Fila Holding S.P.A. Business Information, Profile, and History

Company Perspectives:

Fila is an authentic sports brand, committed to creating and marketing products that enhance the individual's pursuit of sports as a way to experience greater personal fulfillment.

Fila is committed to building a great company by attracting, developing, exciting and retaining outstanding people.

Fila mirrors the values of a winning sports team: desire for success, team spirit, commitment, enthusiasm, creativity, and fun.

History of Fila Holding S.P.A.

Fila Holding S.p.A. is a major designer and marketer of athletic and casual footwear, activewear, casual wear, and sportswear for men, women, and children. In footwear, the company's best-selling categories are running, cross-training, basketball, and tennis; in apparel, tennis and winter sports are two of Fila's top categories. Other Fila products include sunglasses, watches, underwear, golf clubs, and in-line skates. In addition to the flagship Fila brand, the company also sells a line of leisure apparel and accessories aimed at young people aged 15 to 28 under the Enyce and Lady Enyce brands and markets the CIESSE brand of sports clothing in Italy. Fila does not manufacture any of its products but rather farms production out to independent subcontractors, mainly in the Far East. The company sells its products in more than 50 countries around the world both through directly controlled subsidiaries and via licensing and other distribution deals, reaching about 8,200 unaffiliated retail stores. Fila also directly owns and operates 18 boutiques and 61 outlet stores in several key markets, including Italy, France, the United Kingdom, the United States, Canada, and South Korea.

Although it has been active in the athletic apparel and footwear industry since the mid-1970s, Fila did not truly make its mark in this market until the mid-1990s, when the brand was embraced by trendsetting urbanites. Savvy endorsement contracts with the likes of basketball stars Grant Hill and Jerry Stackhouse helped to push the brand from an eighth place ranking worldwide to number three--behind Nike and Reebok--by 1996. Sales dropped dramatically from the late 1990s into the early 2000s, however, and Fila suffered several years in the red. Although a public company with a listing on the New York Stock Exchange, Fila Holding is controlled by Holding di Partecipazioni Industriali S.p.A. (HdP), an investment group connected with the Agnelli family, the founders of Fiat S.p.A. In June 2001, HdP began seeking a buyer for its 71.9 percent stake in Fila and was still doing so more than a year and a half later.

Early History and Development of Apparel Emphasis in the 1970s

Fila was established in 1923 by eponymous brothers to manufacture knitwear, specifically underwear. The company operated in this field for nearly a half-century, enduring the Great Depression, political upheavals, and high inflation throughout the ensuing decades. It was not until the 1970s and the arrival of managing director Enrico Frachey that the company began to take its present shape. Frachey, who served the company from 1974 to 1979, has been credited with transforming Fila into a manufacturer of athletic apparel. An endorsement contract with tennis star Bjorn Borg proved particularly important to the company's successful penetration of high-end markets for tennis and skiwear. Over the course of the decade, Fila rode a rising tide of popularity into country clubs and onto the ski slopes of Europe and the United States. Although it did not become a runaway hit, Fila and its trademark "F" logo were widely recognized throughout the world of sports apparel and footwear by the end of the 1970s. Frachey left the company late in the decade.

Acquisition by SNIA in the 1980s

During the 1980s, Italian fiber company SNIA BPD S.p.A. acquired an 80.5 percent stake in Fila, while the remaining 19.5 percent was owned by Unione Manifatture S.p.A., a holding company. Fila built a global network of licensees over the course of the decade and concurrently switched from backing athletes to sponsoring athletic events. The most important of the licensees proved to be America's H. Altice Marketing Inc., which was established in 1984 by former Converse executive Homer Altice and was selling 75,000 pairs of Fila shoes annually by its second year in business. Altice targeted his product at Fila's traditional upper-crust constituency, restricting distribution to such high-end retailers as Macy's, Nordstrom, and Neiman-Marcus and such specialty shops as Foot Locker. By 1987, the U.S. licensee's sales totaled 55 million. The brand went into a tailspin in the late 1980s, however, following a serious misstep. According to a 1988 piece in WWD, 15 million in Italian overstocks sold to a British liquidator ended up in the United States. The heavily discounted shoes undercut Fila's top-shelf image and flattened U.S. sales.

