House of Versace: The Untold Story of Genius, Murder, and Survival

by Deborah Ball

  Donatella’s problems were mounting just when the company could least afford them. The post—September 11, 2001, malaise spread like an oil slick through the luxury goods market. Shopping suddenly felt crass and tasteless. In the weeks after the attacks, the sales at many houses fell by half. In the following months, the globe-traveling shoppers who accounted for about a third of luxury goods sales stayed home. Stores in tourist destinations such as Louis Vuitton’s flagship in Hawaii, which had pulled in more than $100 million in sales the year before, were deserted. Luxury goods groups learned a harsh lesson on September 11. While the very rich would always be able to afford the $6,000 Dior gown or the $5,000 Hermès Birkin bag, the companies’ fortunes had soared by hawking $150 Louis Vuitton key chains and $500 Prada bags to the middle classes. After the terrorist attacks, these consumers traded down as quickly as they had traded up. They turned away from the logo-heavy status symbols that had felt so good in the 1990s but which now seemed completely wrong.

  Prada was the quickest to fall. The house canceled plans for an IPO and, $1.2 billion in debt, was too strapped to invest much in its new brands. At the end of 2001, it also whipped up a public relations storm with its opening of an extravagant $40 million shop in New York’s Soho neighborhood. Just a mile north of the World Trade Center site, the store’s avant-garde design and high-tech gimmicks were wildly out of sync with an area where shoppers could still inhale the burning debris of Ground Zero. The mighty LVMH was also hit hard. Arnault had doubled the group’s sales with his late-1990s shopping spree, but few of the brands in his stable were making money, leaving him to rely on Louis Vuitton to make most of LVMH’s profit. Meanwhile, Gucci’s sales slowed for the first time since its 1990s comeback.

  While the megacompanies could count on the rich profit margins of their marquee brands to keep them afloat, the downturn devastated houses that had struggled to keep pace even in the fat times. Bulgari abruptly broke off talks to acquire the Rome couture house Valentino, which had been limping along for years. In the United States, falling sales forced Tommy Hilfiger to close most of his retail stores and reorganize the company.

  But virtually no fashion house was as ill-prepared to cope with the blow of September 11, 2001, as Versace. Until that day, Santo could still hope to find a way out of the mess the house had sunk into over the previous four years. But after the terrorist attacks, the problems that had been mounting since Gianni’s death began to pile up like a spectacular car crash.

  At the heart of it was the desperate state of Santo and Donatella’s relationship. In October 2002, the siblings flew to London to celebrate the opening of a retrospective of Gianni’s work at the Victoria & Albert Museum. The show was a high point of the city’s cultural calendar that year and was the largest exhibit that the V&A—renowned for a costume collection dating back four hundred years—had ever devoted to a single designer.

  Before the evening’s festivities, Santo made a private visit to the museum, walking through rooms that were as quiet as a church, where Gianni’s best work hung on sleek black, gold, and silver mannequins. There were more than 130 of Gianni’s designs, with separate rooms showcasing his magnificent prints, innovative metal mesh fabrics, embroidered couture gowns, and costumes for the ballet and theater. There was the eggshell and blue dress worn by Diana to great acclaim, as well as Elizabeth Hurley’s safety pin dress. Just six of the designs were by Donatella. Seeing Gianni’s life work gathered in one of the world’s great museums, Santo fought back tears. “Just look at these clothes! Look how beautiful they are!” he told the Versace executive who had helped organize the show. “Gianni was a genius.”

  By the time of the V&A celebration, Donatella and Santo made little effort to present a united front to the world. In Milan, they had retreated into two hostile camps. The business side regarded Donatella as an out-of-control diva who was steadily running the house into the ground. To Donatella’s merry band of designers, hairstylists, and personal assistants, Santo’s managers were a bunch of bean counters who harped endlessly about budgets and schedules and thwarted their creativity. Knowing that Donatella had the last word only egged them on. Each camp included provocateurs who fed to each of the Versace siblings unflattering items about the other side. While their offices were a five-minute walk apart, the siblings rarely met, instead using emissaries to do their business.

