In retaliation, Maurizio and his directors conducted the board meetings in Italian, which further infuriated Investcorp’s directors.
“I didn’t speak Italian at all, but if I picked up a few words, I could make out the whole scenario, and I didn’t like what was going on,” said Hallak.
Antonio, the white-gloved butler who worked in Gucci’s executive suite, faithfully served frothy cappuccinos and strong espressos from polished silver trays as the men glared at each other.
“San Fedele still served one of the best cappuccinos in Milan,” said one board member, Sencar Toker, recalling that the coffee service was the least of the abundant excesses being racked up in the name of repositioning. “The entire situation was not unlike the Titanic sinking and having champagne and caviar,” he said.
As temperatures rose at one meeting, Maurizio dashed off a note in his bold, energetic script and slipped it to Franchini, who was a member of the board and sat next to him.
David Against Goliath
There are Four of THEM.
They count for_______
Forza!!
They have to expose themselves.
“It was very tense,” recalled Toker, who had been called in by Investcorp for his deep understanding of the Italian—and European—business climate. “The bottom line is that Investcorp hung on much longer than any normal investor would have under the circumstances. Primarily because it wasn’t clear what the alternative was. Second, Nemir liked Maurizio and didn’t want to hurt him. And third, everyone was hoping for some kind of miracle—that it might turn around. They would have felt lucky to sell the whole wretched thing for $200 or $300 million at that point—it was leaking like a sieve!”
Flanz said Investcorp spent about a year trying to convince Maurizio to take a nonexecutive chairmanship or another face-saving solution that would have gotten him out of the management.
“Would you want someone else to run your company?” Maurizio would retort as he directed Franchini to continue his rounds of fund-raising appointments in an effort to raise enough money to buy back his company.
“He was insulted,” admitted Hallak.
“I talked to him one-on-one,” recalled Flanz, “we talked to him in small groups, we tried to convince him to hire a CEO and move out of the day-today management. He finally said, ‘I’ll buy you out!’ and promised that if he didn’t buy our shares by a certain date, he would step down. When he failed to buy us out, he reneged on that promise. We wasted a lot of time trying to help him work out a way to do it. All we succeeded in doing was postponing the day of reckoning.”
Gucci survived 1992 thanks to the annual $30 million royalty check from Severin Wunderman’s watch business that allowed the company to pay basic expenses and salaries, though there was little left over for production.
“I kept the company alive,” said Wunderman later. “I was the tail that wagged the dog.”
In the meantime, the Italian mother company was further choked because Gucci America, under pressure from Citibank, had stopped payments for merchandise. Gucci urgently needed a capital increase, but Maurizio didn’t have the money to put up his share and therefore couldn’t allow Investcorp to inject money and thus dilute his control.
“Maurizio wanted Investcorp to put in money as loans, but we didn’t want to,” recalled Hallak. “It wasn’t financially sound for the company and we had no confidence in Maurizio’s ability to run Gucci profitably—there was no guarantee we would get that money back.”
Desperate for money, Maurizio turned to De Sole, who had remained loyal to him. In various transactions, De Sole had already lent him $4.2 million of his own money from the proceeds of the B. Altman sale—the nest egg De Sole had stashed away for his daughters’ education and his and Eleanore’s retirement. When a desperate Maurizio came back asking for more, De Sole told him he had nothing left. Maurizio pleaded with De Sole to give him cash off Gucci America’s balance sheet.
“I can’t do that, Maurizio! I could get in trouble!” De Sole said. Maurizio begged him. Finally, De Sole grudgingly agreed to lend him some $800,000 on the condition that Maurizio return the loan before De Sole closed out the next balance sheet. When that deadline came and went with no money from Maurizio, De Sole had to pay back the company himself.
In continued desperation, in early 1993 Maurizio secretly restarted production of the cheap canvas collection in Florence and signed deals with parallel importers in the Far East.
“When Gucci America stopped paying us for their merchandise, we had a huge liquidity problem—we couldn’t even pay our suppliers—and so Maurizio had us start producing the old Gucci Plus collection again,” said Claudio Degl’Innocenti. “We made tens of thousands of those bags, all based on the old styles.