In the meantime, tennis, ski, and swimwear had continued to be Fila's mainstays; footwear was little more than an afterthought, generating only 7 percent of revenues in 1988. Although the parent company's sales had increased from L 150 billion ($78.5 million) in 1984 to L 180 billion ($138 million) in 1988, Fila suffered several annual losses mid-decade, culminating in a L 7.8 billion ($6 million) shortfall in 1987. SNIA rehired Frachey that year, and the "new" managing director immediately undertook a L 10 billion ($7.6 million) restructuring that included an endorsement contract with tennis luminary Boris Becker, a revamp of the company's design team, and ongoing management shakeups. In 1988, SNIA and Unione Manifatture sold their interests in Fila to Gemina S.p.A., a holding company that was in turn controlled by Italian automaker Fiat S.p.A., for L 62 billion ($47 million).

Finding Success in the Early to Mid-1990s

Fila completed a buyout of its U.S. license in 1991, thereby acquiring that company's $70 million in annual sales. The move signaled a shift in geographic emphasis to the all-important U.S. market and a focus on athletic footwear, particularly basketball shoes. Although Fila had long targeted upper-middle-class whites, the company found that young urban blacks had by the early 1990s become its core constituency. According to apparel industry observers, Fila had become an "aspirational brand," a label that represented the dreams of inner-city kids whose reality was far removed from the tennis courts and golf courses where the brand had earned its early fame. Like many other of the decade's biggest marketers, Fila embraced its accidental positioning and the tough, gritty image that came with it. Ironically, the strategy was pivotal to helping the brand win over suburban youths increasingly enamored with urban culture. A revival of fashions from Fila's heyday in the 1970s did not hurt the brand's prospects, either.

As they had been in the 1970s, sponsorships were vital to Fila's success 20 years later. In 1994 the company inked an endorsement contract with Grant Hill of the NBA's Detroit Pistons. After he won 1995's Rookie of the Year award, sales of his namesake shoe skyrocketed to more than 1.5 million pairs. The brand continued its youth appeal with the 1995 addition of NBA rookie Jerry Stackhouse to its roster. From 1990 to 1995, U.S. sales as a percentage of overall Fila revenues went from 22 percent to 60 percent. Frachey also turned past growth strategies upside down. In 1990, footwear constituted only 14 percent of annual sales, with the remainder coming from clothing. By 1995 athletic shoes contributed more than 60 percent of revenues.

This combination of strategies helped make Fila America's fastest-growing footwear brand mid-decade, with U.S. sales burgeoning from $70 million in 1991 to almost $386 million, for a 6 percent share of this all-important market in 1995. The brand leapfrogged its second-tier competitors, growing from an eighth place ranking among the world's athletic shoe makers to number three by 1996. Fila's overall revenues mushroomed from L 151 billion in 1990 to L 2.1 trillion in 1996, while net income increased to L 177.7 billion. The parent company's profitability zoomed from 5.8 percent of sales to 8.3 percent over the period. Holders of Fila's American Depository Shares (ADRs) rejoiced as their value shot up from $18 each at issue in 1993 to nearly $66 at the end of 1996. (It was through the May 1993 IPO on the New York Stock Exchange that the holding company, Fila Holding S.p.A., was formed.)

WWD called Fila's 1996 showing "breathtaking," but warned that the future was not free of challenges. For instance, the brand's emphasis on fashion left it vulnerable to competition from designer brands including Tommy Hilfiger, Donna Karan, and Ralph Lauren, all of whom were introducing stylish athletic shoes mid-decade.

Mid-1990s Growth Strategies

Having established itself in the number three spot in the key footwear segment, Fila focused on parlaying its shoe success into continued growth by refocusing on apparel and accessories, diversifying into new sports, targeting women, emphasizing technology, and pursuing geographic expansion. Backed by the L 90 billion ($56 million) raised in a 1995 stock offering, the company invested in a variety of initiatives with a view to achieving L 2 trillion ($1.4 billion) in revenues in 1997.

Fila developed clothing for skiers, snowboarders, skateboarders, and baseball players, and concentrated on building its presence in specialized footwear for basketball, cross-training, running, hiking, volleyball, soccer, and tennis. It also established a joint venture with Italian eyewear manufacturer De Rigo S.p.A. to produce a branded line of sunglasses. Fila even created a skin care line including sun lotions and bath products. The company hired a slew of endorsers to support its new sports lines, including beach volleyball player Randy Stoklos, marathon runner German Silva, soccer players Claudio Reyna and Franco Baresi, and tennis player Marc Philippoussis.

