Gucci Strategic Mgt

Strategic Management – Gucci Case Analysis 1

Strategic Management – GUCCI CASE ANALYSIS

by RKC MBA Student

Presented to Prof. David Duffill Strategic Management Robert Kennedy College, University of Wales October 24, 2010 Word count: 4221

Strategic Management – Gucci Case Analysis 2 Table of content 1. EXECUTIVE SUMMARY ...................................................................................................................... 3 2. LUXURY GOODS MARKET OVERVIEW & COMPETITIVE POSITIONING ........................... 4 2.1 LUXURY GOODS MARKET – KEY SUCCESS FACTORS ............................................................................ 4 2.2 LUXURY GOODS MARKET – COMPETITIVE POSITION MAPPING ............................................................ 5 2.3 LUXURY GOODS MARKET – BEST POSITIONED PLAYERS IN 2000 ........................................................ 7 3. GUCCI’S POSITION IN LUXURY BUSINESS – 1990 TO 2000........................................................ 8 3.1 GUCCI IN 1990 ...................................................................................................................................... 8 3.2 GUCCI IN 1994 ...................................................................................................................................... 9 3.3 GUCCI IN 2000 ...................................................................................................................................... 9 3.4 CRITICAL MOVES THAT REPOSITIONED GUCCI ................................................................................... 10 4. GUCCI’S LATEST STRATEGIC MOVES......................................................................................... 12 4.1 ANALYZING GUCCI’S MOVE USING OHMAE’S STRATEGIC TRIANGLE ................................................. 12 4.2 ANALYZING GUCCI’S MOVE USING PORTER’S GENERIC STRATEGIES ................................................. 12 4.3 ANALYZING GUCCI’S MOVE USING ANSOFF’S CORPORATE STRATEGY .............................................. 13 5. RECOMMENDED MOVE FORWARD STRATEGY ....................................................................... 14 5.1 STRATEGIC INTENT ............................................................................................................................. 14 5.2 STRATEGIC ASSESSMENT .................................................................................................................... 14 5.3 PROPOSED GUCCI’S STRATEGY GOING FORWARD ............................................................................... 15 5.3.1 Recommendations for Strategic Intent ....................................................................................... 15 5.3.2 Recommended Strategic Actions ................................................................................................ 15 6. CONCLUSION ....................................................................................................................................... 17 7. BIBLIOGRAPHY................................................................................................................................... 18

Exhibits Figure 1: Sales & Operating Margin in 1999 – Source: HBS Case 9-701-037 ______________________ 4 Figure 2: Spread of Luxury Products – Source: HBS Case 9-701-037 _____________________________ 5 Figure 3: Luxury Company Positioning Matrix _______________________________________________ 5 Figure 4: Luxury Company Competitive Assessment___________________________________________ 7 Figure 5: GUCCI in 1990 – Strength, Weakness, Opportunity & Threat (SWOT) Analysis _____________ 8 Figure 6: GUCCI in 1994 - SWOT Analysis _________________________________________________ 9 Figure 7: GUCCI in 2000 - SWOT Analysis ________________________________________________ 10 Figure 8: Ohmae's 3C Model ____________________________________________________________ 12 Figure 9: Porter's Competitive Advantage (source: Strategic Management, 2000. pg143) ____________ 13 Figure 10: Ansoff's Corporate Strategy (Source: Strategic Management, 2000. pg 137)______________ 13 Figure 11: Strategic Assessment Framework. Source: Strategic Management, 2000. Pg 83 ___________ 14 Figure 12: Product Vs Brand Matrix ______________________________________________________ 15 Figure 13; Porter's Five Forces __________________________________________________________ 17