“Maurizio told us we had to get through this tough moment, and then he was going to buy the whole business back. We made five or six billion lire [around $3 million] a month on this stuff, which was based on all the old styles. It was a so-called ‘in-house parallel’ business, which a lot of companies were doing at the time. It helped us hang on for a few more months,” Degl’Innocenti said.
“It was amazing how much Maurizio was prepared to violate his principles in order to scrounge up some cash,” said Flanz. “He went back to doing exactly what he had stopped doing in 1990—just pumping out the cheap plastic-coated canvas stuff with the double G logo. Pretty soon the warehouses were overflowing with these things too.”
Then Carlo Magello, managing director of Gucci U.K., generated the all-time largest sale in the history of the company. One day Magello, a tall, resourceful, yet easygoing man with a stylish sweep of white hair over his forehead, had rushed down to the Gucci store at 27 Old Bond Street from his upstairs office to greet an elegantly dressed, soft-spoken gentleman who wanted to buy some crocodile Gucci bags and briefcases.
“These were precious pieces we had had in the store for decades, it seemed,” Magello said. The customer wanted a matching set, which Magello didn’t have on hand, but he scurried around and made several phone calls and managed to pull a set together. The elegant customer was so pleased that shortly thereafter Magello received—to his astonishment—an order for twenty-seven matching sets in every imaginable color, from Ferrari red to forest green, for a total value of about 1.6 million pounds, or about $2.4 million. The soft-spoken client whom Magello had so graciously served was a representative of the Sultan of Brunei, who wanted the matching luggage sets as gifts for all of his relatives.
“When I passed the order to Italy, they came back to me and said, ‘Carlo, we don’t have the money to buy the crocodile skins!’ so I went back to the customer and got a ten percent deposit,” Magello said later. Instead of paying for the skins, the money paid employee salaries. So Magello scrambled again and ordered the Florence workers to search the warehouses until they turned up enough of the precious skins to produce the first two or three sets of luggage in exchange for a partial payment. With that, more skins were bought, the order was filled, and salaries were paid.
In February 1993, Dawn Mello went to New York for minor surgery. Maurizio, in the United States on business, came to visit her as she recuperated in Lenox Hill Hospital.
“He sat on my bed and held my hand and said, ‘Don’t worry, Dawn, everything is going to be fine,’” Mello recalled. “He was so gentle and reassuring, he really made me feel better.”
Yet when she came back to Milan three weeks later, Maurizio had grown cold toward her. “He wouldn’t speak to me,” Mello said later. “A curtain had come down. He thought I had turned against him.” She struggled to understand what had gone wrong and tried to speak with him, but Maurizio avoided her. In a matter of days, they passed each other in the halls of San Fedele without speaking as the Gucci staff marveled at the change in their relationship. Although each relationship had been different, like Rodolfo, Patrizia, and Morante before her, now Mello too had been taken off Maurizio’s list.
“Maurizio was like a sun t
hat pulled people to him like planets with the force of his personality, but if they got too close he would burn them up and throw them away,” said Mario Massetti. “We learned that the trick to surviving with Maurizio was not to get too close to him.”
Maurizio—swayed by his new star, Fabio Simonato—had started blaming Mello for many of Gucci’s troubles, especially the negative press, fearing she had leaked news of the difficulties to journalists. Maurizio also felt she had disregarded his orders, taking her own design direction without respecting the Gucci traditions he had tried to instill. He also accused her of being too expensive—though he had been the first to wine and dine her, rent private jets for her business trips, and furnish and refurnish her apartment and office until she was satisfied.
“First Maurizio blamed me,” said De Sole, “but he couldn’t blame me for the product, so he decided that Dawn was the cause of all his problems.”
Maurizio soon felt that the entire design team, led by Dawn Mello, worked against him and his vision for Gucci. An offending red jacket from one of the men’s collections, which Maurizio felt had nothing to do with his image of Gucci, became the symbol of all that was going wrong.
“No real man would ever wear that jacket!” he scoffed, and threw it out of the presentation.
