The Nature of Parenting

Advantage in Luxury
Fashion Retailing -
The Case of Gucci Group NV
Syndicate 1 & 2
Andika Prawira Pitono (29120575)
Mochammad Nadhif Arsyad (29120381)
Rizqi Ghani Faturrahman (29120382)
Dina Rizkia Rachmah (29120431)
Muhammad Ikhlas Dharma (29120398)
Desman Hansen Sagala (29120481)
Abshar Naufan (29120365)
Agenda
Introduction & Gucci Group

01 Background
Issues, problems and 04 Consolidation Phase
Period of August 2001 - April 2004
history of Gucci

Brand Stabilization Analysis

02 Phase
Period of early 1995 - 05 Gucci group value & Parenting-Fit
Matrix
October 1999

Multi-brand
Conclusion
03 Acquisition Phase
Period of November 1999 - 06 Conclusion & Lessons learned
from this case
July 2001

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 Introduction &
01 Background
Issues, problems and history of
Gucci

3
 Our history
● In 1994, Gucci made losses in excess of US$ 40 million and faced bankruptcy.
● 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 Brand Stabilization Gucci Group Consolidation

Phase Phase

Early 1995 - August 2001 -

October 1999 April 2004

01 02 03
November 1999
- July 2001
Multi-brand Acquisition
Phase
Definitions of the luxury brand
● Phau and Prendergast (2001) proposed four
central features of a luxury brand as:
○ Perceived exclusivity
○ Well recognized brand identity
○ High levels of brand awareness
○ Strong sales and customer patronage
● Beverland (2004) provides a model of a luxury
branding which identifies and unites six
component dimensions.
○ Respect to brand image (history - culture)
○ Product quality, credibility and excellence (product
integrity)
○ Personality and consumer group support
(endorsements)
○ Brand image investments (marketing)

5
The dimensions of parenting advantage
Goold et al. proposed that the fundamental role of the parent is to create value for the
subsidiary, “value-creating relationships”. These are the four approaches to value
creation:

1. Stand-alone 2. Linkage
influence influence

3. Functional and 4. Corporate

services development
influence activities

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 Brand Stabilization
02 Phase
Period of early 1995 - October 1999

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Brand Stabilization Phase
( Period of early 1995 - October 1999)
Re-established control of Gucci

1 product design and manufacture

Gucci reduced the number of products from 22,000 to 7,000. In nov 1997, Gucci acquired its watch
licenses of 20 years, the Severin Montres Group, renaming the company, Gucci Timepieces. “the
Company’s strategy to upgrade the distribution network and product portfolio by reducing significantly
the number of points of sale and introducing new models at higher price points”

Re-established control over Gucci product

2 distribution
Re-established control over Gucci product distribution In the last two decades, the company relied
heavily upon franchising for international distribution. Gucci commenced a franchise buy-back
strategy in order to take control over distribution through direct store ownership.

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Brand Stabilization Phase
( Period of early 1995 - October 1999)
Create a balanced product portfolio

3 for a luxury brand

In 1996, Gucci repurchased their former ladies RTW licensee in order to secure full creative control over
the RTW range, Thereby gaining production capability and distribution rights which would improve
operations and margins.

Establish a luxury marketing communication

4 platform
The communications strategy of Gucci : coordinated in a highly focused manner, ensuring a single,
clear and effective brand message worldwide, in all areas of communication including: fashion shows
and special events/advertising/public relations, visual display and internet web sites.

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Brand Stabilization Phase
( Period of early 1995 - October 1999)
Create a luxury brand consumption

5 experience
The store experience was “dramatic and highly recognizable” and “ensured that all products are
presented to customers in a way that capitalizes on the exclusivity and ultimate allure of the brand”. “at
all points of contact with the customer, the brand speaks with one voice worldwide”

Tom Ford – design direction and control

6 Ford’s design influence extended beyond product to include creative direction for the Gucci brand in all
of its manifestations. Ford has become as famous as the brand he worked for and that his reputation as
a consummate image maker made him Gucci’s most significant asset.

