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The Nature
The Nature
The Nature
IJRDM
33,4 The nature of parenting
advantage in luxury
fashion retailing – the case of
256
Gucci group NV
Christopher M. Moore and Grete Birtwistle
Division of Marketing, Glasgow Caledonian University, Glasgow, Scotland, UK
Abstract
Purpose – Examines the application and nature of parenting advantage within the context of luxury
fashion conglomerates principally as a means of understanding the synergistic benefits that accrue as
a result of brand consolidation within the sector.
Design/methodology/approach – Derived from company annual accounts, market analysts’
reports and other secondary sources, the paper delineates and evaluates the ten-year renaissance of
Gucci brand from a company on the verge of bankruptcy to its emergence as the world’s second largest
luxury group.
Findings – Through the identification of intra-business group synergies, it is clear that the
transference of brand management expertise and competence is the principal dimension of parenting
advantage in the Gucci Group.
Originality/value – From an examination of the Gucci Group’s brand management strategy,
resource investments and business development activities, the paper proposes a model of the luxury
fashion brand. This multi-dimensional model identifies the components of the luxury fashion brand,
locates their inter-connections and illustrates how these collectively can provide and sustain
advantage within this highly competitive sector.
Keywords Fashion industry, Premier brands, Brand awareness
Paper type Conceptual paper
Introduction
April 30th 2004 not only marked the termination of Domenico De Sole and Tom Ford’s
employment as president and CEO and creative director, respectively, of the Gucci
Group, but it also concluded a period of office whereby the two executives achieved
what has been variously described as the most radical and successful turnaround
strategies within the luxury brand sector (Heller, 1999; The Economist, 2003). In 1994,
Gucci made losses in excess of US$ 40 million and faced bankruptcy, while a decade
later, the company emerged as the Gucci Group, one of the most important luxury
brand groups, with sales in excess of US$ 2 billion and five-year average annual
operating profits exceeding US$ 200 million (Gucci Group NV Annual Report, 2004).
The transformation of Gucci in the period from 1995 to 2004 was achieved in three
distinct phases, as is shown in Figure 1.
International Journal of Retail & The first phase, from 1995 to 1999, marked a period of brand stabilisation.
Distribution Management Management re-established the integrity and luxury equity of Gucci through their
Vol. 33 No. 4, 2005
pp. 256-270 pursuit of a consistent control and investment strategy. Management developed
q Emerald Group Publishing Limited formidable expertise in product development, supply chain control, brand
0959-0552
DOI 10.1108/09590550510593194 communications and luxury fashion retailing ( Jackson and Haid, 2002). These core
luxury brand management skills made Gucci attractive to other businesses, The nature of
particularly their close rivals, LVMH and Prada who acquired, by stealth, sizeable parenting
share holdings. Another interested party, the French brand conglomerate,
Pinault-Printemps Redoute (PPR), formed a strategic alliance with Gucci in March advantage
1999. As part of a standstill agreement, PPR acquired a 42 per cent stake in Gucci for
US$2.9 billion, agreeing not to exceed that level for a period of five years (Gucci Annual
Report, 2000). 257
It was PPR’s significant investment that facilitated the second stage of Gucci’s
transformation – the multi-brand acquisition phase – which signalled their emergence
as the Gucci Group. From November 1999 to July 2001 the company acquired equal or
majority shareholdings in ten companies to form the Gucci Group NV, the world’s
second largest (as measured by share of the luxury goods market) multi-luxury-brand
conglomerate (Mintel, 2004).
Finally, the period from August 2001 to April 2004 marked the Gucci Group’s
consolidation phase. During this period the company sought to exploit “group
resources – management; production and logistics; distribution – to build these
brands, which over time can contribute meaningfully to Group returns” (Gucci Group
NV Annual Report, 2000, p. 16). With their expertise in luxury fashion brand
management, the Gucci Group’s strategy was to bring the skills and advantages of the
parent company to their subsidiaries.
