been to maintain the presence of the family, but not to leave it wild,” says Ferruccio. “If we had left it wild, I’m sure the first one to arrive here would have been the weakest, the one who hadn’t found anything else to do.”
Norsa’s age has led some to speculate his successor might be a Ferragamo. “If they brought on somebody who was 42, it would have been a signal that they might not have seen the next generation as being capable,” says Davis. “It would be nice, to be honest,” says Ferruccio. “But I don’t think it’s a must. Maybe the president for image purposes, but the CEO has to be the right person.” Says Norsa: “I will look for the best person I imagine could run the company.”
Meanwhile, Wanda has begun to cut back. She leaves her office at 6 P.M. instead of 7:30 and has reduced her international travel. Last year she skipped an award ceremony honoring her husband in Beverly Hills and declined to fly to Hong Kong to celebrate the company’s 20-year presence there. “The only thing I regret is that I am now not prepared to do 14 hours in a plane,” she says. Would she like to see a CEO with a silver Weeble on his desk? “Only if we are lucky to find a good one. Because the wrong one can turn everything upside down.”