Italian fashion house Versace Group today (29 October) confirmed to just-style that it is cutting 350 jobs - around a quarter of its worldwide workforce - as it struggles to cope with the slowdown in spending on luxury items.

The job cuts are part of a company-wide reorganisation plan designed to increase efficiency, return the group to profitability in 2011 and provide a platform for future growth, it says.

While the company did not provide details of where the layoffs will occur, it said "all measures will be implemented by the middle of next year."

It said it intends to streamline production, review its store network, reduce capital investment in 2010, and cut overhead costs.

"Trading conditions in the wake of the global financial crisis have been severe and the company expects to make a loss in 2009," said Gian Giacomo Ferraris, who took over from Giancarlo Di Risio as chief executive officer in July.

According to local media reports, the company expects to post an operating loss of EUR30m (US$44m) this year.
 
"No organisation can allow a situation like this to continue, especially considering the flat outlook for 2010," he added.

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Versace has had a history of inconsistent financial results, with years of losses stemming from poor management and high operating costs, exacerbated by a EUR120m debt-restructuring package in 2004.

It appeared to have turned the corner in 2006 when it posted an EUR19.1m profit, up from an EUR5.5m loss the previous year - helped by new management, remodelled stores, expansion into the high-margin accessories business, and even a shift from eccentric clothes into more sober cuts.

Sales, however, continued to fall, slipping to EUR288m that year from EUR306m in 2005.

Even so, it had been planning a stock market flotation in late 2008 to finance expansion - a move that was shelved as the global recession began to bite.

Problems since then have been compounded by lower demand for its upmarket fashion and accessories during the downturn, as well as the bankruptcy filing of its jeans and sportswear supplier Ittierre SpA.

The family-run firm has also been hit harder than some of its larger rivals through its smaller-scale distribution network, less flexible supply chain, and lower wholesale sales as department stores and boutiques slash their inventories.

It also sits in one of the sectors hardest hit by the global recession, as shoppers defer new purchases and focus on more durable items with less fashion content.

Earlier this year the Italian firm posted a 13.4% drop in first quarter sales, and this month it decided to shutter its boutiques in Japan boutiques in order to pursue "new locations and more suitable distribution channels" in the country.

"I believe that the reorganisation will create a platform from which the Group can grow strongly in the future," Ferraris added.

Many of the changes are part of a three-year restructuring plan drawn up in collaboration with Bain & Co to try to return the privately-held fashion firm to profit.