I. BACKGROUND OF THE STUDY
This case describes the history and present dilemma facing Wanda Ferragamo and her six children, all of whom are involved in the family business. The House of Ferragamo, a Florence-based maker of high quality Italian clothing and leather good, was founded by Salvatore Ferragamo. Throughout his 57-year career, he achieved a worldwide reputation for comfortable shoes of creativity and the finest quality. Since his death in 1960, Wanda had successfully overseen years of expansion while insisting on family togetherness.
She believed that the family should form a cohesive decision-making body, “like the seven arteries to the heart”.
II. OBJECTIVE OF THE STUDY
The objective of the study is to come up with a strategy that will enable the company to sustain both high quality products and continued growth, specifically doubling the sales over the next five years.
III. AREAS FOR CONSIDERATION
Industry Level Analysis
The luxury goods industry flourished during the booming world economy of the late 1980’s reaching $52 billion by 1990; a rapidly growing class of newly rich consumers seemed willing to pay higher prices for prestigious labels.
Well-known purveyors of high fashion clothing, perfume, and other expensive wares increased production of “exclusive” products and concocted new items to sell, typically under the same upmarket brands.
In a market where even poorly managed luxury firms made a profit, “creativity” and “style”, rather than hardheaded business strategies, were typically viewed as the key to success. As a full-line retailer of luxury goods, Ferragamo’s boutiques competed with the Hermes, Valentino, and Chanel boutiques, often located along the same street.
In this environment, Ferragamo’s prices were somewhat lower than the others, reflecting a customer perceived difference in chic and styling.
Salvatore Ferragamo, SpA, was a Florence-based maker of high-quality Italian clothing and leather goods, which began as the small, handmade shoe business of Salvatore Ferragamo. Since his death 30 years earlier, Wanda had presided over the company’s growth, managing the business with her 6 children. Unlike the Gucci or Benetton families, the Ferragamos placed a premium on consensus decision making and had developed the company gradually in order to preserve product quality.
The company was roughly divided into six organizational units, each run by one of the Ferragamo children. As president Wanda was actively involved in both design and administration for the entire business. The three daughters managed design and merchandising for their respective product lines. Fiamma, the eldest, was in charge of women’s shoes and handbags; Giovanna, women’s ready-to-wear (RTW) clothing; Fulvia, the youngest scarves and other accessories. The three brothers focused more on management and administration. Eldest son Ferrucio served as managing director and chief administrator of the company. Middle son Leonardo was responsible for expanding the Ferragamo brand across Europe and Asia, while youngest son Massimo led the U.S. operations as general manager of the Moda Imports subsidiary.
• Wanda Ferragamo was dedicated to maintaining Salvatore’s quality, value, and fairness with employees, suppliers, and customers. • The Ferragamo’s developed the company gradually in order to preserve product quality and focused on consensus decision making. • Provided full range of size and color for each style • Design team worked directly with fabric manufacturers to create special material for its products. • Design synergies: Using same symbol, pattern, or style of its products. • It chose its store sites at very desirable shopping area and required them carried a full line products.
• Limited understanding of its market and customers.
• Men’s line received only a part-time attention.
• It did not have formalized corporate marketing strategy.
• The decision making was slow.
• Needed to improve interdepartmental communication.
• Strengthen its distribution bases.
• Consumers had high satisfaction to its products.
• Global markets had great potential
• Consumers willing to pay higher price for prestigious labels.
• Hiring consulting firms to restructure the company.
• Competitor’s products were more varied and modern. Their designs are more appealing to younger and fashion-driven market. • Its competitors in women’s clothes: Gucci, Chanel and Hermes • Its competitors on women’s shoes: Joan & David, Jourdan, and Bruno Magli • Its competitor’s in men’s shoes : Cole-Haan and Bally
I therefore conclude that Ferragamo should keep focusing on the global upper class customer by offering quality and luxurious goods and at the same time broaden their strategy in terms of customer age and gender and different product lines.
Revamp organization to bring it in line with chosen strategy.
• Hire management consultants
• Perform organization study to:
✓ Formalize distribution of responsibilities
✓ Improve productivity
✓ Align organizational structure with the general orientation of the company
✓ Perform strategic studies (control and information systems)
Reorganize Men’s Divisions as a prototype for other divisions
• Hire two professional as division directors for Men’s shoes and RTW
Develop a more aggressive marketing concept
• Hire a senior executive with experience in the international luxury goods and fashion industries as marketing director.
The company will have to change significantly to grow in this highly competitive, volatile luxury goods marketplace. Specifically, it must first develop and adhere to a focused brand strategy, and second, create an organizational structure which is more responsive to the market and possibly less dictated by current management’s concerns.
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