Bally Turnaround Thwarted by Currency "Nightmare"

CASLANO, Switzerland — Frederic de Narp spent 18 months trying to turn around Swiss shoemaker Bally International AG and now finds himself in a currency-induced nightmare.

The Swiss franc’s appreciation and the euro’s decline this year have caught the 164-year-old company owned by Austria’s billionaire Reimann family between a rock and hard place: having to swallow increased manufacturing cost in Switzerland to maintain the brand’s integrity, while cutting prices in China to keep local shoppers from making purchases in Europe, Chief Executive Officer de Narp said in an interview.

Bally, which gets a third of sales from men's dress shoes made in Switzerland, shows how currencies are penalizing Swiss, U.K. and U.S. luxury-goods makers, while aiding their Italian and French counterparts. Shares of Salvatore Ferragamo SpA, which sells most of its Italian-made shoes outside Europe, surged 46 percent in the first quarter, compared with a 29 percent drop at New York-based Ralph Lauren Corp.

"Pricing is a nightmare," said de Narp, who joined Bally in 2013 from U.S. watch and jewelry maker Harry Winston. Whereas the euro's 7 percent drop against the dollar this year has boosted profitability at the likes of Chanel and Bottega Veneta, Bally is being squeezed on all sides, de Narp said.

Though price cuts of as much as 25 percent on women’s handbags have tripled Bally’s sales volumes in Hong Kong and China, “you have to swallow” the cost of the Swiss National Bank’s decision to remove the cap on the franc, he said. The Swiss franc has risen 7.1 percent this year against the dollar.

Condoms 

“Currency is dictating luxury-goods makers’ performances this year, with the best first-quarter share price returns dominated by Italian and French houses reliant on a weaker euro,” said Deborah Aitken, a Bloomberg Intelligence analyst.

The unfavorable foreign-exchange markets are hindering de Narp’s efforts to revive a business whose annual sales of about $450 million have barely grown since the Reimanns acquired Bally for about $600 million in 2008. Excluding currency movements, revenue has risen 3 percent since January, he said, showing that his plan is starting to take effect.

The Reimanns — whose combined net worth is $17.5 billion, according to the Bloomberg Billionaire Index — hired de Narp after realizing that a formula they'd applied successfully to condoms and detergent didn't work with handbags and shoes, the CEO said. The family's holdings also include Durex and Dettol maker Reckitt Benckiser Group Plc and fragrance house Coty Inc., which has reportedly agreed to buy beauty businesses from Procter & Gamble Co. for $12 billion.

Possible IPO 

De Narp last year installed Pablo Coppola as design director from Christian Dior Couture SA. He also hired a team of seasoned executives from companies including Kering SA, Prada SpA, and Cie. Financiere Richemont SA ahead of a possible initial public offering by the end of the decade.

With newly-designed products in the works, including bespoke women’s bags from Zagliani, a Milan-based leather-goods maker that the Reimanns rolled into Bally earlier this year, de Narp’s next fix is the distribution network.

In addition to bringing in architect David Chipperfield to redesign the store concept, the CEO plans to overhaul Bally’s 300 retail locations and 450 wholesale outlets to ensure they’re the right size and in the best places, he said. That includes relocating about a third of Bally’s 50 stores in China as some smaller cities don’t need more than one outlet, he said.

“It’s not rocket science,” De Narp said. “We’re here to build the brand for eternity, not for a season.”

By Andrew Roberts, with assistance from David De Jong. Editors: Matthew Boyle, Paul Jarvis.