Strategic Management – Gucci Case Analysis 3

1. Executive Summary The year is 2000, Gucci Group is at a cross road and its strategic decision at this juncture will define the future of the world’s fourth largest US$1.2 billion luxury group1. Gucci is a 77 years old group, established in 1923 in Florence selling luggage imported from Germany. It has transformed itself over the last 77 years and moved from a family owned entity to a public listed company. After 77 years of its existence, it now sells a wide range of luxury goods starting from leather goods, fragrance, cosmetics, shoes, watches, apparel, jewelry, silk ties & scarves etc. More importantly, what started as a single product, single brand company that was focused on small leather goods has now transformed itself into a multi-brand, multi-product group with worldwide presence through its recent acquisitions of Sergio Rossi and Sanofi Beauté. Between 1991 through 1993, Gucci lost US$102 million2, was strapped by cash constraints, and was unable to finance its own operations. 1993 also saw the end of the last Gucci family member’s control over the company and the brand and the company moved to Investcorp’s control. At that time, few would have thought that the total revamp of Gucci as a brand and its current industry leading position was possible. Gucci’s current management team has achieved exactly that in less than seven years. This significant turn around was a result of the recovery strategies adopted by De Sole and team, who revamped almost everything from products, pricing, marketing, distribution and logistics to the management committee. The leadership team believed that they needed to expand beyond the Gucci brand of products to grow the group’s top line further and this resulted in Gucci acquiring multiple brands. However, this multi-brand portfolio has posed a challenge to the current management structure in terms of managing it as independent brands. Establishing this structure and managing this new group efficiently with four brands will decide the future course of Gucci, which now has US$3 billion in cash from the infusion by Pinault-Printemps-Redoute (PPR) and is now looking for more strategic acquisitions as a strategy to grow the group. This unique situation within the group combined with the stiff competition from Moët Hennessy-Louis Vuitton (LVMH), Prada, Hermès and other brands who are also aggressively trying to expand by adopting similar strategies will pose a significant threat to the Gucci group in the next decade. Especially, the recent battle between LVMH and Gucci and the 19.6%3 LVMH holding in Gucci may pose a threat in the coming days. Also, PPR’s 40% holding4 and its chairman Pinault’s interest in Gucci’s future and his own investment in French group Sanofi, which owns the Yves Saint Laurent (YSL) brand and related licenses and products, makes the overall stakeholders relationship complex from where it was 12 months ago. This report aims to assess in detail the above mentioned stakeholders’ interests, competitor positions, Gucci’s brand positions in the marketplace, and Gucci’s consumer expectation and recommends the possible move forward approach for Gucci Group in the year 2000 and beyond. 1

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 3 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 4 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 2

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2. Luxury Goods Market Overview & Competitive Positioning The worldwide luxury goods market is estimated to be around US$60 billion in size with sales growing 6% annually. There are about 35 top companies in the luxury market that produces about 60% of the goods. Of these, 6 are believed to be in the US$1 billion and above revenue category, 15 to 20 in the US$500 million to US$1 billion range, and 10 are pegged between US$100 to US$500 million 5 . The number one player, LVMH’s revenue was about US$8.2 billion in 1999. Its Louis Vuitton brand alone accounts for 18% of its revenue and close to 30% of operating margin (see figure 1). LVMH works closely with Prada, ranked number 7 as per 1998 sales figures and they recently jointly acquired 51% of Fendi for US$600 million. Both LVMH and Prada have been actively acquiring stakes in competing luxury goods including Gucci. Prada recently acquired 51% in Helmunt Lang and 75% of Jul Sander and controlling interest in Church & Co in the last 12 months in addition to Fendi. For its part, LVMH spent US$2.9 billion on acquisition in 1999 alone on Krug, Tag Heuer, Chaumet, and Ebel in addition to Fendi and Gucci6.

Figure 1: Sales & Operating Margin in 1999 – Source: HBS Case 9-701-037

2.1 Luxury Goods Market – Key success Factors The following factors about the luxury industry highlighted in the case study will be useful in comparing Gucci with its competitors in the industry. It is highlighted that the gross margin is higher in the case of watches and leather goods @ 75% to 80%, followed by Silks @ 65% to 70% and apparel @ 50%7. Secondly, the primary consumer of luxury goods is women in the age group from 25 to 50 and a major portion of such sales for many brands are from Asia (especially Japan). Similarly, the average spend on

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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 7 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 6

Strategic Management – Gucci Case Analysis 5 advertising is around 10.6% by luxury companies8. With increased demand for new styles and models every season, the need for demand forecast and investment in design and production has been on the rise. With the need to differentiate between luxury brands, there is a heavy focus to revamp the distribution network and strengthen directly operated stores and control the manufacturing quality with stringent quality or take the production in-house.

Figure 2: Spread of Luxury Products – Source: HBS Case 9-701-037

2.2 Luxury Goods Market – Competitive Position Mapping From a position mapping point of view, Hermes and Vendome form the high priced luxury goods range. Gucci, LVMH and Prada take the mid-tier followed by Ferragamo, Emporio Armani etc in the low end tier. As for products, many of these are moving from traditional classic prints to new fashion. Several of these have global reach with some brands limiting their presence and others expanding aggressively. For example, LVMH has 1005 direct stores where as Gucci has only 126 stores but uses different sources like 6700 point of sales for watches, 301 departmental stores and 54 duty free shops for variety of its products9.

