History and Background of Gucci

The company's history really began in 1921 with patriarch Guccio Gucci, a
Florentine dishwasher turned leather merchant, who began selling
leather travel bags. Surviving both the Depression and World War
II, the family business prospered on its use of a distinctively
flawed leather called "cuoio grasso," the ruffled surface of which,
superimposed with the twin Gs of the family name, became a
global sensation in the years after the war.
Tom Ford rises to the top
De Sole and Ford advanced to the top tier of Gucci under Investcorp's leadership,
with Mello returning to Bergdorf Goodman. Ford began churning out racy, groundbreaking new
designs, like stiletto pumps and G-strings, which would never have seen the light of day under
the Guccis. They were exceedingly popular, and the Gucci name became more valuable than
ever.

Current Gucci Leadership

Former CEO Domenico de Sole and creative director Tom Ford, who restored Gucci's glitz after
near bankruptcy in the 1990s, departed when majority shareholder Pinault-Printemps-Redoute
sought to limit their autonomy. Current Gucci CEO Mark Lee is bullish about 2006. In an
interview with Women's Wear Daily, he said that the company “had the best year in the history
of the company, so we are quite proud and happy about that”. Gucci, founded in 1921 by a
former dishwasher, now includes such well-known design labels as Yves St Laurent, Bottega
Veneta, Sergio Rossi, Boucheron, Bedat & Co., Balenciaga, Stella McCartney and Alexander
McQueen.
 Luxury goods business : Industry analysis
Luxury goods business consists of 7 types of product lines those are Leather goods, footwear,
high-end apparel, silks, watches, jewelry and perfume & cosmetics. There are around 35
companies who share 60% of luxury goods market, almost all of successful brands are family-
owned business. All of them have different specialization and experiences also position in the
market.

Target markets of luxury goods business are changed from the past. From women in upper level
income & age around 30- 50 to be younger at age 25 and almost all are in Asia especially Japan.
As they know target customers have been changed, they have to produce and offer less expensive
product ranges. This market’ customers have high loyalty to specific designers and fashion-
conscious.

Fashion media & advertising such as TV and magazine play important role in educating and set
trend to customers as season’s star, especially celebrity marketing in many show & night party.

Product trend itself had been changed over time from Classic image to Fashion-Oriented because
customers want to see more updated items. So luxury goods producers had to invest more on
designing and production also demand forecasting.

Manufacturing: 3 production strategies which were used by most luxury companies, those are
1) In-House Manufacturing (Produce by themselves) 2) Outsourced Production (Let other firms
produce for you) 3) Licensing (Easiest way to expand the brand but hard to control production)

Distribution: In year 1990, companies decide to use “DOS- Direct Operation Store” because it
was easy to control besides reduced wholesales distribution through department store or
boutiques including franchising. In year 1995, companies expanded store through discount shop
like Duty-Free Retail. In year 1999, some companies started to launch e-commerce online media
but many companies were reluctant to embrace this channel, just Tiffany & LVMH used this
method.

Competitors : 35 companies shared 60% of luxury market and 40% from smaller companies.
Louis Vuitton Moet Hennessey (LVMH) is top brand in overall luxury goods market but top of
leather products is Hermes followed by Chanel, Gucci, Louis Vuitton, Prada and Ferragamo.

Most successful luxury companies were “ Family-Owned” or “Family-Controlled”. This type of

management has advantages of 1) Allow creativity 2) Move more quickly than public firm. But it
also has disadvantages of 1) Vulnerable to founder’s whims 2) Not good for founder who lack of
capital and management depth 3) Too challenge if founder or original designers was gone.
In year 1990, almost all are single-brand but in year 1999, merger & acquisition was very
popular. (Best acquisition companies at that time were LVMH & Prada)

Gucci Historical Action and Situation from 1923-2000

Situations those cause Gucci to fall before new management had come.

- Death of Founder & Fake Gucci bags those decreased brand equity and no truly
discerning luxury goods client shopped at Gucci.

New management consisted of 2 main stars those were Domenico De Sole & Tom Ford.

Domenico De Sole, a trusted legal adviser as president and managing director of Gucci US.

Tom Ford, creative management level who responsible as Designer, Advertising, PR and every
commercial media. Moreover, he had good cooperation with De Sole.