The emergence of Gucci as a multi-luxury-brand conglomerate is not unique within
the luxury goods sector. The four leading companies are each multi-brand
conglomerates: Louis Vuitton-Moet Hennessey (LVMH); Gucci Group NV; Prada;
and Richemont Group (Mintel, 2004). Various commentators have attributed the
success of these luxury businesses to their multi-brand status, and particular ability to
exploit the expertise, resource and cost synergies of conglomeration (Matlock and
Edmondson, 2002; The Economist, 2003).
Consideration of the nature and characteristics of the luxury goods sector is
sporadic and incomplete (Beverland, 2004; Jackson, 2004). There have been recent
attempt to conceptualise the components of a successful luxury brand (Beverland,
2004; Kapferer, 2001; Vigneron and Johnson, 1999; Quelch, 1987), while other studies
have examined the features of the trading strategies of the luxury retailers, (typically
on a case-study basis) (Quelch, 1987; Dovaz, 1998, Jackson and Haid, 2002; Moore and
Birtwistle, 2004). None have expressly considered the potential for their being unique
characteristics in luxury fashion branding. Furthermore, little, if any consideration has
been given to how luxury brand conglomerates secure what Goold et al. (1994, p. 13)
described as “parenting advantage” – those strategies, structures and processes
whereby the “parent works through its businesses to create value”. Parenting
advantage is concerned with the extent to which a business unit gains a competitive
advantage as a result of its link with a parent corporation and vice versa.
Figure 1.
The three phases in the
development of the Gucci
Group NV
IJRDM Therefore, given this clear research neglect, the aim of this paper is to draw upon the
33,4 insights derived from an extensive review of the formation and development of the
Gucci Group NV to inform understanding of the nature of parenting advantage as well
as the management processes which facilitate its realisation, within the luxury goods
sector.
In order to satisfy this aim, the paper adopts the following structure. The literature
258 relevant to luxury branding is examined, then the “Parenting Advantage Model”
proposed by Goold et al. (1994) is reviewed. Subsequently, the paper considers the core
brand management competences developed by the Gucci Group and reviews the
procedures used by them in order to create parenting value within their subsidiary
brands. A model of the luxury fashion brand is then proposed. The paper concludes by
considering areas for future research.
Figure 2.
The components of a
luxury brand
credibility and excellence (product integrity); personality and consumer group support The nature of
(endorsements); and brand image investments (marketing) (Dubois and Czellar, 2002; parenting
Vigneron and Johnson, 1999; Quelch, 1987) The value-driven emergence component
identified by Beverland relates to the extent to which the brand actively seeks to have a advantage
luxury positioning and association through its marketing decisions.
As to the transferability of the model to other luxury product categories, and
particularly to luxury fashion, it is clear that the Beverland model has certain 259
limitations and that additional components must be incorporated.
(3) Functional and services influence – the parent’s corporate staff functions and
services which create value by providing functional leadership and
cost-efficient services for the businesses.
(4) Corporate development activities – the parent can change the number of
businesses in its portfolio by buying, creating and selling new businesses.
Therefore, the parent can create (and destroy) value for the company through
these activities. Such value is distinct from that which may be subsequently
created through any ongoing parental influence.
While it is beyond the scope of this paper to review the literature that debates the value
or otherwise of Goold et al.’s view of “parenting advantage”, Have et al. (2003) provide a
succinct and inclusive evaluation. The latter propose that the framework of parent
company characteristics and value creation methods requires that management
rethink the appropriateness of those corporate structures that evolved accidentally.
Parental advantage awareness encourages the adoption of structures that encourage
value transfer and encourages an evaluation of the essential purpose and contribution
of the corporate parent. In terms of weaknesses, Have et al. (2003, p. 165) suggested that
the four value creation opportunities can be difficult to utilise in practice due to “their
strong dependence upon situational characteristics”. Furthermore, these activities are
not mutually exclusive, with the potential for overlap in the value that is created.