The diversification also re-emphasized high-end sportswear and casual footwear with a particular focus on the long-neglected women's market. In 1995 Fila bought market share and expertise in women's and children's clothing via the acquisition of French sportswear manufacturer Dorotennis S.A. The parent company hoped to expand this new subsidiary from its European base into the United States and Asia. New endorsement contracts with top-ranked female athletes, including tennis player Gabriela Sabatini and skier Deborah Compagnoni, supported the drive for the female consumer.

Fila fought the perception that it was a "fashionable but low-tech" brand by establishing a research and development center in Portland, Oregon, and staffing it with engineers hired away from Nike. Fila's 1996 annual report stressed the strategic shift, asserting, "Style is our heritage. Creativity is our strength. Technology is our future." The company also established new research and design centers in the key geographic markets of Italy and Korea. Efforts at geographic diversification were so successful that by 1995, Korea had grown to become Fila's second largest market, behind the United States but exceeding Italy. In acknowledgment of the fact that the United States had become its largest and most important market, Fila moved its global operations center to its U.S. headquarters mid-decade.

Having been controlled by Gemina S.p.A. since 1988, Fila's corporate ownership came under question in the mid-1990s. The stock offerings in 1993 and 1995 had reduced Gemina's stake in Fila to slightly more than 50 percent by 1996. Late in 1996, the owners of Gemina--including the Agnelli family, which also owned Fiat--created a new holding company called Holding di Partecipazioni Industriali S.p.A. (HdP). Placed under HdP were Fila along with designer clothing maker Gruppo Finanziario Tessile S.p.A., publishing and bookselling interests, and several smaller holdings. Rumors soon were circulating about a possible merger between HdP and Italian textile and apparel giant Marzotto S.p.A., which was controlled by the Marzotto family. In March 1997 came the announcement that HdP and Marzotto S.p.A. would merge to create Gruppo Industriale Marzotto, but less than two months later the Marzotta family called off the deal because of concerns that they would not have operating control of the new firm. Fila thus remained a majority-owned, though publicly traded, subsidiary of HdP.

Struggling to Regain Footing in the Late 1990s and Early 2000s

In the late 1990s Fila experienced a dramatic downturn. Problems appeared initially in the U.S. market, where lackluster sales in 1997 led the company to achieve only a small increase in overall revenues and a walloping 71.9 percent drop in profits. In an environment in which athletic footwear as a whole was suffering from declining sales, Fila was hurt further by its failure to penetrate the mainstream U.S. suburban market. The fashion-oriented Fila brand had come to prominence in the urban market, but by the late 1990s urban tastes had shifted to boots and outdoor looks. Fila's diversification drive also had proven to be misguided; the company had expanded into too many product categories and was simply not big enough to compete with an all-sports shoe and apparel giant such as Nike. The company also suffered a significant blow from the Asian financial crisis of 1997-98, which severely reduced sales in Korea and other Asian markets. By 1998, Fila Holding had fallen into the red, posting a net loss of $132.9 million, while its revenues fell 24.8 percent--with U.S. sales dropping an astounding 49 percent.

Restructuring efforts began late in 1997, including workforce reductions (including nearly one-third of U.S. employees), warehouse closures, a reduction in the number of male athletes with Fila endorsement contracts, the closure of all ten U.S. retail outlets, and the elimination of underperforming product lines. There were changes in the top management as well. Jon Epstein took over as head of the main U.S. subsidiary, Fila U.S.A. Inc., in June 1998. Epstein had been national sales manager at adidas America, a unit of adidas-Salomon AG. Late in 1998 Michele Scannavini, who had been sales and marketing director for automaker Ferrari S.p.A., was named CEO of Fila Holding, replacing Frachey, who remained chairman.

The new leaders launched a number of cost-cutting initiatives. In the United States, for example, Fila exited from the distribution business and hired an outside company to distribute its footwear and apparel to retailers; it also replaced its internal sales force with several independent sales agencies. On the product side, there was an important shift back to the company's roots in tennis, skiing, and golf. Fila once again became a sponsor of the U.S. Open and other tennis tournaments and in late 1999 signed Jennifer Capriati to a multiyear endorsement deal. A former teen phenom, Capriati had made a dramatic comeback at age 23 during a series of 1999 tournaments. Revenues fell another 13 percent in 1999, and Fila Holding posted another net loss, although the loss was much smaller than the preceding year. Midyear, Frachey stepped down as chairman and was replaced by Nicolò Nefri, who had been deputy chairman.