Y1993: De Sole reduced point of sale and used selective distribution channel to build more brand
look exclusive but made sales declined. Reduce number of staffs.

Y1990: Maurizio Gucci didn’t have much business & analytical skills those lead to terrible time
for Gucci. Price were too high, Production was bad, Logistic & Distribution was terrible.
Moreover, financial disaster was occurred in Gucci company.

Y1990-93: Economic crisis but luxury market had not effect because of unique product design.

Y1991-93: Gucci faced big loss and unable to finance.

Y1993: Maurizio Gucci was gunned down in Milan by his wife.

Reorganization: Organization restructure.

Y1993: De Sole reorganize & reposition the firm by 1) Cost Cutting for new team both
workforce and corporate level. 2) Upgrading Gucci’s production & delivery system.

Y1994: De Sole pushed more personal drive to use effective management skill of De Sole &
Ford. He made decision quickly and goal-driven speed of light.

Change & upgrade every store locations.

Gathering Gucci staffs from separate product to have mutual process and become united
company which created more information sharing & flowed in the same way.

7 Gucci operating companies were combined for the first time.

Y1995: Gucci offered stock options to employee for ownership sharing that different from other
companies. Performance was better and recovered. Stocks price were twice increased.
Remaking brand: Changing brand image & perception

Y1994: Focus more on “Fashion” and change its classic image to be “Aggressively Glamorous
Edge”

Created new fashion design trend to market.

Redefined Gucci from wealthy, conservation & older image to be Modern, Urban &
Youthful spirit.

Y1994-1996: Better sales in US, HongKong and Japan

Y1996: Created CRM method both to customers and channels such as collecting customers’ data
and keep relationship with channel market demand. But absent to recognize many European
firms.

Pricing

Y1994: Re-pricing structure and lowering prices on average by 30% and Gucci’s position had
become below Hermes & Chanel but same with Prada & Louis Vuitton. Even lowering price but
Gucci still preserve luxury status and rejected to extend brand by launching new diffusion lines.

Reveal that, all competitors were equal in term of material and workmanship.

Marketing

Y1994: De Sole realized that all competitors hadn’t much different product. So Gucci decided to
put more sense consideration while what they were selling.

Y1994-99: Tom Ford put more important to Gucci’s commercial strategies and promoting
himself as brand representative or brand ambassador of Gucci. (Successor & Presenter image
marketing) Moreover, he doubled advertising expenditures to recover Gucci’s image.

Manufacturing & Logistics (Both leather goods & shoes)

Y1990-93: Supplier relationship was all-time low.

Y1994: De Sole recognized quality of craftsmanship and encourage production staffs to invest in
technological innovations.

De Sole started new program for Partners & select suppliers with technical & financial
support. Selected suppliers will be provided financing for planting investment & material.
 Acquiring more suppliers from every levels. (3 levels of suppliers are
1. Partner 2. Integrated suppliers 3. Sub-suppliers. But all suppliers & staffs know De Sole was
their top management in their mind.

More designs & increase production caused by customers’ demand

Better flow and good warehousing management.

Distribution

Y1994: Primary distribution emphasis on high quality network of DOS especially in Asia
because Asia assets were devalued from economic crisis.

Y1994: Closed Duty Free Store door in Hongkong & better qualified shop to push Gucci in for
Gucci’s image protection.

Y1996-2000: DOS renovation (Dated-looking stores)

Y2000: Open Gucci’s website but all sales still rely on brick-and-mortar distribution. No
definite e-commerce plan.

Other important situations in Y2000

1) Bernard Arnault from LVMH tried to acquire Gucci by claiming that LVMH owned
large portions of Gucci’ stocks and need of becoming Gucci’s director was high.
Gucci act: De Sole offered same amount of Gucci’ stocks owned by LVMH to Gucci’s
employees. Moreover, PPR – the largest non-food retail group in Europe bought 40% of
Gucci’ stocks.
Result: Defending LVMH to take over Gucci. Gucci acquired Sanafi Beaute which had
companies of Yves Saint Laurent Couture inside. Gucci became multi-brand luxury
group now.
2) Gucci group included 4 divisions (Gucci, YSL Couture, YSL Beaute and Sergio Rossi)
Each divisions had its own management structure. Moreover than being “Multi-brand”,
Gucci was remarkably “International Company”
Gucci act: Each division knew each others, talked constantly and understand mutual
objectives.
Gucci’ competitors analysis & strategies evaluation
De Sole & Tom Ford had made 2 strategies to run business on Gucci, those are