Figure 3: Luxury Company Positioning Matrix 8 9

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

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The competitive position mapping table below was done based on five key areas that are recommended by Macmillan (2000) for assessing competitive advantage. Though it is done as Gucci versus rest of competition, specific examples have been provided from the data available in the case study.

Cost-based Advantage

Differentiated Product or Service

First mover Advantage

Time based advantage

10 11

GUCCI

Rest of Competition

Its recent remaking effort and its outsourced manufacturing model has helped to reduce cost and thereby price by 30%. It also minimizes fixed investment and helps to maintain its return on invested capital at 36% 10 It focuses heavily on the unique customer service experience to maintain its brand image. It also has different range of products including jewelry, watches, leather, apparels etc. The acquisition of YSL resulted in a new branding the ‘Saint Laurent woman’ and rebranding exercise resulted in ‘Gucci woman’. Two brands that suits different situation or clientele In a 150 years old industry, Gucci has been around for 77 years. Though it had ups and downs, the recent strategy has put it back on growth track. If this track record continues it will overtake the leaders The revamp effort has reduced manufacturing time considerably in many product lines. A 35% reduction noticed in the leather bag manufacturing cycle – 104 days to 68 days. It also built 20-30%11 additional capacity to cater for growth in

The in-house manufacturing model adopted by Hermes, LVMH and many others have shown to increase the fixed investment and thereby resulting in lower return on invested capital and thereby reducing cost advantage and increasing the price Many competitors focus heavily on customer services experience as part of maintaining their luxury branding efforts. However, LVMH focused more on leathers in the luxury products and others like liquor. As shown in figure 2, not many brands have a spread of luxury products and they mainly focus only on high margin leather products or watches only LVMH, Hermes and several other brands have been in the industry longer than Gucci and are well known to the consumer and are considered the pioneers with first mover advantage Products like Kelly bag from Hermes had a long waiting list and became a fashion statement that worked to Hermes advantage given the product’s market image and success. However, the same may not apply to fast moving ‘ready-towear’ product lines and that calls

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

Strategic Management – Gucci Case Analysis 7 GUCCI

Technology Based advantage

the current outsourced production line, which will position them to address any growth quickly Heavy focus on technology by senior management is visible as part of Gucci’s revamping effort. This includes online sales, EDI network connecting12 Gucci-suppliers-partners, and data mining on customer preference and market demand management etc.

Rest of Competition for focus on demand management and reducing manufacturing cycle time for fast moving products While some brands have realized the internet potential and established website and online shopping, there is a hesitation to adopt the technology aspects fully by many luxury companies. This is because of a common belief that an exclusive clientele would prefer a traditional luxury shopping experience and luxury is not synonymous with e-commerce.

Figure 4: Luxury Company Competitive Assessment

2.3 Luxury Goods Market – Best Positioned Players in 2000 While there are several players in the luxury product industry, LVMH and Gucci are best positioned to take on the competition and grow further for the following reasons: • Aggressive leadership at the Headquarters level • Focus on creativity & innovation in product design and every aspect of business • Usage of technology to boost sales, track quality and demand management • Focus on creating a unique client shopping experience • Aggressive acquisition strategy to grow the top line by adding unique brands • Aggressive marketing strategy and advertisement spend • Stringent cost management • Sizable Cash in hand • Diversified portfolio13: o LVMH ƒ Leather Goods & Fashion - 27% & Selective Retailing - 25% ƒ Champagnes, wines, cognac - 26% & Perfumes & Cosmetics - 20% o Gucci Group ƒ Leather Goods – 41.3%, Shoes -13.9%, Ready-to-Wear – 14.6% ƒ Watches – 19.8%, Jewelry – 3.3%, Ties & Scarves – 1.9% ƒ Others – 2.7%

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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

Strategic Management – Gucci Case Analysis 8

3. Gucci’s position in Luxury Business – 1990 to 2000 The ten years period (1990-2000) that is being addressed here is the most significant period in Gucci’s 77 years history. This is the period that saw Gucci operations almost coming to a stand still and also saw Gucci resisting a heavy weight like LVMH from a forceful takeover. This is also the period where the company moved from being acquired to acquiring two other famous luxury brands.