As has been noted above, there has been little or no consideration of the nature of
“parenting advantage” within the luxury fashion sector, and by implication, the
mechanisms by which parenting advantage is achieved in these conglomerates is
unclear. Consequently, drawing from consecutive Gucci Group NV Annual Reports
from 1998 to 2003, company press releases and market analysts’ commentaries, the
remainder of this paper (through the use of the Gucci Group as a case-study) will seek
to locate the characteristics of “parental advantage” principally in terms of luxury
fashion brand creation and the mechanisms used to facilitate its transfer from parent to
subsidiary firms.
A brief history of Gucci The nature of
Founded in Florence in 1923 as a manufacturer and retailer of fine leather goods, the parenting
first store outside of Italy opened in London in 1967, followed by many others in the
important world centres. With its associations with royalty and film stars, the Gucci advantage
brand had become synonymous with luxury (Forden, 2000). The third generation
decedents proved to be poor custodians of the Gucci brand. Concerned more with
internal family feuds over ownership and rewards, the family managers exploited the 261
brand with a non-discriminating distribution and product licensing strategy. In 1979
Gucci introduced the Gucci Accessories Collection comprised of 20,000 product lines,
including alcohol, playing cards and toilet paper. With a multitude of licensing
contracts and availability in over 1,000 stores worldwide, the Gucci’s equity as a
luxury brand had become untenable (Kwak, 2000).
By the late 1980s, Gucci was in disarray. New appointments were made, instigated
by Investcorp (a Bahrain-based investment company) which had acquired all the
shares from the Gucci family by 1993. Previously President and Managing Director of
Gucci America, Domenico De Sole was appointed as President and Chief Executive
Officer in 1995 and Tom Ford was promoted from Assistant to Creative Director to
affect a turnaround ( Jackson and Haid, 2002).
The group believed that it had the requisite skills to advantage each category of
acquisition and that intra-group synergies would provide positive benefits for the
group as a whole. Each brand was acquired for its potential to “generate outstanding
value for our shareholders through sustainable profit growth, returns in excess of our
cost of capital and minimal short-terms earnings dilution” (Gucci Group NV Annual
report, 1999, p. 19). The Group expected each brand to be accretive by the end of Year
Three (Guccigroup.com, 2003).
Gucci group consolidation phase – August 2001-April 2004
Delineating their strategy for the newly formed Group, Gucci stated that their “success
will depend on our ability to manage effectively a portfolio of brands which will each
be unique in its brand image and values, while leveraging the skills and infrastructure
of the enlarged Group” (Gucci Group Annual Report, 1999, p. 14). In addition, the
Group acknowledged that the successful brand management processes that will be
“implemented by the newly acquired group brands were developed and tested over
time within the Gucci Division” (p. 23).
Rather than providing duplicate accounts of the actions undertaken by the Gucci
Group in their pursuit of parenting advantage with respect to each of their acquired
brands, the following section considers their rejuvenation strategy for arguably the
most important of its acquisitions, the Yves Saint Laurent brand. In addition, it
examines the synergies fostered by the Group between, and among, its respective
businesses. This sharing of group resources is a secondary but nevertheless essential
element of “parenting advantage” within the Gucci Group.
The following statement by the Group’s CEO provides an overview of the Group’s
strategy for Yves Saint Laurent:
We see in Yves Saint Laurent the opportunity to implement the same strategy that we applied
to rejuvenate Gucci. Over the years Yves Saint Laurent became overly dependent on royalties
from licenses. We plan to develop a different business model, with the emphasis on a
directly-operated store network as the principal sales vehicle. We will move decisively to
terminate most Yves Saint Laurent licences upon expiration if not earlier. We will invest in
communication to relaunch the worldwide image of Yves Saint Laurent (Gucci Group NV
Annual Report, 1999, p. 15).
Utilising the framework for the rejuvenation at Gucci, it is possible to delineate its
application to the Yves Saint Laurent brand. This is presented in Table III.
