Fila Holding S.p.A.

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Fila Holding S.p.A.

Viale Cesare Battisti 26
Biella
Italy
39 15 34141
Fax: 33 15 350 6297
Web site: http://www.fila.com

Public Company
Founded: 1926 as Societa Anonima Fratelli Fila
Employees: 1,985
Sales: L2.1 trillion (US$1.4 billion) (1996)
Stock Exchanges: New York
SICs: 3149 Footwear, Except Rubber, Not Elsewhere Classified; 2329 Men’s and Boys’ Clothing, Not Elsewhere Classified; 2339 Women’s, Misses’ and Juniors’ Outerwear, Not Elsewhere Classified; 5651 Family Clothing Stores; 6794 Patent Owners and Lessors; 6719 Offices of Holding Companies, Not Elsewhere Classified

Fila Holding S.p.A. is the world’s third-largest manufacturer and marketer of athletic footwear, behind Nike and Reebok. The company’s product line includes more than 100 models of men’s, women’s, and children’s shoes; a broad line of athletic apparel embracing sports from running to skateboarding; and high fashion sportswear. Though it had 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 trend-setting urbanites. Savvy endorsement contracts with the likes of basketball stars Grant Hill and Jerry Stackhouse helped push the brand from an eighth-place ranking worldwide to number three by 1996. In acknowledgment of the fact that America is its largest and most important market, Fila moved its global operations center to its U.S. headquarters mid-decade. Italian investment firm Gemina S.p.A. owned a majority interest in Fila in 1996, but that ownership structure appeared subject to change in 1997. Ongoing negotiations between Italian apparel giant Marzotto S.p.A. and Gemina could portend a merger or acquisition among the businesses.

Early History and Development of Apparel Emphasis in 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. Though 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 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, 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 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 US$55 million. However, the brand went into a tailspin in the 1980s following a serious misstep. According to a 1988 piece in WWD, US$15 million in Italian overstocks sold to a British liquidator ended up in America. 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 Holding’s mainstays; footwear was little more than an afterthought, generating only seven percent of revenues in 1988. Though the parent company’s sales had increased from L150 billion (US$78.5 million) in 1984 to L180 billion (US$138 million) in 1988, Fila suffered several annual losses mid-decade, culminating in a L7.8 billion (US$6 million) shortfall in 1987. SNIA re-hired Frachey that year, and the “new” managing director immediately undertook a L10 billion (US$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 sold its controlling interest in Fila to Gemina, a holding company that was in turn controlled by Italian automaker Fiat S.p.A., for L62 billion (US$47 million).

Fila Finds Success in 1990s

Fila completed a buyout of its U.S. license in 1991, thereby acquiring that company’s US$70 million in annual sales. The move signaled a shift in geographic emphasis to the all-important American market and a focus on athletic footwear, particularly basketball shoes. Though 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 over 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 only constituted 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 US$70 million in 1991 to almost US$386 million, for a six 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 Holding’s overall revenues mushroomed from L151 billion in 1990 to L2.1 trillion in 1996, while net increased to L177.7 billion. The parent company’s profitability zoomed from 5.8 percent of sales to 8.3 percent over the period. Holders of the Fila’s American Depository Shares (ADRs) rejoiced as their value shot up from US$18 each at issue in 1993 to nearly $66 at the end of 1996.

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 like Tommy Hilfiger, Donna Karan, and Ralph Lauren, all of whom were introducing stylish athletic shoes mid-decade.

Strategies for the Future

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 L90 billion (US$56 million) raised in a 1995 stock offering, the company invested in a variety of initiatives with a view to achieving L2 trillion (US$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.

Company Perspectives:

FILA ’s new mission has been well identified: To offer an exclusive lifestyle, not only to those who practice sport to compete, test their own skills and overcome their limits, but also to those people who live the sport as an opportunity to play and have fun or, simply, as a firm point of reference in their free time and their every day life. Sport means psycho-physical balance and, at the same time, an important occasion to socialize. Remember that athletic shoes and apparel are mostly used “off the court,” for “streetwearpurposes,” which implies relaxation, non-competition, but still a strong emphasis on the sportive image. FILA ’s lifestyle is what we will be focused on in the coming years, to take FILA to the next level.

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 SA. The parent company hoped to expand this new subsidiary from its European base into America 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 U.S. but exceeding Italy.

Controlled by Gemina S.p.A. since 1988, Fila’s corporate ownership came under question in the mid-1990s. Stock offerings from 1993 on had reduced Gemina’s stake in Fila to just over 50 percent by 1997. Following an aborted attempt to merge Gemina’s ultimate parent company, HPI, with Italian textile and apparel giant Marzotto S.p.A. in 1996, many analysts speculated that a union between Gemina and Marzotto could yet occur. If completed, the deal stood to form a multibillion-dollar amalgamation of upscale clothing and footwear brands.

Principal Subsidiaries

Fila Sport S.p.A.; Ciesse Piumini S.r.l.; Fila Diffusion S.r.l.; Fila Shoes Italy S.r.l.; Fila U.S.A. Inc.; Fila Caribbean Inc. (Puerto Rico); Fila Korea Ltd.; Fila France S.A.; Elegam S.a.r.l.; Fila Philippines Inc.; Fila Boutique GmbH (Germany); Fila Far East Ltd.; Fila Nederland B.V.; Fila Do Brasil Ltda.; Fila U.K. Ltd; Fila Mexico S.A.; Fila Sports Inc. (United States); Fila Trading Inc. (United States); Fila Japan Ltd.; Fila Manufacturing Ltd.; Fila Canada Inc.; Fila Sport Taiwan Ltd.; Fila Marketing (Hong Kong) Ltd.; Fila Sport (Malaysia) Sdn. Bhd.; Fila Deutschland GmbH; Fila Sport (Hong Kong) Ltd.; Fila China Ltd.; ABCD S.A. (France); F.D.F. S.r.l.; Multutu International S.A. (France); Dorotennis S.A. (France); Dorotennis Portugal Ltda.; Fila Sport (Asia) Pte Ltd.; Fila Marketing (Singapore) Pte Ltd.; Fila South Africa Pty Ltd.; Fila Argentina S.A.; Trademart S.A. Uruguay; Enyce Inc. (United States); Fila Morin S.A.S. (France).