A) Gucci turned company to be multi-brand group rather than focus on single-brand

company. By acquiring Yves Saint Laurent (YSL) and Sergio Rossi because idea of
growth limitation.
B) Expanding YSL Couture by investing more on DOS (Directed Operating Store) and
terminate licensing. Also reduce “Ready to wear” production & increase “ Leather goods,
shoes, watches” production instead.
Moreover, he moved market concentration from European-based to International-based
(Adding Asia & America)

Based on Gucci’s analysis, to make effective comparison of Gucci’s product, 2 sets of

competitors are used to consider.

- Mass market competitors; Louis Vuitton & Prada

- Niche market competitors; Hermes & Chanel.

For Mass market competitors, Louis Vuitton is the best positioned player.

Louis Vuitton was owned by LVMH (Louis Vuitton Moet Hennessey) as

mother company. Louis vuitton is strongest brand in mass luxury market. Moreover,
Louis Vuitton is in Market Leader position & Strong competitive position when
comparing with other competitors because of following factors :

- Highest brand equity. Louis Vuitton has best perception of best quality and trendy
products toward customers’ minds.
- Louis Vuitton and LVMH have full control over both production & distribution
instead of outsourcing.
 - Louis Vuitton is the first mover and leader to make effective acquisition and line
expansion to another product.
- Sales revenue & sales volume & operating margin in most of its product lines are in
highest rank. Even Louis Vuitton is in middle level of Leather goods.
- Louis Vuitton has strategy as cost leadership in minimizing cost of production.

For Niche market competitors, Hermes is the best positioned player.

Hermes is strongest brand in niche market especially in the field of

Leather goods. Beyond size and product focus, leather goods of Hermes is the best and top in
luxury market with its classic Kelly bag.

Hermes is in Market Leader position & Dominant competitive position when comparing
with other companies because of following reasons:

- Hermes produces products those have high uniqueness and best differentiation. Even
sales volume of Hermes is lower than Louis Vuitton but because of its uniqueness,
price of Hermes product lines are very high.
- Brand equity in term of “Most Luxury item” has come to Hermes immediately.
- Price was clearly no object for the women who crowed Hermes waiting lists around
the world which shown us that Hermes products are low price-sensitivity in
customers’ minds.

Competitive position mapping

We can set 2 factors which represent 2 core competitive position of each companies in luxury
market, those are 1) Luxury image & Uniqueness 2) Operating margin & Cost Leadership.

Based on Gucci and other 4 competitors information of

- Luxury image & Uniqueness : Hermes is the first rank followed by Chanel, Gucci ,
Louis Vuitton and Prada. (Gucci, LV and Prada has same rank) So we can give point
to each companies as : Hermes = 10 points, Chanel = 9 points, Remaining = 7.
- Operating margin & Cost leadership : Louis Vuitton is top at 30% followed by
Gucci at 23%, Hermes at 20%, Prada at 19% and Chanel at 10%.

We can set competitive position mapping as followed

Hermes

Chanel
Prada Gucci Louis Vuitton
Different positions of Gucci in year 1990, 1994 and 2000
As you see above historical time line of Gucci, we can divide Gucci main period of time into 3
periods. Those are 1990, 1994 and 2000.

In 1990, Gucci positioned themselves as Market follower, emphasize on conservative & classic
image while kept on high pricing and high distribution channel from decision making of
Maurizio Gucci. For this period of 1990, Gucci had position of “Tenable & Weak” in luxury
market when considering in competitive position analysis.

In 1994, Gucci positioned themselves as Market challenger from recovering strategies of De Sole
and Tom Ford. Emphasizing more on middle level pricing and youthful brand image. For this
period of 1994, Gucci had position of ”Favorable” in luxury market when considering in
competitive position analysis.

In 2000, Gucci still positioned themselves as Market challenger from continued strategies of De
Sole and Tom Ford. Moreover, Gucci position themselves rather than multi-brand company but
also international company. For this period of 2000, Gucci had position of almost “ Strong” in
luxury market when considering in competitive position analysis.