3.1 Gucci in 1990 With Maurizio Gucci back in control and with a vision to build a US$1 billion corporation by focusing on exclusive clientele, Investcorp’s financial support, Dawn Mello’s aggressive focus to revamp the products and re-launching them as a classic brand, Gucci should have taken off well in 1990. However, the economic downturn caused by gulf war, U.S. recession, lack of cost control, lavish spending by M.Gucci, aggressive product knockout overnight and a tarnished brand image with fake Gucci products all dampened any possible progress. Though they had revenue of less than US$200 million, their gross profit was above 50%. However, their SG&A was nearly 70% with headcount more than 1,000 causing them to book a net loss during this period14.

Figure 5: GUCCI in 1990 – Strength, Weakness, Opportunity & Threat (SWOT) Analysis

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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

Strategic Management – Gucci Case Analysis 9

3.2 Gucci in 1994 With Maurizio Gucci out of Gucci, De Sole took over as COO and Ford was appointed as Creative Director. Their aggressive approach and end-to-end focus on market image revamp, advertising, product remake from classic to trendy, stores look & feel revamp, production and distribution network revamp, setting quality targets etc. helped to bring Gucci back to a growth path in 1994. After several flat and loss making years, there was a 30% growth in revenue, SG&A reduced to 52% with 1096 employees, gross profit increased to 64%. In 1994, Gucci finally made a double digit operating margin of 12% after several years15.

Figure 6: GUCCI in 1994 - SWOT Analysis

3.3 Gucci in 2000 By 2000, Gucci has established itself as a trendy, new fashion brand with more than seven product categories. In addition, it also successfully acquired multiple brands and created four unique brands with several product lines. This variety of products and several unique brands helped Gucci to address different needs of new age clients as well as the traditional classic clients. Its cash rich position has helped it to look for other 15

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

Strategic Management – Gucci Case Analysis 10 potential acquisitions to strengthen its brand and product range. With its group operating margin projected to be in the range of 16.8%, its stocks traded at an all time of US$10012016 during this period. Though the transformation journey is not completed yet, the company got most of its fundamental measures and key success factors right in the Gucci products and it now faces a different challenge of managing a multi-brand company and preparing itself to embrace the new challenge.

Figure 7: GUCCI in 2000 - SWOT Analysis

3.4 Critical Moves that repositioned Gucci In an effort to reposition Gucci in the marketplace, De Sole and Ford addressed the 4P’s of the marketing mix namely product, price, place and promotion (Kotler, 2005) as follows: •

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Product: Move from traditional classic image to aggressively glamorous edge and launch of ready-to-wear collection with youthful spirit targeting the new age fashion client who consumes, shops, buys, disposes and buys again.

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing

Strategic Management – Gucci Case Analysis 11 •

Price: De Sole & team personally repriced every item, lowering prices upto 30% and thereby positioning Gucci below Hermes and Channel as a mid-tier brand at par with Prada and Vuitton

•

Place: Knowing the importance of client buying experience in the luxury market, De Sole and team revamped and strengthened the network of every directly operated store by redesigning and positioning it for younger and hipper clients. It also launched a website to reserve its place in e-commerce world

•

Promotion: De Sole & team revamped the marketing approach and crafted the promotions carefully focusing on rebranding of Gucci and positioning the brand as luxury and quality focused avoiding mention of pricing and discounts

The 4P focus allowed Gucci to position the right product at the right price and at the right place with the right promotions. In addition, Gucci also revamped the manufacturing aspects and reorganized and integrated the whole organization welding many parts of Gucci into one whole and provided employees’ stock options for the first time in the entire luxury industry.

Strategic Management – Gucci Case Analysis 12

4. Gucci’s Latest Strategic Moves Gucci’s latest move of acquiring Yves Saint Laurent and Sergio Rossi, two famous luxury brands, is linked to De Sole’s view of any exclusive luxury brand, and will have challenges growing beyond a certain point. Gucci’s two recent acquisitions show that De Sole & Team’s strategic intent is to grow the top line beyond that stagnant point using acquisition as the approach. However, this is an unknown territory that they are exploring as De Sole & team are deviating from the current successful course of running a single brand approach to multi-brand organization in order to grow the top line. The cost of this risk is US$1 billion at this point – the amount Gucci paid to acquire YSL. Its success or failure will decide how Gucci’s future will take shape in the next decade. In the following sections, we will analyze Gucci’s 2000 strategy using three well-known strategic management frameworks.