Fila's struggles continued in the early 2000s. Net losses were recorded for both 2000 and 2001. During the latter year, the company felt additional negative effects from the global economic downturn, which was exacerbated by the events of September 11. Fila's executives made a continual effort to lay the ground for a comeback. With the U.K. market being one of the company's strongest, Fila in July 2000 acquired the 40 percent stake in subsidiary Fila U.K. Ltd. that it did not already own for EUR 19.5 million. In a further refocusing on core product lines, Fila in November 2000 sold its Dorotennis subsidiary to the French company Phisaco for EUR 13.7 million. To bolster sales, the company launched a five-year, $50 million program to significantly expand its retail operations. The program would include the opening of 40 retail outlets in Europe, including five flagship stores called Fila Sport Life that were about 8,600 square feet in size and 35 smaller, 4,300-square-foot stores. The first two flagships, located in Milan and London, opened during 2001. Fila also began testing the franchising of retail outlets in Italy, with four franchised stores opening in 2001. At the same time, Fila was reducing its retail presence in the U.S. market; it closed 17 of its 38 outlet stores in that country, in part because of reductions in the levels of excess inventory. In addition, Fila closed its subsidiaries in Uruguay, the Philippines, South Africa, and East Africa. In certain markets, the company replaced the subsidiary operations with licensees as a cost-saving measure.

Attempting to reinvigorate the product line and infuse the Fila brand with an Italian aura (for the first time in more than two decades), the company announced in January 2001 a partnership with Italian design company Pininfarina Group to develop a new performance running shoe. Pininfarina was most famous for designing the highly stylish and technically innovative Ferrari automobile. Separately, Fila partnered with Ferrari through a June 2001 agreement whereby Fila would supply the Ferrari Marlboro Formula 1 racing team with apparel and footwear and would also develop a line of Ferrari shoes.

Also in mid-2001, Fila bolstered its financial position through the issuance of 33.3 million new shares of stock to existing shareholders, raising EUR 146.7 million. Through this capital increase, HdP's stake in Fila increased from 54.6 percent to 71.9 percent. Simultaneously, however, HdP announced that it was seeking to sell its stake in Fila and its other fashion units to concentrate on its publishing operations. A U.S. investment group called Continental Partners emerged as a suitor, as did Golden Gate, another investment firm, and VF Corporation, the maker of Lee and Wrangler jeans. By late 2002, however, no deal had been completed.

In the meantime, CEO Scannavini resigned in February 2002 and was succeeded by Marco Isaia, who had served as Fila's chief operating officer since January 1998. In June 2002 Fila opened a Fila Sport Life flagship store in Tokyo. In September 2002 Fila's shareholders approved a plan to recapitalize the company, which included dipping into company reserves, executing a reverse one-for-two stock split, and completing another capital increase in order to raise a further EUR 146.7 million. With the company headed for another year in the red in 2002 and the sale of the company still pending, Fila faced a very uncertain future.

Principal Subsidiaries: Fila U.S.A. Inc.; Fila Sport S.p.A.; Fila Italia S.p.A.; Fila Sport (Hong Kong) Limited; Fila Korea Ltd.; Fila France S.A. (99.97%); Fila Deutschland GmbH (Germany); Fila U.K. Limited; Fila Argentina S.A.

Principal Competitors: NIKE, Inc.; Reebok International Ltd.; adidas-Salomon AG; K-Swiss Inc.; New Balance Athletic Shoe, Inc.; PUMA AG Rudolf Dassler Sport; Sara Lee Corporation.

Chronology

• Key Dates:
• 1923: Eponymous brothers establish Fila as a manufacturer of knitwear, specifically underwear.
• 1974: Enrico Frachey becomes managing director and begins the transformation of Fila into a maker of athletic apparel.
• Early 1980s:[fsps*2.5]SNIA BPD S.p.A. acquires 80.5 percent stake in Fila, with the remaining 19.5 percent held by Unione Manifatture S.p.A.
• 1988: Gemina S.p.A. acquires Fila.
• 1993: In conjunction with an IPO that lists the company on the New York Stock Exchange, Fila Holding S.p.A. is created as a new holding company.
• 1996: The owners of Gemina create a new holding company called Holding di Partecipazioni Industriali S.p.A. (HdP), and Gemina's stake in Fila is transferred to this new firm.
• 1997: Falling sales in the United States and Asia lead to the first of several consecutive years in the red.
• 2001: The first Fila Sport Life flagship stores are opened; HdP announces its intention to sell its stake in Fila.