Michele Norsa, CEO & Group Managing Director of Salvatore Ferragamo talks expansion, opportunity and future growth for the iconic Italian brand.
It’s no secret that since his appointment to the top job at Salvatore Ferragamo’s namesake company, Michele Norsa has done wonders for the Florence-based business.
Steeped in a rich, almost Hollywood-esque history of shoemaking for stars such as Marilyn Monroe and Audrey Hepburn since the 1950s, Ferragamo has always had the hallmarks of luxury and class, but under Norsa’s experienced guidance, the company has moved in leaps and bounds, culminating in its success to the present day.
As an outsider, brought in to revitalise the company as CEO and Group Managing Director in October 2006, he has made it his mission to not only re-position the company and attract new generations, but also to strategically navigate the expansion of its empire.
In doing this, he has drawn from a wealth of experience collated from early beginnings – he wrote his thesis at university in Milan on the textile industry – which now amounts to a track record which spans more than 35 years and includes executive posts at iconic publishing and fashion houses such as Rizzoli, Benetton and Valentino.
The latter, for which he led a successful IPO, was no doubt instrumental to the execution of Ferragamo’s public offering under his reign, which has since opened doors for the brand and fuelled its international store expansion.
Currently, he also serves on the Board of Directors of the Oettinger Davidoff Group and is a member of the International Advisory Board of the China Europe International Business School (CEIBS).
Clearly a man of many talents, however, it is Norsa’s jovial persona, optimistic outlook and visible passion for the brand which disarms the most – and perhaps it is, in part, this positivity and his enthusiasm to advance which has so tellingly transformed the business and continues to fuel its bright future.
“ I think we are ready now, to take advantage of the fast rate of change ahead ”
So, obviously you’ve had an amazing 2014, especially as a single brand – to earn $1.5 billion in sales. Do you think that you’ll be able to keep growing at the same rate as the years progress?
Well, I’ve been here for a little more than eight years, and we have more than doubled our turnover. The value of the company has multiplied by seven or eight times. But, if we compare to some of our, let’s say, competitors, or bench markets … Think of a company like Chanel, Vuitton, Gucci … They are still three or four times bigger than us.
We still believe we have the potential to grow our core business, but what is fundamental for me is to grow the profitability, and possibly the profitability more than the sales. This is what we are really trying to do, and I think this is where we succeeded in 2014. In fact, we are one of a few companies which still has increasing profitability ratios in the market, although we are not growing as fast as we have grown in the past years.
Also, for us, we were coming off seven years of double-digit growth, so it is more important in a certain sense to be able to increase the profitability.
So, for this year and the next couple of years – where I think there will also be an impact of the exchange rates, which will be, of course, significant – it will be, more importantly, a time of profitability.
I think what is important also is to be able to grow in different areas – the geographical regions and the different categories, because the world is changing so fast.
“ All of a sudden in six months we’ve seen a batch of consumers almost disappearing ”
In fact, all of a sudden in six months we’ve seen a batch of consumers almost disappearing. You see the Russian consumers almost disappearing, you see the Chinese traveling to unexpected destinations. You see United States, which is growing, but maybe not as much as everybody expected. You see an unbelievable potential in Europe, which we had lost in the past years because of the unfavourable exchange rate.
If you look at the Spanish market also, this was a market which was definitely not considered one of the big ones, but which is now becoming quite prominent. If you look at the Japanese market, for example – honestly, I didn’t have very high expectations for it, but suddenly all that has changed.
In saying that, I think we are very well balanced currently in terms of geographic participation and in terms of genders – it’s 60% women and 40% men.
So, I think we are ready now, to take advantage of the fast rate of change ahead.
We are also very well represented in travel retail. I believe very much in airport distribution, visibility and the potential it has to reach consumers you are not reaching anywhere else.
Sure. Two or three years ago also, there was a lot of talk about the potential of both India and Brazil, but I think now companies have realised that it’s quite difficult to go into these markets or to price in these markets. Do you feel that they will be important markets in the future though, for Ferragamo?
Well, going on from what I just mentioned earlier, in past years we had expectations for both India and Brazil, which were definitely much higher than what actually materialised in the end.