4.1 Analyzing Gucci’s move using Ohmae’s Strategic Triangle Ohmae’s (2000) 3C’s strategy states that the company and its competitor(s) are competing both on cost and value in offering a product or service to a customer. In order to attain competitive advantage in such a competitive situation, Ohmae suggests four strategies. One of which is building on relative superiority. Relative superiority is achieved by comparing products with competitors and investing to either improve the attractiveness of the product or reduce the cost. De Sole and team did exactly that by acquiring the two famous brands. This acquisition gives Gucci a new range of product and identity – the Saint Laurent Woman. Gucci’s competitor LVMH did follow a similar approach by creating synergy among its unique brands and negotiating various cost aspects as a group with suppliers, advertisers etc. there by achieving a 20% savings on expense 17 . If the synergy between brands is established early, Gucci will be able to achieve the same 20% cost saving or even more. In addition, it will be able to use its current distribution facility and save extensively on the cost of promoting the new brands.

Figure 8: Ohmae's 3C Model

4.2 Analyzing Gucci’s move using Porter’s Generic Strategies Porter’s Generic Strategies shown in figure 9 below serves as a framework to make strategic choices in a competitive business environment. Porter suggests that the 17

Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037, pg 6. HBS Publishing

Strategic Management – Gucci Case Analysis 13 scope of the market and how it attempts to compete are the two fundamental choices that any business needs to make in a competitive environment. With Gucci’s scope of market clearly defined as exclusive clientele for luxury products, cost or price will not make much difference to attract or grow its clientele. Therefore, Gucci needs a stronger differentiator in the form of having products that are different in ways they are valued by its exclusive clientele. This assessment again confirms the conclusion in section 4.1 that YSL acquisition exactly provides that advantage to Gucci.

Figure 9: Porter's Competitive Advantage (source: Strategic Management, 2000. pg143)

4.3 Analyzing Gucci’s move using Ansoff’s Corporate Strategy The third model that we are using to analyze Gucci’s strategic decision is from Ansoff (2000). Ansoff’s corporate strategy matrix shows that a business grows either by expanding market or product. Accordingly, De Sole’s decision to buy the two businesses falls under expanding in existing market through a new product, which will be developed by acquiring new products (under product development).

Figure 10: Ansoff's Corporate Strategy (Source: Strategic Management, 2000. pg 137)

The assessment in section 4.1, 4.2 and 4.3 concludes that growing by acquisition is an accepted strategic choice in such a competitive environment. De Sole and team have taken the right step after six years of continuous growth in Gucci brand by acquiring two significant luxury brands to improve their market position. The key to success from here on is to modify the corporate mission, vision and strategy intent towards integrating and creating a synergy between the acquired brands both internally and externally.

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5. Recommended Move Forward Strategy Gucci has made significant progress over the last six years after the departure of the last Gucci family member under the De Sole and team’s management. However, they lack a compelling strategic vision to take the organization to the next level. The last time Gucci had a strategic vision was under the last Gucci, where the vision was to grow the enterprise to a billion dollar organization. Since then, Gucci had strategy and intent at design level but not at the corporate level. Perhaps, the focus for the last six years was revamping and recovering the loss making business. Now that Gucci has achieved that goal by revamping the product line, reducing the price, restructuring the distribution channels and improving the manufacturing method to maintain the quality and reducing the average time required to manufacture an item, they need a bigger goal to integrate and innovate themselves and prepare for the progress in next decade. While the progress made in the previous six years is essential for running a business, it lacks a bigger strategic intent to take this positive transformation into next level.

5.1 Strategic Intent Gucci immediately needs to define its strategic intent with a clear vision and tangible goal that inspires each and everyone in the organization as well as its clients and partners. That will help Gucci group to identify and bring the synergy that they need at all level with the new acquisition and the subsequent ones that they may likely to go for in the coming days. The strategic intent will also make it clear the reason for planned acquisitions and value that the group is trying to derive for its action.

