Case

Having been associated with royalty and film stars, Gucci is synonymous with luxury.
It was founded in Florence in 1923 as a manufacturer and retailer of leather goods, fine ones.
Gucci opened their first store outside of Italy in London in the late 60’s and then followed by
many other stores in the important world centres that are closely associated with fashion and
luxury. However, the third-generation decedents show a poor performance as custodians to
the Gucci brand, having put utmost concern to feuds over ownership to the brand. This has
also led to the exploitation of the brand with a non-discriminating distribution and product
licensing strategy. Gucci’s equity as a luxury brand had become untenable, as their Gucci
Accessories Collection had also drift to alcohol, playing cards, and even toilet papers.

The condition has brought to new appointments made by Investcorp, an investment

company based in Bahrain, in which they acquired all the shares from the Gucci family in
1993 as they made losses exceeding $40 million and faced bankruptcy. With this, they also
appointed Domenico De Sole, the previously President and Managing Director of Gucci
America, as President and Chief Executive Officer. Tom Ford was promoted as the Creative
Director, in which his ideas made a turnaround to the company.

Discussion

Moore and Birtwistle (2005) had focused on Gucci in studying the nature of parenting
advantage, especially in luxury fashion. The parent’s role would help create value, influence
decisions and strategies to the business, as well as standing in between the businesses and
those providing capital for usage. Annual reports and secondary sources were reviewed and
identified for the ten-year renaissance in Gucci. The intra-brand synergy that Gucci had saved
them from the aforementioned financial crisis. Their transfer of expertise on luxury branding
to each subsidiary had helped them in a way that it brings a radical transformation of the
subsidiary’s branding strategy to match with the Gucci Group brand model.

Their critical success was comprised of several factors that involved management
strategy, investment of resources, and business development strategy activities. In order to do
so, the Gucci Group went through three phases to achieve their radical transformation, which
are:
1. Brand Stabilization Phase (early 1995—October 1999): During this period, De Sole
and Ford refined their skills in luxury brand management and established internal
resources to exploit the parenting advantage should they extend to become a luxury
brand group, which happened in 1999. There are six key dimensions that has defined
their strategy immensely, and at the heart of importance to Heartland businesses,
which are:
a. Re-established control of Gucci product design and manufacture. They strive
to maintain a clear brand image, and in this case, they terminated and/or
bought back over than 100 licenses for their ready-to-wear collections, shoes,
jewelry. This had reduced a huge collection of products from 22,000 to 7,000.
They also partnered with 45 local manufacturers, in which they provide
quality products and reliable availability.
b. Re-established control over Gucci product distribution. As they have
previously relied on franchising for international distribution, in 1996 they
commenced a buy-back strategy to take control of distributions through direct
store ownership. Through this strategy, by January 2004, 187 Gucci stores
were directly operated, while 30 were franchise stores where they do not have
sufficient local expertise and thus, impractical to establish directly operated
stores.
c. Create a balanced product portfolio for a luxury brand. This allows Gucci to
gain production capability and distribution rights and improve their operations
and margins. Under the creative direction of Tom Ford, the leather goods
account for 40 percent to the total sales, whilst RTW contributes 14 percent.
d. Establish a luxury marketing communications platform. In 1996, they invested
US$ 61 million for the advertising, as per Gucci Group NV Annual Report in
1999, they coordinated their communications strategy into a highly focused
manner, whilst ensuring a single, clear and effective brand message
worldwide, in all areas of communication that includes fashion shows and
special events, advertising, public relations, visual display, and internet web
sites.
e. Create a luxury brand consumption experience. Their dramatic and highly
recognizable store concept ensures that all products are presented to their
customers, in which capitalizing on the exclusivity and ultimate allure of the
 brand being their goal. It was applied worldwide, so that all points of contact
with the customer, the brand would speak with one voice worldwide.
f. Tom Ford—design direction and control. His role and involvement beyond
RTW collection also includes store interiors, product packaging, marketing
communications and major wholesale stockist selection. His touch had
inspired consumer confidence and from this, Tom Ford had become
synonymous to Gucci.

These strategies had set a purpose in which it helps differentiate Gucci Group
to its competitors in luxury brands, through their performance of activities that are
done differently, or through performing different activities.

2. Multi-brand Acquisition Phase (November 1999—July 2001): They signaled their

emergence as the Gucci Group through acquiring equal or majority shareholdings in
ten companies to form the Gucci Group NV, and becomes the second largest multi-
luxury brand conglomerate through a strategic alliance with Pinault-Printemps-
Redoute (PPR). With this acquisition too, they proposed a tripartite brand
categorization of the acquired brands that were identified as declining brands such as
Yves Saint Laurent, to emerging brands like Alexander McQueen, and
complementary brands like YSL Beaute.

3. Gucci Group Consolidation Phase (August 2001—April 2004): With their expertise
in luxury brand management, Gucci Group aims to bring the skills and advantages of
the parent company to its subsidiaries. The company sought to exploit group
resources such as management, production and logistics, distribution; to build these
brands which in over time could contribute meaningfully to the Gucci Group returns.

Goold et al (1994) had put emphasis on a framework to better understand business

characteristics. The nature of luxury goods rooted deeply to the parenting advantage that
portrays Gucci’s brand exclusivity, their recognizable brand identity, and strong sales, backed
with customer patronage. To link this, the characteristics that should be understood are:

 The parent’s mental maps; used to interpret and synthesize information for
management decision making and explain their behavior.
  The parenting structures, systems and processes; which helps the parent to create
value. This includes budgeting, planning, capital approval systems, and decision-
making procedures.
 Functions, central services and resources; the corporate staff departments and
central assets that support subsidiary management in creating value.
 People and skills
 Decentralization contracts; the jurisdiction between the parent and the subsidiary
company on decision-making powers and budgetary authority.

In respect to the relationships and mechanisms of a parent company creating parenting

advantage to its subsidiaries, Goold et al (1994) had identified four approaches in the value
creation to help understand the business characteristics and make decisions to their parent and
portfolio, and are implemented in Gucci Group, which are as follows.

1. Stand-alone influence—in which the parent company influences the strategies

and performances of each business by viewing each and one of them as stand-
alone profit center in its own right. Gucci defined their brand to provide
distinct high-quality merchandise, controlled distribution, through mostly
directly operated stores with a systematic communication strategy and solid
execution. It continues to maintain their in-house design responsibilities of
their brands.
2. Linkage influence—where the company seeks to create value through
enhancing linkages between and among the business units they own. The
Group has synergized the intra-group supplies and resource utilization. (i.e.
Sergio Rossi supplies shoes to Yves Saint Laurent)
3. Functional and services influence—the parents’ corporate staff functions and
services help create value through provision of functional leadership and cost-
efficient services for the businesses. The Group provides central support to
each brand that are in line with their communications, image, and finance.
4. Corporate development activities—parent is free to create (or diminish) value
for the company through buying, creating and selling new businesses. The
Group has engaged heavily in corporate development through the acquisition
of other businesses around luxury fashion brands. They have not sold any
businesses as per the journal was published.
 In conclusion, the relationship between a parent company to its subsidiaries are that
not only that subsidiaries benefit from the directions and to some extent, interventions, their
value may also be enhanced through the symbiotic mutualism process. The parent’s help in
influencing decisions and strategies to their business units is in line with “value-creating
relationships”. Their core skill, expertise and how they develop resources had helped Gucci
Group to achieve successful parenting advantage. They paid close attention to the acquisition
processes, keeping their ability in identifying and completing investments of the acquired
company. They believe that any brands they acquire must achieve excellence in brand
perception and financial results—and their strategy had proved so.