Rejuvenation dimension Action at Yves Saint Laurent
The nature of
parenting
Re-established control over First step – regain control of the production of all core product
product design and manufacture categories from licenses – women’s RTW; watches and jewellery;
advantage
women’s shoes;
In 2000 “We enhanced control of distribution by cutting license
contracts by more than 100 and buying back strategically significant
licenses – women’s RTW, shoes, watches and jewellery” 265
“Management transformed Yves Saint Laurent from a disparate
collection of 167 licenses into a business built on directly produced
high quality product distributed through stores owned and operated
by the company” (Gucci Group NV Annual Report, 2000, p. 64)
January 2000 – acquisition of C. Mendes S.A. to “regain worldwide
control of the key women’s RTW category and the Rive Gauche
trademark”. Three factories acquired as a result, consolidated into
one factory within one year
Repurchased the license for watches and jewellery from Cartier
Number of licensees reduced to six by 2003
Re-established control over Launch of flagship chain in key world centres
product distribution Directly-owned stores increased from 15 in January 2000 to 58 by
January 2004
Directly-owned stores contributed 32 per cent of total sales in 2000,
increasing to 61.3 per cent in 2003
Create a balanced product Elimination of all diffusion lines, including the variation line –
portfolio for a luxury brand incompatible with a luxury brand
Introduction of Yves Saint Laurent branded leather accessories,
shoes, watches, jewellery and licensed eyewear via group and
associate company agreements
In 2001, accessories contributed 10 per cent of total Yves Saint
Laurent sales, increasing to 32 per cent in 2003
2002 launch of the Mombassa-design handbag – media support
makes this an iconic product within one season
Establish a luxury marketing Significant communications investment to improve and to relaunch
communications platform the worldwide image of Yves Saint Laurent
2001 – spent US$ 8.8 million in second half in order to support
women’s RTW A/W collection – first to be designed by Tom Ford
2002 – Yves Saint Laurent features on the front cover of more than
100 leading fashion and lifestyle magazines
2002 – US$ 34.6 million communication spent
Create a luxury brand Renovation of Paris Rue Foubourg St Honore flagship store
consumption experience From 2001 – new store concept to forge Yves Saint Laurent’s new
identity developed by Tom Ford and the Architect William Sofield
“Colour palette of black and white, rich materials such as brushed
steel to create a modern environment and makes reference to art deco
and thereby serves as the architectural compliment to the products”
(Gucci Group NV Annual Report, 2001, p. 26)
Expenditure of US$148 million on store openings, expansions and
refurbishments from 2001 to 2003
Tom Ford – design January 2000 – Tom Ford appointed as Creative Director for Yves
direction and control Saint Laurent – all product categories and communication activities
2001 – CFDA Award to Tom Ford as Designer of the Year for work
at Yves Saint Laurent
2002 – CFDA Award to Tom Ford as Accessories Designer of the
Year for work at Yves Saint Laurent Table III.
IJRDM These initiatives increased revenue for Yves Saint Laurent by 35 per cent in the period
33,4 from 2001 to 2003. However, due to the significant expenditure for product
development, new store openings, and communications, the operating loss for 2003
increased from US$ 40 million in 2001 to US$ 96.4 million in 2003.
Figure 3.
A model for luxury
fashion branding
In conclusion, a summation of the role of brand management in the creation of parental The nature of
advantage within the luxury fashion conglomerate is provided by Domenico De Sole
who stated:
parenting
advantage
At Gucci, we are managers and business builders. We play close attention to the acquisition
process, and we believe that we have demonstrated our ability to identify and complete
investments on terms commensurate with the value of the acquired company. Any brand we
acquire must achieve excellence in brand perception and financial results (Gucci Group 269
Annual Report, 2000, p. 15).
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Gucci Group NV (1998), Annual Report and Accounts, The Netherlands.
Taggart, J. and Harding, M. (1998), “The process of subsidiary strategy: a study of Ciba-Geigy
classical pigments”, Management Decision, Vol. 36 No. 9, pp. 568-79.