Morale is low at Lanvin with staff expecting job cuts after France's oldest fashion brand swung into the red in 2016 and new designer Bouchra Jarrar failed to lift sales, sources told Reuters.

The company appointed advisory firm Long Term Partners to conduct an audit and it is due to present its findings to Lanvin's board at the end of this month and recommend ways to reduce the company's cost base, the sources with first hand knowledge of the matter said.

Founded in 1889, Lanvin is one of France's last major independent fashion brands but it expects to post a net loss of more than €10 million for 2016 - its first in nearly a decade - against a profit of €6.3 million  in 2015, sources have said.

Many items on its website are being offered at a 50 percent discount. Sources, who spoke on condition of anonymity, said the company's woes stem in part from the uncertainty created by the arrival of its new designer, as well as the luxury spending downturn and under-investment.

Controlling shareholder, 75-year-old Chinese media magnate Shaw-Lan Wang who is based in Taiwan, has been reluctant to invest in the brand for many years.

Wang would also not let her associate, private investor Ralph Bartel who owns 25 percent, inject more cash into the business as it would dilute her stake, the sources said.

"It is clear that the company's situation is deteriorating fast and now it is in a stalemate," one of the sources told Reuters. "But since Mrs Wang simply refuses to sell or [let the capital] be diluted, there is nothing we can do about it. It is so sad for the brand and its staff."

Wang shocked the fashion world in 2015 by sacking star designer Alber Elbaz after a boardroom dispute. Elbaz had been at the creative helm for 14 years and was frustrated by Wang's refusal to invest, particularly in areas crucial to growth such as new boutiques and accessories, several sources said.

Lanvin declined to comment, while a spokesman for Wang said she was not available for comment and Long Term Partners did not return calls or emails asking for comment.

DOWNWARD SPIRAL

Luxury analysts believe that Lanvin, had it benefitted from more investment, has all it takes to become France's answer to Italy's Valentino, now generating more than €1 billion ($1.07 billion) in sales and preparing itself for a flotation.

Instead, orders for new collections from multi-brand shops and department stores, which represent around 70 percent of Lanvin's turnover, fell 30-40 percent in the last half year. Overall, consolidated 2016 sales fell by more than 20 percent to below €170 million, from €210 million in 2015, several sources said.

DISPUTES

At its peak in 2012, before Chief Executive Thierry Andretta, now CEO of Britain's Mulberry, resigned over strategic differences, revenue reached €235 million and the company's operating margins stood at around 10-12 percent.

In 2015, Wang refused offers secured by Elbaz for Lanvin, including one of more than €400 million from Mayhoola, the Qatari firm that now owns Balmain and Valentino, sources said.

Elbaz is still in legal proceedings with Lanvin and Wang over his dismissal and the value of his stake. Dozens of employees have resigned or been sacked and many former key staff are in legal fights, they said.

Wang also sold off many of Lanvin's assets in the past decade, such as its Japanese operations to Japan's Itochu and its perfume business to Interparfums, which the brand can buy back in 2025.

Lanvin is also in a dispute with Itochu over the value of the licence it is able buy back, the sources said.