Is Fendi a worthwhile investment or a one-trick pony, relying largely on revenue being driven by one thing – its popular Baguette bag? That was the critical question that plagued investors during the crawling weeks of the summer of 1999. While much of fashion’s inner circle was flocking to the Hamptons for a summer sojourn, posting up at the Hotel du Cap in Antibes or hiding out on yachts in the Riviera, rumors had reached a fever pitch that a controlling stake in Fendi was up for sale and as a result, the family-owned Italian design house was at the epicenter of the latest tour de force between fashion’s two largest luxury goods conglomerates.
PPR (now Kering) and LVMH Moet Hennessy Louis Vuitton were already in the midst of a high-stakes fight – one the New York Post would describe as “the bloodiest fight in fashion” – for the Gucci Group rife with aggressive acquisition tactics and equally calculated defensive moves. It was against this background that publications worldwide detailed the mounting acquisition interest of both French conglomerates in Fendi.
If reports were to be believed, the outspoken Karl Lagerfeld, who had been at the helm of Fendi for more than 30 years, wanted no part of the corporate chess-playing, and according to a carefully-worded press release, neither did Fendi.
A statement from the Italian luxury stalwart circulated in August 1999. Fendi, according to a spokesman for the then-nearly 75 year old brand, would remain in the hands of Paola, Anna, Franca, Carla and Alda Fendi, the five second-generation sisters, who inherited the Roman ready-to-wear and fur business in 1954, upon the death of their father, and held equal ownership shares. As for Karl Lagerfeld, who joined the house in 1965, he would remain in his role as creative director of Fendi’s womenswear offerings.
The message sent by Fendi’s communications team quieted the industry’s chatter surrounding the much-discussed sale, but the lull would not last long.
Less than a month later, in late September, amidst the flurry of activity associated with the seasonal fashion month runway shows, the Wall Street Journal reported that LVMH was preparing to make a bid for Fendi, and it was not acting on its own. Bernard Arnault – the notoriously aggressive chairman of LVMH, which owns a stable of luxury brands, including spirits-maker Moet champagne and leather goods house Louis Vuitton – had joined forces with the CEO of the Prada Group, Patrizio Bertelli.
Together, they would make a play for Fendi that the brand could not resist.
The heads of the luxury goods rivals – LVMH and the Prada Group – had become fast friends just months prior, forging what the New York Times later called “an unusual alliance,” when Bertelli assisted in Arnault’s unabashed (and ultimately, unsuccessful) quest to buy any – and every – buy-able stake in Gucci.
Bertelli – who was busy building a luxury fashion empire of his own at the time, taking control of fashion companies Helmut Lang and Jil Sander and shoemaker Church & Co., among others – had acquired a 9.5 stake in Gucci some years prior for an estimated $260 million. In January 1999, he sold his entire stake to Arnault for $398 million. Arnault was one step closer what the Italian design house’s CEO Domenico de Sole feared would be a creeping takeover.
Now, Bertelli – who was known for his “combative character” and “difficult personality” – and Arnault – who had garnered the title of “one of Europe’s wealthiest and most ambitious business executives” thanks to his “ruthless” and “relentless acquisition spree” – would work together. The target was Fendi, and the quest brought together “some of the most dominant egos in the fashion industry.”
Fendi’s “fur [offerings] (which accounted for 20% of sales) and leather goods (40%) would make a nice addition to LVMH,” Forbes’ Richard Heller reported in August 1999. And the Italian design house’s “ready-to-wear lines (20% of revenues) would fit well with the group’s current brands (Christian Dior, Givenchy, Celine).”
There was one “potential stumbling block for LVMH,” though, according to Heller. “Would designer Lagerfeld (who also does Chanel and his own line) work for the authoritarian Arnault?”
While it was unclear at the time if Lagerfeld would be willing to operate under the increasingly corporate umbrella that was LVMH, what was certain was this: It was becoming quite well-known that there was not much that Arnault would not do to close a deal and add a new name to his increasingly sizable roster of luxury brands.
However, the newly aligned LVMH and Prada chairmen were not alone in wanting to add Fendi to their portfolios. They would soon learn that they had an aggressive opponent, one that wasn’t prepare to suffer another setback at the hands of LVMH.
Right Under Fendi’s Nose
Right under Fendi’s nose in Italy, Gucci had $3 billion burning a hole in its pocket after having sold a 45 percent stake to PPR’s François Pinault in a deal that officially closed in May 1999. Just barely six months prior, Domenico De Sole with the help of Francois Pinault – the French billionaire and chairman of budding luxury goods conglomerate PPR – had managed to fend off what he foresaw as an inevitable “corporate raid” and hostile takeover by Arnault.