The reason why this market did not really start, I think, is that business is focused in limited number of cities, just one or two in each market. Because in Brazil you really have just Sao Paulo and Rio. In India you have Dehli and Mumbai. You don’t have the number of cities you have in China where you can have 30, 40 cities [to tap].
The second reason is duties, because both Brazil and India have the markets where the differentials are more in their favour. But I think there was also a mistake, probably, in believing the culture of these countries, in terms of luxury goods, could actually expand so fast.
I have mentioned before that I think that, overall, India and Brazil have smaller potential [for luxury] in a way, than the city of Macau. Because domestic business cannot develop as much, because people are not confident to spend in their hometown countries. They don’t want to be seen.
Wealthy Indians, for example, travel to Singapore, or to Dubai, or London. They are people who have access to travel, so they probably buy in different cities. For Brazil, in terms of luxury, I think that Miami is probably the capital in a sense. We designed a store in Miami, and it’s already capturing a big number of Brazilian consumers.
“ It’s probably more important to have a good fortune-teller than a CEO ”
So, how do you target your consumers effectively, when they are everywhere and nowhere, and not necessarily purchasing in their place of birth?
I think this is what we are probably working on to do best. I would say it’s probably more important to have a good fortune-teller than a CEO, because now you really need to have foresight, insight. I believe very much in being ‘in the markets’ myself. What I saw last week in Japan I could not have been told by anybody. I would not have believed what I saw.
Talking to leading people in the country, is also so important, so I regularly go to China and meet people there.
I am a member of the International Advisory Board of the China Europe International Business School (CEIBS), so I have the opportunity to meet most leaders in banks and in international Chinese companies. This is all part of really trying to understand where the people go.
We speak a lot about the Chinese, because in terms of pure numbers, they have outnumbered all of the possible customers. When you think of 117 million Chinese traveling, that is more than the entire population of Japan, Italy and Germany combined.
In terms of how [Chinese] consumers travel also, you have seen they are traveling all over the world now and not traveling anymore in groups. But they started traveling as a small group of families. Then, you started to see their learning curve – how they started buying more sophisticated products and started going to more sophisticated places because, in fact, their first destinations were quite limited, and then they started to expand.
This is something that we can expect more of, and we can forecast that. So we are constantly looking at new destinations for customers around Europe, because they will increasingly be coming and going to new destinations. We are opening stores now in a lot of new cities this year, such as Copenhagen and in Berlin, for example.
We can also forecast, for example, stronger development on the West Coast of the United States, than the East Coast, because it’s is not only closer [geographically], but closer in the mentality [of Chinese consumers]. We have had a lot of Chinese migration in the past to cities like San Francisco. We have seen a big difference in the speed of development in this sense, of the West Coast versus the East Coast.
“ E-commerce is not really working in China because you have credit limitations ”
What about e-commerce for targeting traveling consumers? If you speak to McKinsey or most other research firms, they’re adamant that it’s the fastest growing channel.
What is really difficult to forecast is how the e-commerce and the digital business will impact us in the near future, because apart from the United States it’s still quite limited.
In terms of the luxury industry though, how big it can become is something which is difficult to say. It’s the fastest growing because it was so small. When you grow from 1% to 1.5%, if you look at the number, of course it is growing faster.
But I think you have to consider it in the countries where it is working because, for example, e-commerce is not really working in China because you have credit limitations, and logistical limitations. How long it will take to take off there, for example, I have no idea.
But if you look at the United States, here is really where e-commerce works, not only because of the platform technologies available, but the credit system and the logistics.
Yet again, if you take Japan, they still give more value to the selling of the product, to the packaging, to the details. This is important if you want to spend a large amount of money on a product, and I think this will remain important.
It’s just something for which I don’t have an answer. There could be fast growth, but it could also grow slower than expected.
As a CEO, how do you manage all the symptoms of pricing?
I think in the past we were monitoring the pricing matrix I’d say probably four to six times a year, just to check more or less when we were pricing things or when we were balancing. Now we do it every week, because we take into account the current currency fluctuations and valuation, etc – so it’s really important.
On the other side, I think you can actually have a reasonable price gap if you want a premium price. So, Asia, for example, has always been subject to premium price. It was Japan first. It is now the case in China, and as long as the difference is not too big, it is somehow measurable.
