The co-founder of Dolce & Gabbana, Stefano Gabbana, has stepped down as chair of the company he set up with Domenico Dolce in 1985.

The fashion house is grappling with a debt pile of around €450m (£391m/$528m) and a downturn in the luxury retail sector, with a slowdown in spending, particularly in China.

Gabbana will hold onto his creative role with the company, shaping collections alongside Dolce and continuing the decades-long partnership between the pair.

The 63-year-old was replaced by Domenico’s brother and the firm’s chief executive, Alfonso Dolce, on 1 January. Filings show Gabbana told the company of his decision in December.

Dolce & Gabbana has been targeting new markets including hospitality and furniture, where its latest collection offers items such as a leopard-print porcelain vase costing £1,084.

“It’s no secret that the brand is in significant debt,” fashion expert Priya Raj told the BBC.

“The brand is privately owned, and Stefano Gabbana owns a significant stake, 40%, as does Domenico Mario Assunto Dolce – we’re not sure what will happen to that yet.”

Reports in March suggested the company had appointed a financial adviser and entered talks with creditors over its debt.

“With regard to the debt position, the group has no statement to make at this time, as negotiations with the banks are still ongoing,” the firm said in a statement on Friday.

Raj added that the firm has managed to “outlast cancel culture” after a series of controversies.

The firm’s last big controversy was earlier this year at the fall/winter men’s show during Milan Fashion Week, where it was criticised for a lack of ethnic diversity in its model casting. Celebrity Bella Hadid took to social media to condemn the brand.

But Raj said: “Even in a market obsessed with quiet luxury, their sexy Sicilian vibe has outlasted trends, and they’ve built a cult following for it.”

Raj added: “So the problem isn’t with the designs at all, rather in the financial running of the business. They clearly need some outside help.”

She said a minority investor or strategic partnership “is likely” as the firm seeks to get things back under control.

Dolce & Gabbana was founded in Milan and became quickly known because of its popularity with major celebrities.

A key moment in its rise was Madonna’s decision to wear Dolce & Gabbana during the 1990s, commissioning the brand to create costumes for her 1993 The Girlie Show tour, to support her “Erotica” album release.

The partnership anchored the fashion house’s provocative and sensual image, though it also offered accessible items such as sunglasses and perfume for everyday shoppers.

The firm added in a statement that Gabbana’s departure was “part of a natural evolution of its organisational structure and governance”.