WILL HIS FASHION EMPIRE SURVIVE?

By John Greenwald

The death of a fashion innovator does not necessarily spell doom for the company that bears his or her name. The fashion houses founded by Coco Chanel and Guccio Gucci, for example, continue to thrive long after their founders' passing. Yet such was the force of Gianni Versace's personality, life-style and flair for publicity, that the question of succession is more pertinent than ever: Without Versace, can his empire survive?

Certainly, at his death, the designer was at the height of his powers, with his fashion house stitching together numbers as eye catching as its merchandise. The profits of Gianni Versace SpA, which puts its Medusa-head logo on everything from $15,000 evening gowns to $395 bath-towel sets, soared from $7.9 million in 1990 to $43.5 million in 1996. Worldwide sales of Versace-brand products, including items manufactured by licensed companies, are on track to top $1 billion this year.

Now, with Gianni out of the picture, it falls to elder brother Santo, 53, and sister Donatella, 42, to keep the company's fashions and earnings hot. The family members are thoroughly versed in the business. Santo, an accountant by training, is the savvy CEO of the company, and the pineapple-blond Donatella, as vice president and a designer in her own right, has played an increasingly large role in matters of fashion. "Gianni was the genius, but they can still go ahead," says designer Donatella Girombelli, who gave Versace his first job in Milan in 1972. "It won't be the same [company], but it will still be solid."

One of the family's first orders of business will be to restore investor confidence in a proposed $350 million stock offering, originally planned for next June but now on hold in view of Versace's death. The eagerly awaited sale was to have transformed Versace into a public company that could tap the stock market for funds to sustain its rapid growth. To be sure, the company can still show investors some impressive fashion strengths. Versace boasts highly skilled design teams, for example, that can respond quickly to changes in the marketplace. And the company's ownership of a majority stake in 10 of its manufacturing licensees enables it to turn the latest ideas off the street into ready-to-wear merchandise swiftly.

In Milan, however, the home of Italian fashion, the company's image could stand a bit of polishing. In May a Milan criminal court sentenced Santo to a 14-month suspended jail term after finding him guilty of bribing police to obtain favorable tax audits for the company. (Leaders of several other couture houses either plea-bargained away tax charges or drew similar penalties.) Santo is appealing the conviction. Moreover, the company continues to be dogged by rumors of Mafia ties, assertions that the family has consistantly denied. Fashion industry rivals wonder in particular who is financing Versace's lavish boutiques, which now number some 300 around the world, despite the fact that most customers buy Versace clothes in such outlets as Nieman Marcus and Bloomingdale's.

With ghoulish predictability, Versace merchandise was flying out of the stores last week, following the murder. But even in the long term, the demand for Versace brands seems likely to continue. "Versace's team knows how to do the look," says Kal Ruttenstein, the fashion director at Bloomingdale's, pointing out that sales of Versace merchandise at his company's stores have been "all on the uprise." Attitudes like that bode well for the future of the House That Versace Built.

--By John Greenwald. Reported by Martin Penner/Rome and Stacy Perman/New York

With reporting by MARTIN PENNER/ROME AND STACY PERMAN/NEW YORK