A few years ago if you were buying a golf clubs in Europe it would always be 20-30% more expensive than in the United States. The same, if you buy most Japanese products in Europe, anyhow, it has always been more expensive.
Now, the difference in price has become bigger than before, but I think for the time being we are just monitoring.
“ We still have room to grow in both the men and women’s categories ”
Chanel recently announced that it would look to global pricing for some of its signature bags, so they’ll be reducing the price in China and raising it in Europe. Do you think many other luxury goods brands will do that?
Honestly, I don’t think so. I think that the watch companies have been doing it in a very strategic way and increasing or decreasing by something like 1%.
For the other categories… I think people spend when they travel, but very often they don’t know much about the actual cost savings, price differences. Let’s say, I go to Moscow and I buy caviar. I believe I am saving, but I have no idea how much I’m saving. I have no comparison. If I am there, I buy a box of caviar. That’s it.
Speaking of categories – are watches and jewellery a very important part of the business? Will that part of it continue to grow?
For the time being, they are not very important, but I believe there is big potential there. We have been focusing on our core business and I think that makes sense, because when you think about our brand, you think about shoes … But then we still have room to grow in both the men and women’s categories. In terms of accessories, I think the most successful product we have now is belts. There are people who are traveling just to buy belts.
When I was in New York, all the people there were buying belts, and so we went from selling a few hundred thousand to selling more millions.
So, this area of product has kind of doubled, this is what is golden and bigger now – the leather goods.
Now, in watches we are doing good business, but it is relative to the size of the company. It can be definitely improved, and in terms of jewellery we are really a tiny company. Very small.
For watches, I think it now we have a positioning which is probably in between companies with a large watch business, a licensed watch business, and the real expensive watches. In the future I think that we could position ourselves a little higher than where we are currently. We have watches which go from $1500 to $5000, $6000, so there is the potential, and this is a project we will be working on in the future.
It won’t happen from one day to another though, because we are good at what we know.
Looking forward, what do you think is the biggest challenge that you will face in the coming years?
I think that we are still not big enough, so we want to grow. This is a challenge, because what we probably want to reach is the size of a couple billion.
We also want to invest more in terms of communication, and to be more present in some other countries and markets. Because we are still small for the number of markets we are covering.
However, we are in 84 different airports. This is where we are most present – 84 international airports – but we are only in 100 countries. Of course, we are not strong enough to be able to invest in all countries. But we need to become stronger.
Another challenge, I think, is keeping the company young. In a certain sense, with this kind of company, you have the advantage of having history, but at the same time you must keep the company young in terms of spirit, management and reaching new customers.
“ We have the possibility to go upscale a little in certain capabilities ”
What is the next opportunity that you would like to see materialise for the Ferragamo business?
I believe in terms of product, we definitely have the potential to become more, expand. Apart from jewellery and watches – which are an opportunity, of course – but I think also, we have the possibility to go upscale a little in certain capabilities, meaning shoes and apparel.
We also have a history in the movies, the cinema, the stars … So this is something we should follow more.
In term of geographical expansion, what I find interesting and where I think there is opportunity also is to really be tuned in to people and to be where they go. Now, we talk a lot about the Chinese, but in the next few decades we are probably going to see a new generation emerge. It could be Africa. It could be Latin America – it still has potential for us. Mexico is good…
So I would like to be even more global in a certain sense because it’s also more fun. It’s more interesting. When you open in Bogota or you open in Australia, for example, I think it’s the funniest thing. The pleasure of having a brand presence there, and when I see that we are opening somewhere I’ve never been.
Mongolia, or Indonesia, for example. Indonesia is a country with very good potential and very few companies are really taking advantage of it, probably because it’s a matter of the currency etc, but again, if you consider size of the population there is potential.
For more in our series of conversations with Luxury Leaders, please see our most recent editions as follows:
- In Conversation with Jean-Noël Kapferer, Author Of ‘The Luxury Strategy’
- In Conversation With Mike Flewitt, CEO, McLaren Automotive
- In Conversation With Robert Cheng, Group VP Marketing, The Peninsula Group
Additional editing by Daniela Aroche, Editorial Director of Luxury Society