Critical moves of De Sole; most of them were occurred when De Sole come to take action as
Gucci main leader in 1994. All moves can be separated into 6 functions.

- Reorganization: United company to create information sharing, Cost cutting and got
heart of employees by offering Gucci stock and encouraged staff to invest in
technological innovation.
- Remaking-Brand: Rebranded Gucci as modern, urban and youthful spirit. Also
provide better relationship to both customers and channels.
- Pricing: Re-pricing by lowering price to make it more affordable for new younger
customers.
- Marketing: Investing more in commercial plan such as doubled advertising
expenditure.
- Manufacturing & Logistics: More designs & increase production. Also good stock
flow.
- Distribution: Selective distribution channel & renovate existing DOS with high
quality network.
Acquisition of Yves Saint Laurent & Sergio Rossi analysis

YSL & Sanofi Beaute

Yves Saint Laurent was Christian Dior’s hand-picked successor in field of designer. Even this
name conjure with in the fashion world to invest modern woman dresses but designer was
exacerbated by drug and alcohol abuse those lead to depression. YSL had product lines of
Ready-to-wear women dress, leather goods and handbags under the brand of “YSL Couture”.
“YSL Beaute” included Cosmetic and fragrance.

Action toward YSL from Tom Ford:

Ford had to modernize & redefine YSL also kept YSL and Gucci visually distinct.

Gucci image: Sexy, flashy, comfortable, confident much more like James Bond kind of woman.

YSL Couture image: Sexy but different kind of sexy with Gucci. YSL was more intelligent sexy
and little bit chic.

Management had to handle with manufacturing to appropriate strategies for distribution,

branding and launch of new product lines.

For YSL Beaute, De Sole had to reinforce senior management to bring YSL Beaute up and
become popular fragrance lines.

Sergio Rossi
High-fashion shoes, specialize in shoes manufacturing and designing. Sergio Rossi distributed
products through exclusive department store. The company had 13 directly operated stores and 8
franchised stores in Europe & Asia.

**Ford’s recommendations** “Change management skill” is very important to deal with

multi-brand company. They have to be more careful in managing with smart acquisitions.

Evaluation of De Sole’s latest strategic moves

A) Acquisition strategy with YSL and Sergio Rossi
B) Expanding strategy for YSL

Evaluation of A) As Tom Ford has said, acquisition and expanding through merger will be good
for Gucci if Gucci can adapt themselves towards change. Because Yver is under PPR (Pinault-
Printemps-Redoute), the largest non-food retail group which bought 40% of Gucci so Yves is
something like cousins or familiars for Gucci to deal with.

Yves will help Gucci to create better and more designs of product because their designers have
experiences and abilities to provide customers many product varieties. When synergies with
Gucci who has better production and commercial management, it will be perfect match to
expand and challenge in luxury market.

Moreover, acquiring Sergio Rossi can help Gucci to expand their product line to shoes industry.
Sergio Rossi is specialized in shoes’ producing & shoes’ designs. Sergio Rossi brand image is
very exclusive which can strengthen special & luxury image of Gucci.

But one thing that we have to consider when having multi-brand is “Cannibalization”.
Management of each brands must work together to have same direction and has to make distinct
image between 2 different brand. Learn how to deal with multitask and multi point of view also
change management.

Evaluation of B)

Main revenue of Gucci is leather goods. Let YSL put more effort in creating more design of
Leather goods & other luxury product line is acceptable but Gucci has to maintain specialization
of YSL to create dress and doesn’t lose themselves in what they are before. Moreover, De Sole
and Tom Ford must have open-minded to receive recommendation and ideas of YSL
management to reduce conflict and create smooth cooperation.

Additional strategies for Gucci

- Keep on updating new design which demanded by customers. Know what customers
want.
 - Providing more intangible product such as fixing services, touch-point, CRM and
other after-sales service.
- Brand image maintenance & improvement while time pass.
- Supplier & Distributors relationship.
- Keep on investing in production, technology, research and winning heart of
workforce.
Table of Content

Luxury industry analysis 2

History and Background of Gucci 3

Gucci Historical action from 1923-2000 4-6

Gucci competitors’ analysis and competitive mapping 7

Positions and critical moves of Gucci from 1994-2000 8

De Sole Latest strategies analysis 9-10