5.2 Strategic Assessment Once a high-level strategic intent is established, a detailed strategic assessment to take stock of internal and external situations needs to be performed to understand the possible areas where a synergy can be established and how it is being done by its competitors like LVMH. This is crucial given the projected lower margin from the acquired businesses. This will also help Gucci to understand external business environment given the aggressive acquisition wave across the board by all luxury product makers who are consolidating and strengthening their market position. As Gucci is expected to acquire more businesses in the coming days, a detailed strategic assessment will help to identify the right future actions.

Figure 11: Strategic Assessment Framework. Source: Strategic Management, 2000. Pg 83

Strategic Management – Gucci Case Analysis 15 In addition, the growth in rest of Asia is expected to increase the market share of luxury products from the current 18% 18 to higher. This will help to achieve the desired operational results and better align the future strategic choices when planning for the next acquisition.

5.3 Proposed Gucci’s Strategy going forward 5.3.1 Recommendations for Strategic Intent • • •

De Sole needs to set a sizable growth target for Gucci group – double the revenue base (US$ 3 billion) in three years through acquisitions and organic growth De Sole needs to set a quality target or policy statement for Gucci group – it should emphasize the need to maintain the highest level of quality and brand exclusivity on all products De Sole needs to set a profit target for all brands of Gucci – 20% operating margin through building synergy between products and brands

The above will set the tone for the most needed actions that Gucci as a group needs to focus in the next decade.

5.3.2 Recommended Strategic Actions •

To maintain the exclusivity of a luxury brand or a product, it is important not to exploit it beyond a certain level and never mass produce. This calls for a portfolio of brands and products to be built in order to grow the revenue. This will also provide opportunities for additional savings from synergies and economy of scale established in space, manufacturing, distribution, raw material etc. This calls for a multi-brand, multi-product portfolio to be the key focus area for a luxury company. Figure 12 will provide a list of successful multi-brand, multiproduct companies

Figure 12: Product Vs Brand Matrix

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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037, pg 19. HBS Publishing

Strategic Management – Gucci Case Analysis 16 •

In the range of luxury goods, leather goods and watches carry the highest level of profit. While leather goods forms 41% of the Gucci’s portfolio, watches contribute only 19.8%. Similarly, silk items like tie & scarves, the second most profitable items forms only 1.9% of its portfolio. Also, jewelry only forms 3.3% of the portfolio. The company can focus on all these three areas for organic growth as well as strategic acquisitions

•

In terms of regions, Asia, the fastest growing region in the world only contributes 18.3% of the revenue. With most of Asia on the rise and economy doing well and projected growth in double digits, this is an area Gucci can focus for organic growth

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6. Conclusion A quick analysis of the luxury market using Porter’s five force model will give us a view that the supplier and buyer power are relatively muted in the luxury industry. For example, the suppliers are more worried that the work will be moved in-house given the design uniqueness, quality focus and needs to restrict the mass production in luxury products. Similarly, the buyers are well-off individuals loyal to the luxury brand or need the luxury product as a status symbol and they will not switch to competitor products when their desired product is not readily available or priced higher. Similarly, the possibility of a new entrant hurting is very remote given the steep investment cost and brand building lead time required to get recognized by the well-heeled buyers worldwide. The chances of substitutes are also very rare for a luxury product as they are exclusive in nature. That leaves us with competitive rivalry as the only possible threat for a luxury product group like Gucci. In 1999, LVMH versus Gucci saw rivalry brands Prada and LVMH joining hands to block Gucci from acquiring Fendi. Both the rivals joined hands subsequently to launch a hostile takeover bid to acquire Gucci itself. This is an area that the Gucci Group needs to focus, plan and strategize well in the coming days be it about its own acquisition of other brands or other brands trying to acquire its assets.

Figure 13; Porter's Five Forces

In summary, Gucci is very likely to succeed given the presence of aggressive leadership, innovation focus, creative designs, being employee and supplier friendly, and its cash rich status. The YSL and Sergio Rossi products bring more choice to its client base without any duplication of the current product base. If the subsequent mergers are also done in similar way and if Gucci could establish operational efficiency leveraging its current manufacturing and distribution framework, that will position Gucci as a cost effective and successful multi-brand, multi-product luxury maker globally.

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7. Bibliography Macmillan, H. & Tampoe, M., 2000. Strategic Management. New York: Oxford University Press. Kwak, M. & Yoffiie, B., 2001. Gucci Group N.V. (A). Boston: Harvard Business School Publishing. Kotler, Philip, and Kevin Lane Keller, 2005. Marketing Management. 12th ed. Upper Saddle River: Prentice Hall.