He stopped paying the design team in Italy and sent a three-line fax to De Sole in New York, ordering him to fire Tom Ford and the other designers who were paid by Gucci America. The directive inched out of the fax machine in the middle of the office—rather than out of De Sole’s private fax—for all the astonished staff of Gucci America to see.
“I called Investcorp immediately to let them know what was going on,” De Sole said. “Then I sent a fax back saying we couldn’t fire the designers at that time. It was lunacy! They were all working on the next collection. I could tell Maurizio was really falling apart,” De Sole said.
In that same period, Tom Ford, worried that the battle between Maurizio and Investcorp could tarnish his reputation and compromise his chances of getting another job, considered an attractive new job offer from Valentino.
Although dated, Valentino was still one of fashion’s most revered names with a fully rounded business that encompassed women’s couture and ready-to-wear collections that showed in Paris, menswear, collections for younger clients, and a complete range of accessories and fragrances. Ford had been design director at Gucci for a year and had gradually taken on more and more work as members of the design staff resigned due to the growing hardships at Gucci. At that point, he was single-handedly designing all of Gucci’s eleven product lines—including clothing, footwear, bags and accessories, luggage, and gifts—with the help of the few remaining design assistants. Ford worked around the clock, hardly taking time out to sleep. He was tired, but he liked the control.
Ford mulled his future on the flight back to Milan after visiting Valentino’s offices in Rome. He thought about Dawn Mello, who had given him a chance and allowed him to prove himself by taking on more and more responsibility. They had grown so close in the past few months as the working environment at Gucci became hostile and unpredictable that they started finishing each other’s sentences. Back in the city, Ford went directly to Piazza San Fedele, took the elevator up to the fifth floor, and knocked on the door of Mello’s office.
She had been expecting him and looked up from her desk, biting the inside of her lip, her brown eyes worriedly scanning his face. Ford sat down, resting one hand on the smooth black surface of her desk, and looked down at his boots. Then he raised his brown eyes to meet Mello’s and shook his head.
“I’m not going,” he said emphatically. “I can’t leave you in this mess. We have a collection to put out. Let’s get back to work.”
With the fall shows only a few weeks away, Ford and the other design assistants worked overtime to prepare the collection even as Gucci’s administrative directors cut back on supplies and overtime salaries. Mello asked the design staff to come in the back door so as not to stoke tensions.
“Maurizio didn’t seem to understand that Tom was designing everything by himself, the company was going to market in March and we couldn’t buy fabric, we couldn’t do a show!” Mello recalled. She called Magello in London, who by that time had been paid by the Sultan of Brunei. Magello sent her the money to buy the fabrics and pay the Italian design staff.
The company stretched out payments to suppliers from 180 to 240 days; some hadn’t been paid for six months. Production and delivery of Gucci handbags and other products slowed to a trickle. One morning, disgruntled suppliers rallied at the gates of Gucci’s Scandicci factory, waiting for management to arrive.
The gatekeeper called Mario Massetti at home to warn him of the angry crowd and told him not to come. Massetti came anyway.
“The suppliers jumped all over me,” Massetti recalled. “It was very rough, but I had to come. I had relationships with all of them—I was the one they looked to for answers,” Massetti said. “I tried to reassure them that they would be paid.” The company that had once radiated the security and stability of a government ministry was coming apart at the seams. Massetti pleaded with the banks to extend more credit, borrowing money at figures well beyond the value of expected orders. He worked out a payment plan with the suppliers. Flanz thought of him as the boy with his finger in the Gucci dike—he just kept his head down and did what had to be done as best he could.
Maurizio’s bid for time seemed successful until early 1993, when Citibank and Banca della Svizzera Italiana lowered the boom on him—they asked Swiss authorities to sequester Maurizio Gucci’s assets for nonpayment of his personal loans. A third bank, Crédit Suisse, also emerged holding unpaid mortgages on Maurizio’s Saint Moritz properties. They filed their request with a local judicial official in the Swiss canton of Coira, where Maurizio had his legal residence. The official, a man named Gian Zanotta, responded by sequestering all of Maurizio Gucci’s assets—the houses in Saint Moritz and his 50 percent stake in the company, which was held by a Swiss fiduciary company, Fidinam. He set a repayment deadline for early May and, in the event of nonpayment, a date on which all of Maurizio Gucci’s assets would be auctioned off to repay the banks, which were owed some $40 million.
