Gucci Case Study

Uzoma Ejiasa May 12, 2014 Competition & Strategy Professor Dudley Blossom Gucci Case Study 1. Map the competitive positions of the different players in the luxury goods business. Who are the best positioned players? Why? Companies that have positioned themselves in the luxury goods business are required to not only cleverly position themselves in a way that attracts consumers and supports sales (prices, products offered, etc.,) but also make sure to differentiate themselves from other businesses that have created a strong and attractive luxury presence. With the ability to strategically market your products in a way that offers consumers ‘that extra something’ that makes them gravitate towards your store, i.e. the degree to which a consumer feels that they have purchased a ‘luxury item’, a solid luxury brand is born! There are many different players that are battling against each other in the luxury industry. This article briefly touches on LVMH and Prada, both of which have created a strong reputation for themselves. Prada is a well-known luxury brand that has made a long lasting mark in the luxury industry. Since its start in 1913, with its ‘luxury luggage’, it has grown into a well-established company that offers consumers a wide range of products, including, but not limited to, apparel and accessories: “By the early, 1990s. Prada’s modern, anti-luxury take on luxury was known worldwide. Sales…grew by 25% per year in the second half of the decade…” (Kwak, 2000). Prada has collaborated with a wide range of luxury brand name companies, such as Gucci (acquiring a 9.5% holding in the company, and then selling it to LVMH) and Fendi (acquiring a 51% holding with the aid of LVMH), that has created a strong base on which they continue to grow. Another player in the luxury goods business is LVMH, “a dominant force in luxury goods…with revenues of $8.2 billion in 1999” (Kwak, 2000). They continue to hold onto their firm stake in the luxury industry through their sales of a wide range of items and their obtained control over many businesses. Their wide range of offerings, e.g. leather goods, wines, perfumes, etc., and the attainment of various luxury brand businesses (Givenchy, Dior, Moet, and Dom Perignon just to name a few) has set them apart from their competitors, establishing for themselves a high probability of continued success and a perceived connection to high-end luxury. These moves have made LVMH one of the strongest contenders in the luxury brand business. Finally, there is Gucci. Despite its rocky beginning, Gucci has been able to make a strong name for itself. Many variables have helped in their attainment of success, one being its focus on controlling their distribution channels and pricing strategies. With Gucci ‘*taking+ over *its+ franchise(s)…*they were able to expand its stores] from 65 stores in 1995 to 83 in 1997, Gucci’s store network grew more than 50%, reaching 126 stores at the end of 1998” (Kwak, 2000). With the help of De Solo, and his moves in distribution, ‘re-pricing’ (lowering prices by 30%), ‘focus on fashion’, and the ‘doubling of their advertising expenditure’, (Kwak, 2000), Gucci rose to become a strong force to be reckoned with in the luxury brand name industry

2. Where was Gucci positioned in 1990? 1994? 2000? What were the critical moves made by De Sole to reposition the company? Gucci was able to grow from a highly dysfunctional fashion company into the well-established conglomerate that it is today. Throughout history it has encountered various faults that it was able to successfully triumph over. The year 1990 encompasses many of the things that went wrong for Gucci. “From 1991 through 1993, Gucci’s losses amounted to $102 million. Strapped for cash, by the fall of 1993 Gucci was unable to finance new collections and advertising or even pay suppliers and employees” (Kwak, 2000). Additionally, its ‘core customer’ was a “wealthy, somewhat conservative older woman”, which limited their selling scope and offered no room for growth. After Maurizio Gucci stepped down, Investicorp rescued the company and by 1995, “Guccio, Gucci (the original firm), Gucci France, Gucci Ltd. (UK), Gucci S.A. (Switzerland), Gucci America, Gucci Japan and Gucci Co. Ltd. (Hong Kong) – were combined for the first time, and Domenico De Sole was named CEO of the entire group…” (Kwak, 2000). In October 1995, Investcorp was able to sell its “remaining stake” (Kwak, 2000) in the company at $48/share, which was more than double the “price that Gucci had brought the previous fall” (Kwak, 2000). De Sole made many critical moves following his induction as CEO of Gucci. With the help of Tom Ford, De Solo redefined Gucci’s target consumer as a “modern, urban consumer, with a youthful spirit, no matter what her age” (Kwak, 2000), broadened the number of consumers the company was able to reach out to. Following this retake on their target consumer, “sales rose from $264 million, in 1994, to $500 million in 1995, and achieving sales past $800 million in 1996” (Kwak, 2000). De Sole also knocked down the prices on the Gucci collection by 30%. “This strategy positioned Gucci below Hermes and Chanel and on par with Prada and Vuitton…”(Kwak, 2000), while still allowing for them to be considered on the same level as each and every one of their competitors. De Sole also looked to renovate the marketing department in Gucci, to ensure their consumers knew about the renewal that Gucci had underwent. “By 1999, advertising and communication had grown to 7% of revenues…the goal…was to ‘create an arresting image of a world you wanted to be a part of’”(Kwak, 2000). With these moves, and many more, De Sole lead Gucci down the path of success, and by 2000, Gucci Group included 4 divisions: 1. Gucci, 2. Yves Saint Laurent Couture (haute couture, women’s RTW accessories), 3. YSL Beaute (cosmetics and fragrances), and 4. Sergio Rossi (fashion shoes) and continues to grow and prosper.

3. Evaluate De Sole’s latest strategic move to buy Yves Saint Laurent (YSL) and Sergio Rossi. I personally believe that it was a great move, on De Sole’s part, in acquiring YSL. To start off, YSL had established for themselves a world renowned name that had been associated with ‘haute couture’, ‘luxury’, and allowed for their consumer to proclaim an impeccably high knowledge of fashion. “‘Yves Saint Laurent almost invented the way a modern woman dresses’” (Kwak, 2000). In spite of the fact that Laurent’s life began to spiral out of control and “Saint Laurent was no longer designing his own ready-towear, and many observers wrote off his haute couture as a recycled pastiche of old designs” (Kwak, 2000), De Solo saw the opportunity to perform another ‘rescuing act’ on a dying brand. “Ford’s new mission was to modernize and redefine YSL, while honoring its heritage and keeping YSL and Gucci visually distinct.” With the amazing work that he had done with Gucci, I would assume that he saw the same opportunity to rise above the faults in YSL and reestablish its name in the luxury fashion industry. Looking at YSL now, I think he did just that!

The same is for Sergio Rossi. Its associations with companies like Versace and Dolce & Gabbana, its prices at $400 a shoe, and its twenty stores in Europe, Asia and the U.S already make it a very successful company. With the help of De Solo, I see it going nowhere but up!