  The animosity between brother and sister was rippling throughout the business. Successful fashion houses find a balance between the creative side—which often sees fashion as an artistic expression—and the business side, which simply wants clothes that sell. In well-run houses, the creative team uses feedback on trends and sales reports from the business side to make clothes that are fresh and forward looking but will still appeal to shoppers. A disciplined atelier then follows a tight schedule in designing and making the samples to be shown on the runway. Tightly run houses such as Gucci and Armani will only show samples on the runway that they actually plan to produce. But at Versace, Donatella ignored the sales reports that landed on her desk and waved away pleas from the business side to stick to a strict design schedule. She took so long to decide which samples to show on the runway that production managers were hopelessly late in ordering fabrics, buttons, and zippers, delaying the rest of the process. In turn, the samples often had embellishments and details that were impossible to replicate in the factory. As a result, many of the outfits shown on the runway were never produced—an enormous waste of money.

  The delays in the atelier meant that deliveries were chronically late. And when the clothes did arrive, they were a mess; a crate of jackets might arrive without any skirts or pants. Complete, on-time deliveries are crucial in retailing, particularly in the dog-eat-dog U.S. market. Stores typically have only about eight weeks to sell clothes at full price, before the pressure mounts to start discounting. Stores began slashing prices aggressively after September 11, 2001, and on-time deliveries meant the difference between profit and loss.

  Moreover, while European women tend to buy their clothes in a few large shopping trips at the start of a season, American women are grazers, looking for something new year-round. U.S. department stores encourage them to keep coming back by pressing the fashion houses to deliver new stock as often as every two months. (Later in the decade, the best fashion houses would even move to monthly deliveries.) For Versace, that sort of pace was impossible; it was struggling to deliver even semiannual collections on time. When Versace sales executives relayed buyers’ complaints about the delays to Donatella, she retorted that the fault lay with the factory, not her team.

  The chaos in the atelier created further domino effects. When buyers visited the Versace showroom, they found a collection that seemed afflicted with attention deficit disorder. The atelier was coming up with a jumble of different styles, materials, and colors. When the clothes did arrive on the sales floor of the stores, there were still other problems. Gianni’s designs had been famous for their exquisite, flattering fit. Donatella’s dresses, skirts, and pants fit poorly. She preferred to design for smaller sizes such as American twos and fours and neglected the larger sizes that most women, particularly in the United States, could fit into. Indeed, while other houses cut a different pattern to accommodate American women’s typical pear-shaped figures, Versace stuck to the slim, unforgiving fit used for European women.

  Department store buyers still sat in the front row of Donatella’s shows, but fewer and fewer bothered to view the collections in the showroom. They turned instead to Roberto Cavalli, a crass Florence-based designer who had been designing since the early 1970s without ever really breaking through. When Gianni was still alive, few buyers bothered to visit Cavalli’s showroom, finding his designs to be tacky takeoffs on Versace’s sultry sophistication. But after Gianni’s death, Cavalli found salvation. He rushed to fill the gap left by Donatella’s disastrous collections, making form-fitting gowns in bold animal prints and jersey dresses in brightly colored patterns that were reminiscent of Ve
rsace’s greatest hits. Department stores began placing large orders and magazine editors who might have used Versace pieces to inject a sexy charge into an editorial spread instead called in Cavalli dresses.

  With department stores abandoning the brand, Santo had to rely on the company’s own shops to pick up the slack. He had tripled the number of Versace-controlled stores since Gianni’s death, but the strategy, particularly in the wake of September 11, 2001, flopped badly. Santo was trying to run with the pack of top-notch brands such as Chanel and Louis Vuitton, but Versace was no longer in that league. It was a costly mistake, perhaps born from a refusal to accept that his sister’s work would never sell well enough to support such a grand store network.

  The palatial Versace flagship on Fifth Avenue in New York was the most painful failure. Inside the store, Donatella’s eveningwear had pride of place, but the top line was hardly enough to fill the huge space. A confused array of cheap licensed products such as jeans and sportswear clashed with the boutique’s grandeur and rich finishings. The collapse in management at the top of the company had trickled down to the store, where poorly trained shop assistants spent their days socializing and snapping gum, with little idea about how to handle the few shoppers who walked in the door. Both the Fifth Avenue boutique and its lonely sibling on Madison Avenue were hemorrhaging money.

