A Shoemaker That Walks but Never Runs

Global Business ~ The New York Times


SOMETHING wasn’t right about the black sport shoes that Diego Della Valle wore on a recent stroll around the sleek campus and factory that form the heart of the Tod’s luxury shoe empire here.

“I don’t like the way they feel,” declares Mr. Della Valle, the chairman of Tod’s, stopping mid-stride to study his feet more closely. “It’s the part around the toes,” he says. “It needs to be rounder.”

Mr. Della Valle does things the old-fashioned way: by instinct. To find out if a new style of shoes will work in the marketplace, he doesn’t need focus groups or poll testing — he wears them. After a few days, if they’re not to his liking, he renders his verdict: “These won’t go into production.”

Despite running Tod’s like a traditional, Old World family business, Mr. Della Valle has turned it into a successful multinational, multibillion-dollar company, whose buttery leather moccasins adorn the feet of Princess Stéphanie of Monaco, Gwyneth Paltrow and thousands of other loyalists around the world.

Around his sweeping white office, there are no computers and no iPhones; Mr. Della Valle, 56, feels more comfortable clinging to an outdated Motorola cellphone. Above him looms the painted silhouette of President John F. Kennedy, one of his idols.

His father, Dorino, 85, whose business in hand-cobbled shoes was transformed by Mr. Della Valle into a family empire, still shuffles in each day with a silver-knobbed cane to inspect things. Across the hall, Mr. Della Valle’s younger brother, Andrea, manages operations; he is also co-owner of the Fiorentina soccer team that Tod’s bought in 2002.

But if relying on tradition is a fading style in the modern luxury market, that is what has kept this company growing. “We don’t take risks,” says Mr. Della Valle, who has kept the business concentrated on shoes and handbags. “We want to guarantee our customers we’re giving them the best.”

While he never gambles with Tod’s itself, he occasionally does go out on a limb. Since 2009, he has amassed a 9 percent holding in Saks Inc., making him the second-largest shareholder, behind the Mexican billionaire Carlos Slim Helú.

Mr. Della Valle says he became interested in the retailer on his first visit to the United States as a youth, when he stopped in at a Saks Fifth Avenue store — to which his father used to sell high-quality shoes — and was “overwhelmed by the size of the store and by the amount of people shopping.” He says he views Saks as having “enormous potential for growth with an excellent management in place.”

All the investment comes from Mr. Della Valle’s own private purse and is not linked to Tod’s. Though he refuses to say if he is pursuing a takeover, he bought the shares when they were a bargain and has said he has no plans to sell.

Something else he hasn’t done is follow the trend of other Italian-based multinational companies that are moving production to cheaper points like China, even as the luxury industry stakes much of its future on the growing ranks of wealthy people there. Tod’s has 24 stores in China, and Mr. Della Valle is making Beijing his first stop on an Asian tour this month.

A men’s crocodile loafer, which retails for 3,500 euros, or about $4,850, costs 1,590 euros for Tod’s to produce in Italy. Making it in China would reduce the cost by half. But while “Made in Italy” may cost more, Mr. Della Valle says he still thinks it is worth the price. He sniffs at companies like Geox, which has sent most manufacturing of its Italian-designed shoes abroad.

Thanks to cheaper labor, Geox had strong margins until the financial crisis hit, but now its performance has stumbled. Tod’s, by contrast, must defend its margins by passing the costs of hand-stitching, expensive leathers and continued innovation on to consumers, which it can do only by promoting exclusivity.

“For true luxury brands, lowering prices by outsourcing is not something they could really ever consider as a strategy for growth,” said Davide Vimercati, the chief analyst for luxury goods at UniCredit in Milan. On the other hand, he said, Tod’s is “certainly giving up some profitability because they don’t spend less on manufacturing.”

Even if outsourcing shoes and handbags could plump the bottom line, the strategy of Tod’s has paid off — and seems likely to keep doing so as long as it stays a premium brand with universal appeal. It was one of the few luxury companies worldwide to increase sales and profits through the financial crisis: profit grew from 77 million euros in 2007 to 83 million in 2008 and 86 million last year.


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