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 Multi-brand
03 Acquisition Phase
Period of November 1999 - July 2001

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Multi-brand Acquisition Phase
The second stage of Gucci's emergence, which
heralded their debut as the Gucci Group, was
assisted by PPR's major investment. From
November 1999 to July 2001, the firm purchased
equal or majority stakes in ten companies to form
the Gucci Group NV, the world's second-largest
multi-luxury-brand conglomerate (based on market
share) (Mintel, 2004).
❖ Become Multi-brand luxury goods group
❖ Tripartite-brand categorization:
➢ Declining Brands (Yves Saint Laurent)
➢ Emerging Brands (ALexander McQueen)
➢ Complementary Brands (Boucheron)
❖ Gucci Side
➢ Had requisite skills to advantage each category of
acquisition
➢ Intra-group synergies = positive benefit for whole
group
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 Multi-brand Acquisition Phase
“Each brand was acquired for its potential to generate outstanding value for our shareholders
through sustainable profit growth, return in excess of our Cost of Capital and minimal
short-terms earning dilution.”

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 Gucci Group
04 Consolidation Phase
Period of August 2001 - April 2004. Includes the
YSL’s rejuvenation dimension, Gucci group
synergies, value creation, developing a luxury
fashion brand framework, and model for luxury
fashion branding.

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Gucci Group Consolidation Phase
(Aug 2001 – Apr 2004)
Finally, the Gucci Group consolidation phase lasted
from August 2001 to April 2004. During this time,
the company attempted to use "group resources -
management, production and logistics, and
distribution - to build these brands, which can
contribute meaningfully to Group returns over time"
(Gucci Group NV Annual Report, 2000). The Gucci
Group's approach was to deliver the parent
company's capabilities and benefits to their
subsidiaries, using their expertise in luxury fashion
brand management.
❖ Rejuvenation strategy for Yves Saint Laurent :
➢ Directly-operated store network.
➢ Terminate most YSL licenses upon expiration.
➢ Re-launch worldwide image.
❖ Rejuvenation Dimension :
1. Re-established control over product design and
manufacture.
2. Re-established control over product distribution.
3. Create a balanced product portfolio for a luxury
brands.
4. Establish a luxury marketing communications
platform.
5. Create a luxury brand consumption experience.
6. Tom Ford – design direction and control.
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Gucci Group Consolidation Phase
YSL’s Rejuvenation Dimension
Re-established Control Over Product Design
and Manufacture
1 ❖
❖
Regain control of the production of all core product categories (women’s
RTW, watches & jewelry, women’s shoes).
❖ Cutting 100 licenses & buyback strategically significant licenses.
❖ Acquisition of C. Mendes S.A.
❖ Re-purchase license for watches and jewelry from Cartier

Re-established Control Over Product

2 Distribution
❖
❖
Launch of flagship chain in key world centers.
Increase directly-owned stores → Increase contribution in total sales

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Gucci Group Consolidation Phase
YSL’s Rejuvenation Dimension
Create a Balanced Product Portfolio for a
Luxury Brand
3 ❖
❖
Elimination all diffusion line which incompatible with luxury brand.
Product introduction : branded leather accessories, shoes, watch, etc.
❖ Make iconic product for one season.

Establish a Luxury Marketing Communication

4 Platform
❖
❖
Investment to improve and re-launch the worldwide image.
Features in more than 100 leading fashion and lifestyle magazines’ front cover

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Gucci Group Consolidation Phase
YSL’s Rejuvenation Dimension
Create a Luxury Brand Consumption
Experience
5 ❖
❖
Store renovation.
New store concept.
❖ Store openings, expansions and refurbishments.

Tom Ford – Design Direction and Control

6 ❖
❖
Appointed as YSL’s Creative Director.
2001 – CFDA Award (Designer of the Year).
❖ 2002 – CFDA Award (Accessories Designer of the Year) .

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 Analysis
05 Gucci group value & Parenting-Fit Matrix

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Gucci Group Value

Stand-alone influence
1 In the management area, the group managed to clearly define its strategy with respect to the
management of luxury goods brands of producing distinct high quality merchandise, then having a
controlled distribution, systematic communication, and solid execution. In the fiscal area, the direct
influence of the group is explicit; they want to maximize the after tax return on invested capital by
increasing long term revenue growth, strict cost control, and having an optimal capital structure.