  In the weeks after September 11, 2001, sales in Versace shops fell by as much as a quarter worldwide. But while other brands eventually rebounded, Versace’s sales never came back. Some boutiques became a dumping ground for the unsold stock that was piling up in Versace warehouses, as franchisees forced Santo to buy back clothes they couldn’t get rid of. Santo finally began cutting stores, closing about a fifth of the shops within a couple of years.

  Yet Donatella’s spending went unchecked. She spent $2 million on a huge new diamond ring and sent the bill to the company, without a word to Santo. When the invoice landed on Santo’s desk, he exploded. But there was little he could do. Her parties also betrayed little sign of the house’s strained finances. The Versace events team flew flowers, candles, and complete sets of the house’s china to parties around the world. Hot DJs from New York and London traveled to Milan for galas at the company’s expense. For an invitation to one bash in New York, the house sent each guest a Versace china plate, the details of the evening printed on the ribbon wrapping the box it came in.2 Donatella continued to fly in consultants, celebrities, and staff from the United States to Europe on the Concorde or in private jets. The house catered to the increasingly outrageous demands of spoiled stars without a quibble. For instance, some celebrities would fly to Italy only if the private jet was of a certain size.

  Sales of red-carpet attire had collapsed since Donatella’s first collection in Paris in 1998. The time-consuming handmade dresses monopolized the atelier for weeks. Donatella sometimes slowed down the seamstresses’ work further by asking them to whip up an elaborate gown for her to wear to an event with just days’ notice. Moreover, the cost of staging the shows was high. One year, Donatella sent her personal florist from Milan to lay eighteen thousand roses—carefully chosen to match the fuchsia, cream, and blush pink in the collection—under a glass runway. Five assistants spent two days planting the flowers into moist sponges under the glass. The effect was mesmerizing; on the night of the show, lights illuminated the bed of roses from below, creating a soft pastel haze.3 But the expense was enormous for a collection that represented less than 2 percent of the house’s sales.

  Santo lobbied hard for her to shutter the couture line, but like a little girl playing dress-up, Donatella was enamored of the glamour and adrenaline of the red carpet, which provided an escape from the tedium of everyday business. It was her link to the celebrity world that she adored. She loved conjuring up extravagant gowns for the actresses and singers she counted as friends. Closing the line would be tantamount to admitting she lacked the skills for couture. For a long time, she argued that the PR value of the glitzy, one-of-a-kind clothes made up for the losses the line racked up. For instance, when Jennifer Lopez wore a spectacular jungle print dress cut down to her navel to the Grammy Awards in 2000, the outfit won heavy coverage from daily newspapers and fashion magazines alike.

  But in the end, Santo scored a rare victory in his war with Donatella and convinced her to scale back on the line. In 2000, Versace quit the Ritz and staged the show in the Rue du Faubourg Saint-Honoré boutique, showing just a few dozen pieces. In January 2003, the house scrapped the couture runway show altogether, replacing it with a small showroom presentation featuring just two models and a roster of fiberglass mannequins.

  Otherwise, however, Santo largely failed in his attempts to contain Donatella’s spending. He even tried to protect his little sister. He had the house’s finance team find ways to tuck Donatella’s enormous expenses into Versace’s balance sheet, even though most of the outlays would never have passed as corporate costs in a more professional company. The free clothes she gave to her celebrity friends, her personal travel in private jets, and the cost of entertaining her entourage—who happily lapped up Versace largesse—were classified generically as image-building costs (known as spese di rappresentanza in Italian). In 2001, this figure was about $2.5 million. That was on top of $53 million for advertising and promotion and another $9 million for runway shows and parties.

