Marzotto S.p.A.

1836–2003

Marzotto S.p.A. has transformed itself from a textiles-focused company to a brand-centered stable of designer clothing labels. Long Italy's leading textile producer, Marzotto is now one of its biggest designer name groups, steering the dual flagships of Hugo Boss, acquired in 1991, and Valentino, acquired in 2002. The company also produces clothing under the Marlboro Classics label, under license from Philip Morris. Hugo Boss represents the company's largest single holding, producing 60.5 percent of the group's EUR 1.73 billion ($2.16 billion) in sales in 2003. Valentino, which added 8.7 percent to the group's revenues that year, is expected to grow strongly, especially with the 2003 launch of the new Red youth-oriented fashion line. The Marlboro Classic line adds 8.3 percent to group sales. An additional 12.7 percent of sales are generated through the company's other labels, including Arezie, Borgofiori, Lebole, and Principe, and its licenses for Gianfranco Ferré and Missoni. In 2003 the company sold off the bulk of its textiles production, grouped under subsidiary Linificio e Canapificio Nazionale to another Marzotto family holding, Zignago. Textiles, including wool and linen, accounted for nearly 14 percent of Marzotto's revenues in 2003. The Marzotto family remains the company's largest shareholder.

Mid-19th-Century Origins and Early 20th-Century Development

The firm was founded in the town of Valdagno in 1836, before the collection of independent states later known as Italy had even achieved nationhood. Members of the nobility, the Marzottos were by no means poor; Luigi Marzotto established his woolens mill with a capital of 2,000 Venetian Lire, the equivalent of nearly $100,000 in the mid-1990s. He handed the business over to son Gaetano in 1842. The unification of the kingdom of Italy in 1861 opened new markets to the company, and its location in the northeastern region of the nation--which made the transition from an agrarian to an industrial economy more quickly than southern Italy--gave it an advantage over its competitors to the south. By 1866, 200 employees worked the company's carding, spinning, and dyeing machines and weaving looms. An 1880 expansion took the Marzottos to nearby Maglio, where Gaetano built a new spinning factory. The wool industry had by this time become one of Italy's largest, in terms of both employment and production, and enjoyed protective tariffs of up to 40 percent in the waning years of the 19th century.

By the beginning of the 20th century, Marzotto's payroll had risen to more than 1,200. When Gaetano died in 1910, the company was split in two; son Vittorio Emanuele, who has been credited with leading the company into the export business, inherited the Valdagno operations, while Gaetano's grandsons took over the Maglio mill. Despite inflation, high unemployment, and rampant strikes in the period between the two world wars, the Marzotto group continued to grow. In fact, Vittorio was able to open another worsted wool mill during this period. By the time Gaetano Marzotto, Jr., inherited the Valdagno mill from his father in 1921, the company employed more than 2,000.

A company history characterizes Gaetano, Jr., as "an authentic founder of the family business." His efforts at modernization and expansion during the fascist-dominated 1920s strengthened the company to the extent that it not only survived the Great Depression without being nationalized, but also reacquired the family mill in Maglio. The leader capitalized on continental textile manufacturers' difficulties during this period, expanding exports to Eastern Europe, Latin America, and throughout the Mediterranean region. Experiencing difficulty in finding suitable lodgings during his nationwide travels, Gaetano, Jr., also established the Jolly hotel chain, which the Marzotto family would continue to own and operate throughout the 20th century.

Transformation Beginning in the 1950s, Accelerating in the 1970s

The price of the acquisition came to $210 million, including nearly $180 million in debt.

1961–1995

Although the company came under government control during World War II, Gaetano resumed ownership at the conflict's end. He capitalized on Italy's "economic miracle"--a period of currency stabilization and exuberant industrial growth from the mid-1940s to the mid-1960s--by diversifying into the manufacture of traditionally styled, private-label menswear during an early 1950s downturn in the core textile business. Although inflation and subsequent wage indexing (quarterly increases that corresponded to the rate of inflation) regularly increased hourly pay, worker unrest began in the late 1960s and continued throughout much of the 1970s. In 1969, striking laborers demolished a statue of patriarch Gaetano Marzotto in the middle of what had become the "company town" of Valdagno.

When Gaetano, Jr., died in 1972, his son Giannino and grandson Pietro inherited an essentially healthy but outdated business. Modernization, both of production and management techniques, intensified under Marzotto's fifth generation of family management. "Stagflation"--slow economic growth combined with hyperinflation--brought a sense of urgency to these efforts. Whereas increases in employment levels had previously been a positive indication of the textile group's condition, high labor expenses made a fat payroll a distinct disadvantage in the 1970s and beyond. Pietro reduced employment from 9,000 in 1976 to 4,500 by 1986 and simultaneously managed to refurbish the company's plants without incurring excessive debt. Having gone public in 1961, the company issued voting shares in 1981. Marzotto started selling its private-label apparel to retailers in the United States in 1973 and by 1985, when the parent company established an American subsidiary, two-fifths of its ITL 402 billion sales were made outside Italy.

Geographic and Product Diversification Via Acquisition Beginning in the Mid-1980s

The gradual, yet cumulatively revolutionary strategy that unfolded at Marzotto over the decade from 1985 to 1995 incorporated three key goals: reduction of overheads, upmarket expansion in apparel, and elimination of noncore or loss-plagued operations. These objectives were achieved through acquisitions, divestments, restructuring, and internal development.