Now, with billions to spend, the Gucci Group, like LVMH and Prada, saw the potential in Fendi. Aside from the underdeveloped nature of the family owned company, ripe for global expansion, the fashion titans had identified a potential cash cow being harbored by Fendi: leather bags. Despite the elaborate garment-centric runway shows and ad campaigns devoted to apparel, leather goods were (and continue to be) the driving force behind fashion’s revenues, and this is something that Arnault, Bertelli, and De Sole knew well.
With annual sales of nearly $500 million for 1999, thanks largely to its Baguette bags (and its famed fur), Fendi was an attractive buy, even if it lacked proper management and capital to finance the type of expansion that fashion conglomerates dreamed of.
For Gucci, acquiring Fendi would bring many of the same benefits that Arnault and Bertelli had identified. Aside from the all-important leather goods category, Fendi boasted a fur division that could fill a gap in the Gucci Group’s offerings.
Despite recurring reports that Gucci had actively been in talks with the Fendi people, in July, a Gucci spokesman dismissed suggestions that it was eyeing the brand as “press speculation,” stating, “Since we have $3 billion to spend on acquisitions, the ideas and proposals that come to Gucci are many.” Two months later, De Sole had “no comment” on Gucci’s putative acquisition.
Money may have been the ultimate decider, with people familiar with the matter telling the WSJ that “Fendi’s asking price jumped as the [Fendi] sisters played one suitor against another,” and De Sole and Gucci “evidently backed away from Fendi when the bidding with Arnault pushed the price … beyond what he thought Gucci should pay.” Speaking of the ever-increasing asking price, De Sole told CNN in late September 1999, “We’re not crazy. There’s a limit as to what we can pay to add value to the shareholders.”
But there was more underway behind the scenes than rival multi-hundred million dollar bids from dueling fashion giants. The ultimate victor would have to do more than pay a reported $850 million, which was, as the Times report in 1999, “considered high by analysts, given the fact that the current success of Fendi is based on one product: the baguette.”
The party that wanted to call Fendi its own would have to win over the powers that be. That would not be as simple as tempting a single owner, though. Fendi was, at that point, still owned by the five Fendi sisters – each of whom held a 20 percent stake in the business. Four out of the five would need to back any sale.
Also in the mix: Karl Lagerfeld. The German design whiz, who had been the architect of much of Fendi’s success since he joined as the house’s ready-to-wear designer in 1965, held a lot of power in the equation, as the Fendi sisters were said be relying heavily “on his judgment in deciding upon a new majority owner.” But more than merely attracting Lagerfeld as a way to win over the Fendi sisters, his vote was critical as “he reportedly had the option to quit if Fendi [fell] prey to a bidder he opposed,” per CNN.
Despite a last-ditch attempt by “Gucci and PPR to woo Lagerfeld,” sources in Milan told the New York Times that “Arnault, and his counterparts at Prada had won the allegiance of Paola Fendi,” the eldest of the sisters, and Lagerfeld, as well.
“What appears to have tipped the scales in favor of the LVMH-Prada link, beyond price, was their concession to Fendi’s creative control of the company,” the Times stated in October 1999. “Anna Fendi, one of the sisters and the mother of Silvia Venturini Fendi, the [house’s creative director for accessories and menswear],” was adamant that the sister maintain quite a bit of control. She told Italian news agency, Radiocor, that fall, “Even if there will be a merger, we will keep Fendi.”
More than LVMH/Prada’s willingness to cede creative control, Bertelli emerged as an essential part of the equation. “That a Frenchman could step in and buy control of one of Italy’s hottest fashion houses was thought by analysts to have been made possible by the alliance with Prada and Mr. Bertelli, its acquisitive owner,” the Times’ John Tagliabue wrote in October.
Fast forward to May 2000 and the European Commission approved the deal, a joint venture that was first announced in October 1999, and saw LVMH and Prada pay an estimated $850 million for a total 51 percent stake. According to the Brussels-based European Union institution, “It has been claimed that the parties’ market shares could be higher as regards leather goods, but after a careful analysis the Commission concluded to the absence of competition problems.”
“The luxury leather goods segment is very competitive,” the European Commission stated, “with numerous important players, such as Gucci, Hermés, Chanel, Ferragamo, Longchamp and Yves Saint Laurent” operating within this space.
The deal, itself, put control of Fendi in the hands of Arnault and Bertelli, but left the general management in the hands of the Fendi sisters. The two fashion figures would bring their combined fire power to grow the Fendi business. As Arnault stated in confirming the deal, “Prada will bring production and creativity in Italy,” while LVMH will ”bring the international network of shops.”
And the number of shops skyrocketed in no time. Bertelli told the AP in 2001 that within 18 months the number of directly held Fendi stores worldwide had “soared from a mere 4 outposts to 83.” The business titans meant business.
In accordance with the deal, Prada and LVMH agreed to acquire any of the remaining 49 percent of Fendi that the sisters maintained should they decide to sell in the future. Prada, however, would not remain in the picture long enough for that to materialize, and LVMH would emerge as the sole owner it likely had hoped to be from the very outset.