  Her spending hit new heights with the remodeling of her vast apartment. Since the company owned the flat, she was obliged to pay Versace rent to live there. But after Gianni’s death, she simply stopped paying. In 2001, she embarked on a wholesale renovation of the place—again on the company’s dime. When the work got under way, she decamped to the royal suite at the Principe Di Savoia, the grand 1920s-era building that is one of Milan’s top luxury hotels, along with her children and personal staff. She stayed for nearly a year, the immense bill paid for by Versace. Even for a hotel accustomed to hosting celebrities, Arab princes, and corporate magnates, Donatella’s sojourn there became the stuff of legend.

  Meanwhile, Santo tried to plug the holes in the company balance sheet by putting on the block the expensive toys that Gianni had collected. Versace was once again a fixture on the auction circuit, but now it was a seller. The sale of the Miami house by Sotheby’s in autumn 2000 brought in $19 million, and an auction of the villa’s contents brought another $10 million the following spring. The sale in London of Gianni’s beloved collection of twenty-five Picassos netted 11 million pounds ($18 million). Santo even got rid of part of Via della Spiga 25, the original Versace headquarters where Gianni and his hungry young team tasted the first fruits of the brand’s success twenty years earlier.

  But Santo soon believed that Versace needed far greater support than asset sales could provide. In the first years after Gianni’s death, the company had considered selling a stake in the house to an outside investor to raise the money for Allegra to pay her huge inheritance tax bill. Ultimately, the Italian government largely abolished inheritance taxes and she had to pay far less, but Santo kept the idea of selling a stake alive. He felt a sale could resolve two problems at once: It could loosen Donatella’s grip on the company and it would give him the chunk of fresh money he needed to fix the brand’s myriad problems once and for all.

  He had another reason to look for a shot of cash. The house’s 2002 results were going to be a disaster. Sales were falling, and the company was headed for a loss. At the end of the year, the interest Versace had to pay on its debt would likely be higher than its operating profit, thus violating the terms of its 100-million-euro bond. If Versace defaulted, investors who held the bond could demand the amount be paid in full immediately. Since the house couldn’t possibly pay, it could find itself facing bankruptcy. Versace’s creditors, concerned about the company’s precarious situation and sensitive to the gossip about the dire state of Santo and Donatella’s relationship, prodded him toward seeking an outside investor. In 2002, Santo gave a mandate to an investment bank to search for an investor willing to buy a stak
e in the house.

  But the move set off a firestorm of opposition from Donatella. She still believed she was the best leader for the company; she wouldn’t hear of letting go of her own holding or her daughter’s. Her drug use had dimmed her judgment enormously. The fights between the siblings grew so bitter that Donatella instructed her lawyers to deliver a stark message to her older brother: If he crossed her, she would kick him out of Versace.

  Many wondered why Santo didn’t simply abandon the company as it spun out of control. After five years of grieving, he had finally overcome the acute sense of loss at his brother’s death, only to find himself in a battle royal with his sister. In moments of pique and despondency, he threatened to sell his stake and be done with her. But his commitment to the company that Gianni had built—and to the idea of family, however riven by conflict—was too strong for him to jump ship.

  In any event, the search for an outside investor ended in a whimper. As Versace’s situation deteriorated, the company’s bankers struggled to put together a coherent version of the so-called book, the document that laid out a company’s financial situation and future strategic plans for potential investors. Moreover, they couldn’t entertain offers from rival companies such as Gucci and LVMH; the family would consider only offers to buy a minority stake of 20 percent to 30 percent from financial investors such as private equity funds. Once the house’s fortunes turned up, the investor would have to sell its stake as part of a future stock market listing.

  But potential investors were extremely leery. The few funds that made tentative offers demanded the power to sweep out the current management—especially Donatella. Furthermore, they were willing to sink very little money into such a troubled situation. Santo felt the house was worth about 500 million euros. The offers by the investment funds, however, valued it at about 100 million euros—virtually nothing. Before Gianni’s death, investment bankers had expected an IPO to value the house at as much as $2 billion. Now, it was worth less than a tenth of that. In the end, neither Donatella nor Santo even met with potential investors. Donatella would never agree to step aside, and Santo eventually acknowledged that selling just a small stake in the company wouldn’t raise the sort of money needed to bail the company out. As 2002 drew to a close, it became evident that Versace was going to violate the covenants of the bond if it didn’t find some fresh cash quickly.