In a March 1988 interview with WWD's Mark Ganem, Pietro likened his corporate acquisition strategy to a moderate diet, noting, "Even after the best dinner, a big dessert can ruin everything." To illustrate, the company acquired the FinBassetti Group, including its controlling interest in Linificio e Canapificio Nazionale, in 1985, but waited two years while integrating those operations before making a second purchase. The 1987 acquisition of Italy's Lanerossi increased Marzotto's total revenues by more than 72 percent, from ITL 402 billion in 1985 to ITL 691.5 billion in 1986. The ITL 168 billion purchase, which catapulted Marzotto to the top of Italy's textile and apparel heap, was made over bids by such competitors as Benetton, the Bertrand Group, and Cotonificio Cantoni. Furthermore, the addition of Lanerossi made Marzotto Europe's first fully integrated wool producer, incorporating everything "from the sheep to the suit," as Textiles General Manager Elio Lora Lamia told Daily News Record's Elizabeth Chute. Marzotto also acquired France's Le Blan & Fils, a yarn manufacturer, in 1989 and the Biella, Italy-based Guabello wool mill in 1991.

Internal growth was robust as well; even if acquisitions were excluded, revenue increases averaged more than 12 percent from 1983 to 1987. Sales flattened at about ITL 1.5 trillion throughout the remainder of the decade, however, and net income actually declined from ITL 59.7 billion in 1988 to ITL 45.4 billion in 1990.

1986–1997

Marzotto also began to gradually shift its image upmarket in the mid-1980s by launching its own moderately priced men's fashion label, Principe by Marzotto. The company first penetrated the designer market with the 1986 launch of Missoni Uomo, later adding Laura Biagiotti and Gianfranco Ferre to its stable of licensed and house designers. A major turning point in this realm came in 1991, when Marzotto paid Japanese investor Akira Akagi ITL 200 billion ($165 million) for a controlling interest in Hugo Boss, Germany's largest manufacturer of menswear. The Hugo Boss purchase was considered a threefold success: It extended Marzotto's global reach, further strengthened its primary textiles business, and added a widely recognized, high-end brand.

Difficult trading conditions in the Italian economy as well as the global apparel market continued to depress Marzotto's fiscal results in the early years of the decade. Sales increased a cumulative 71 percent, from ITL 1.4 trillion in 1990 to ITL 2.4 trillion ($1.5 billion) in 1995, but net income only rose about 25 percent, from ITL 40.1 billion to ITL 50.1 billion ($32 million).

In response to this tough environment, Marzotto announced in 1992 that it would endeavor to transfer 40 percent of its clothing production overseas in order to reduce labor costs. The revelation that the company would relinquish the unique reputation enjoyed by luxury products "Made in Italy" came as a surprise to many observers. Marzotto cut about 600 jobs in its home country that year, closed a domestic clothing plant in 1993, and completed the purchase of a 90 percent stake in Czechoslovakia's Nuova Mosilana woolen mill in 1994.

Refocusing As a Designer Clothing Group for the New Century

The company's grandest move to date came in the spring of 1997, when it announced that it would merge with compatriot HPI to form the world's largest designer clothing manufacturer, Gruppo Industriale Marzotto. The ITL 8 trillion ($4.7 billion) conglomerate would carry names such as Giorgio Armani, Valentino, Calvin Klein, Hugo Boss, and Gianfranco Ferré, and pose formidable competition to giants of the global luxury goods market including France's LVMH Moet Hennessy Louis Vuitton. Marzotto would have owned 12.4 percent of the new company, whose other leading stakeholders would have included Mediobanca (10.5 percent) and Fiat (17.3 percent). But by May 1997, Pietro Marzotto--slated to serve as the new entity's chairman--abruptly pulled out of the deal, citing concerns over strategy, investment policies, and capitalization.

The collapse of the HPI deal led to a shakeup within the Marzotto family, leading Pietro Marzotto to step down as chief executive and turn day-to-day operations over to Jean de Jaeger, who two years previous had become the first non-Marzotto to be promoted to the chief executive office. With nearly 30 years at the company to his credit, the Belgian de Jaeger advanced to executive deputy chairman. Pietro Marzotto nonetheless remained the group's majority shareholder and continued as chairman in charge of corporate strategy.

2000–2003

In 2000, Marzotto joined the de-localization trend in the European textiles industry, purchasing an 84.4 percent stake in Litekas and Calw, a Lithuanian wool garments manufacturer. The acquisition permitted the company to shift part of its textiles production to that lower-cost market.

Yet Marzotto's interest in textiles was beginning to wane. Rising competition from the Far East had sapped most of the profitability from all but the highest-end of the textiles market. Marzotto had continued building up its stable of designer labels and licenses, despite the failure of the HPI merger.

The turning point for the company's new strategy came in 2002, when Marzotto bought out Valentino, which had been struggling under HPI. The price of the acquisition came to $210 million, including nearly $180 million in debt. Marzotto quickly set to work putting together a turnaround strategy for Valentino. Over the next two years, the company worked at revitalizing its ready-to-wear line. In 2003, Valentino launched a new label, Red, designed to capture a share of the fast-growing youth market.

Meanwhile, a new shakeup was taking place within Marzotto itself. In 2002, Pietro Marzotto launched an effort, ostensibly to protect the group from a hostile takeover, whereby the family's Zignago holding company would acquire Marzotto S.p.A. Yet a group of Marzotto family members formed a pact to block the move. In response, Pietro Marzotto announced his decision to retire.

In 2003, however, Marzotto carried out a more limited transfer of its operations, selling its main textiles subsidiary, Linificio e Canapificio Nazionale, to Zignago. Refocused as a fashion house, Marzotto quickly saw results. By the end of 2003, Valentino, which had been losing money under HPI, had returned to profits. The company also saw strong growth at its flagship Hugo Boss subsidiary. With profits surging and sales gaining steadily, Marzotto set its sights on expanding its stable of fashion labels in the new century.