Another Deal Done
In the early hours of a Saturday in November 2001, Arnault and Bertelli were nailing down another deal. It was just over a year after the European Commission finalized a transaction in which the two would pay a reported $850 million to acquire a controlling stake in Fendi. Now, Bertelli was looking to sell his half of the stake to Arnault. “The deal, which gives LVMH, alone, a controlling stake in Fendi, was reached [at] about 4 a.m. Saturday in Paris,” Cristina Fossati of Image Building, which handles publicity for Prada, confirmed at the time.
Prada had stumbled upon something of a hard time. The Telegraph reported that “since 1999 Prada had run into financial trouble.” To be specific, “In October , it pulled a stock market float, and selling its Fendi stake is seen as a way of easing its woes,” including paying off some the multi-billion debt it had accumulated “following an aggressive spending spree over the past few years.”
All the while, business at Fendi was not exactly flourishing; the brand had “lost approximately 20 million euros in 2001 and again in 2002, people in LVMH [told the New York Times]. And the two key creatives – Karl Lagerfeld and Silvia Venturini Fendi, the latter of whom is the only remaining Fendi family member still involved in the business – were said to be unsettled.
“The transitional period from family firm to full corporate concern wasn’t smooth sailing,” Venessa Lau wrote for W Magazine in 2009. “During the tumultuous turnover, Lagerfeld threatened to leave the house,” Lau stated. The thought similarly and “frequently” crossed Silvia Fendi’s mind, as well. “Yes, there are moments like that. They are very often. But I’m strong.”
“I think Silvia had a hard time to step from a mental position of being a Fendi within the Fendi family to being in the LVMH group, with no Fendi family around,” Ms. Fendi’s close friend Giambattista Valli, told the magazine. “But she did it. She’s staying over there because she’s extremely talented. She showed everybody.”
All the while, LVMH was working overtime to bring Fendi back to profitability. As Tracie Rozhon wrote for the Times in October 2003, LVMH shuffled Fendi’s management and “Fendi’s new team would move quickly to improve sales in the Fendi stores, reorganize marketing, and overhaul the process for making deliveries to retailers, which is notoriously slow.” As for design, Sidney Toledano, the former CEO of Dior, who was given an oversight role at Fendi, said that “Fendi designers were working on new lines of handbags and were not ‘obsessing over [the] one bag’” – the Baguette – which had that helped carry the brand for several years.
Arnault announced in an interview that October, ”Fendi is coming back.” And it was. By 2005, LVMH was boasting about how Fendi was “reaping the benefits of its new strategy and seeing an improvement in its profitability.” In its annual review for 2008, LVMH revealed that Fendi had “performed well, driven by the continued success of the Baguette handbag.” Its revenue would go on to surpass $1 billion for the first time in 2015.
Now, eighteen years after the first LVMH/Prada deal to buy their 51 percent stake in Fendi was finalized, LVMH owns 100 percent of Fendi. The conglomerate spent years buying up the rest of the stakes, including a 15.9 percent buy in July 2002, upping it again in February 2003 and thereafter.
As for whether Fendi is a one-trick pony, all signs seem to point to no. Fendi – under the continued watch of Lagerfeld and Venturini Fendi – has managed to pull many a trick from its fur hat in recent years. Its tiny-but-expansive fur bag charms, for instance, one of which looked a whole lot like its famous creative director Karl Lagerfeld, spawned waiting lists, and spurred an industry-wide trend. Its six-inch mink and fox-fur cyclops bug charms set consumers back $1,500, and they were paying, so much so that in 2015, it was difficult to find a well-to-do consumer without a charm-adorned bag.
Now, in the midst of celebrating the 10th anniversary of Venturini Fendi’s Peekaboo bag, which clinched the title of “it” bag beginning in the mid-2000’s, the brand is having another major moment. This time, Fendi is at the height of popularity thanks to its iconic Zucca monogram, which is dominating its seasonal runways, and truly saturating magazine editorials and the bodies/Instagram accounts of everyone from the Kardashian/Jenners and the Hadids to Nicki Minaj in the artwork for a recent single. The demand for the print, itself – which was first conceived by Karl Lagerfeld in the 1960s – was captured by fashion discovery platform, Lyst, which revealed that Fendi’s logoed wares were among the top 10 most searched for brands of the third fiscal quarter of 2018.
All the while, veteran fashion journalists and critics cannot help but notice that Fendi has gotten “its cool back.” The irony is its renewed position as one of fashion’s hot brands? The resurgence of nostalgic designs is driving it. That means that consumers – young and old – are picking up (either for the first time or from the back of their closets) Baguette bags, the exact thing that first caught the eye of investors back in the summer of 1999.
* Deal Dossier is a multi-part series that documents some of the most significant fashion acquisition developments of the past and present.