When Investcorp learned about the auction, Flanz, Swanson, and Toker came to Milan to make Maurizio a final offer—a $40 million loan to pay off the banks and $10 million for five percent of Gucci. They proposed Maurizio stay on as chairman with 45 percent—and turn the reins over to a professional chief executive officer. At the end of their presentation, Maurizio thanked the men, told them he would think about their offer, and walked out of the room.
“Quite honestly, I feel Maurizio was not totally out of line in not accepting Investcorp’s offer,” said Sencar Toker later. “If he had given away control of his fifty percent, what was the rest of his stake going to be worth? It takes only a small dose of intellectual honesty to agree with his reasoning.”
Maurizio went to Franchini’s offices and relayed the latest offer to the lawyer. “I will not be a guest in my own house!” he said angrily to Franchini, who was the only person aside from Luigi with whom he openly discussed his situation. “What are we going to do?” he asked Franchini, pacing in the lawyer’s office like a caged animal.
Maurizio had never been under so much pressure in his life. Pale and drawn, he hardly resembled the charming, enthusiastic man who had inspired so many people with his dream. He had become moody, gloomy, and paranoid—even avoiding his own employees in the halls of San Fedele. Luigi worriedly chaperoned his boss wherever he needed to go, pained with what he saw happening to Maurizio, but helpless to change his course.
“He seemed to get thinner and thinner before my eyes, day by day,” Luigi said. “Whenever he went upstairs, I was afraid he was going to throw himself out of a window.”
Frequently he slipped away from his office, turned off his cellular phone, and walked the few paces over to the Galleria Vittorio Emanuele shopping arcade to m
eet his maga, or psychic, Antonietta Cuomo, at one of his favorite caffès. Sipping a cappuccino or an aperitivo, anonymous amid the crowds of tourists and students, he shared his worries with Antonietta. She was a simple, motherly woman who ordinarily worked as a hairdresser. In addition, she saw special clients who appreciated her extrasensory talents.
“Giú la mascara, Maurizio,” she would say to him at the start of each meeting. “Take off your mask.”
“I was the only person he really opened up to,” she said years later.
“We were desperate, we were beyond desperate,” recalled Franchini. He had already been to every leading bank in Italy and Switzerland. He had contacted industrialists, including television magnate and former Italian prime minister Silvio Berlusconi and the then-little-known Patrizio Bertelli, the husband of Miuccia Prada and the architect behind the explosive growth of the Prada fashion label over the past few years. In 1992, “Bertelli didn’t have twenty billion lire in the bank,” Franchini recalled. No one could—or would—help Maurizio Gucci.
On Friday, May 7, at 7 P.M., the sweet, pungent scent of Valentino perfume wafted through the high-ceilinged hallway of Fabio Franchini’s Milan office as his secretary ushered in a dark-haired, full-figured woman wearing a tight miniskirt, fishnet stockings, and dramatic makeup. Her stiletto heels clicked on the marble floors, the sound echoing slightly as she walked down the long hallway. Piero Giuseppe Parodi, a Milan lawyer who had represented both Maurizio and Patrizia in the past, followed her. Franchini greeted the two visitors as they took their seats in one of Franchini’s spacious meeting rooms. He knew Parodi, but not the woman, who identified herself as Signorina Parmigiani. Franchini doubted it was her real name.
“We can do something for your client, Maurizio Gucci,” Parmigiani told Franchini, who leaned forward in disbelief. After months of trying to raise money for Maurizio, he couldn’t believe his ears. Parmigiani explained that she represented an Italian businessman who operated a successful luxury goods distribution business in Japan. She referred to the businessman only as “Hagen” and explained he would be willing to lend Maurizio the money he needed to get his shares back. In exchange, he wanted an agreement to distribute Gucci products in the Far East.
The House of Gucci Page 28