Linkage influence
2 The group encouraged synergies in terms of intra group supply and resource utilisation to each of
their subsidiaries. For example, Sergio Rossi supplies shoes to Yves Saint Laurent, Gucci supplies
leather goods to Yves Saint Laurent, Gucci Group Watches supplies to Yves Saint Laurent, Bedat and
Co, and Boucheron. Finally, Yves Saint Laurent Beaute supplies Boucheron, Stella McCartney, and
Alexander McQueen.

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Gucci Group Value

Functional and service influence

3 The group provides central support to each brand with respect to communications, image, and
finance

Central group service

4 the Gucci Group real estate experts provide store development activity, administration and and
information systems are centrally controlled, the group transferring several highly qualified and
experienced operating and finance managers to subsidiaries, raw materials and media procurement
far all brands is also centralised.

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Gucci Group Value

Corporate development activities

5 The group has engaged heavily in corporate development through the acquisition of other
businesses. To date, none have been sold by the Gucci Group.

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Gucci Group Value

Goold also explained that corporate strategy development is

guided by the two outputs.
● The decisions about the portfolio such as what should be added, split off, or sold or the
fit of the business improvement opportunities with parent’s value creation insight.
● The decisions about the parent, how it should be designed and how it should relate to its
businesses or the fit of business’s critical success factor with parenting characteristic.

With that, the issues of diversification and relatedness from a different perspective, can be
arrayed on a portfolio matrix that focuses on their relationship with the parent and the
influence that the latter will have in creating, or destroying, additional value like the following
graph.

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Parenting-Fit Matrix

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Parenting-Fit Matrix

Heartland

1 ●

●
Have opportunities to improve that the parent knows how to address and they have
CSF the parent understands well
Should have priority in the company’s portfolio development
● Should form the core of the parent organization

Edge of heartland

2
● Some parenting characteristics fit, others do not
● The parent both creates and destroy value
● Can move into the heartland ( learns about CSF and avoid destroying value)
● Learn when not to intervene and when to be sensitive to special pleas from the business

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Parenting-Fit Matrix

Alien territory

3 ●
●
Little potential for value creation and some possibility of value destruction
Do not fit with the company’s parenting approach and would perform better with
another parent

Ballast

4
● Potential for further value creation is low but the business fits comfortably with the parenting
approach
● Has owned it for many years or parent managers previously worked in it (familiarity)
● Important sources of stability, providing steady cash flow and reliable earnings
● DIstracting parent managers from more productive activities.

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Parenting-Fit Matrix

Value trap

5 ●
●
Fit in parenting opportunities but misfit in CSF
Burdened with unreasonable overheads, overspend on balance sheet items, prevent
from grasping market opportunities in a timely manner

In Gucci's case, we believe that in their acquisition of multiple brands they are at the edge of the
heartland. This is because, for example, in the Yves Saint Laurent acquisition, the company noted that
over the years Yves Saint Laurent became overly dependent on royalties from licenses and the company
saw the opportunity to implement the same strategy that they applied to rejuvenate Gucci.

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 Conclusion
06 Conclusion & Lessons learned from this
case

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Conclusion

Gucci is an Italian fashion label founded in 1921 by Guccio Gucci, they began their business as a
manufacturer and reseller of luxury leather products in Florence. In 1994, Gucci faced bankruptcy after
incurring losses of more than US$ 40 million. The path to bankruptcy can be traced back to 1979 as the
third generation of the Gucci family are more concerned with internal family feuds over ownership and
rewards of the company rather than the company operation and business. Gucci started their transition to
recovery in three stages between 1995 and 2004. They managed to stabilize their business, acquire
multiple brands, and consolidate it. In their acquisition strategy, the group managed to acquire companies
that are in the edge of heartland and managed to follow Goold’s four approaches to value creation. And
after a decade of transition, the company had grown into the Gucci Group with sales exceeding US$ 2
billion and five-year average annual operating profits exceeding US$ 200 million.

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Lesson Learned
Parenting Advantage

From the Gucci case, we can learn that with parenting advantage Gucci is able to
generate values to their subsidiaries. The group created the value through
stand-alone influence, linkage influence, functional and service influence, and also
central group services. In addition, using the parenting fit matrix, it helps Gucci group
to identify which company to acquire, on which is the one that is in the heartland area
or the one that has greatest fitment to their business improvement opportunities with
parent’s value creation insight and the fitment of the fit of business’s critical success
factor with parenting characteristic.

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Thank You
Any Question?

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