THE NATURE OF PARENTING

ADVANTAGE IN LUXURY
FASHION RETAILING
(The Case of Gucci Group NV)

-Syndicate 09-
Firli Dwisalma Devria (29118327)
Ezra Hizkia Nathanael (29118410)
Naufal Mohammad E.P. (29118421)
Focuses on the competencies of the parent organization and
on the value created from the relationship between the
parent and its businesses

PARENTING ADVANTAGE
Improve businesses’ plans and budgets
Promote better linkages among businesses
Provide especially competent central functions
Make wise choice in acquisitions, divestments, and new ventures

INFLUENCE CREATES VALUE

 SUCCESS =
the parent’s skills and resources
fit well
with the
needs and opportunities of the
businesses
• Assessing the nature of the fit between corporate
parent and its businesses
• Match = create value | Mismatch = destroy value
• Which changes to improve fit:
– To the portfolio of businesses
– To the parenting approach
 Assessing Fit

1. Examine the critical success factors of each

business
2. Document areas in the businesses in which
performance can be improved
3. Review the characteristics of the parent
4. Test the judgments against the results
 1 – CSF

1. Summarize CSF
2. Confirm their
importance
3. Check whether
circumstances in the
business have changed
 2 – Parenting Opportunity = Right Skills and Experience

• Size and Age • Common Capabilities

• Management • Special Expertise
• Business Definition • External Relations
• Predictable Errors • Major Decisions
• Linkages • Major Changes
 3 – Review: Two Key Questions

1. Does the parent have characteristics – that is, the

skills, resources, management processes, and so forth
– that fit the parenting opportunities in the business?
Can the parent exploit the upside potential of the
relationship?
2. Is there a misfit between the parent’s characteristics
and the business’ critical success factor? What is the
potential downside of the relationship?
The Parent’s Mental Maps
• Are the values, aspirations, rules of thumb, biases,
and success formulas … shape the parent’s
perception of opportunity to improve business
performance
• Usually reflect deeply held attitudes and beliefs
The Parent’s Structures, Systems, and Processes
• Are the mechanisms through which the parent
creates value  coordination and linkage
mechanisms
• E.g: number of layers in the hierarchy, HR systems,
budgeting & planning processes, etc
• Important: how managers interact within the
structure or process
Corporate Staff Departments and Central Resources
• Support line management’s efforts to create value
• Some parents have large central functions, some as
few as possible
• E.g: patents, special government relationships
People with Unique Skills
• The importance of key individuals in parent
companies
• E.g: Jack Welch (General Electric), Lou Gerstner (IBM)
• Personalities and skills make a critical difference
Decentralization Contract
• Defines which issues the parent normally influences
and which it delegates to business managers
• E.g: authorization limits, job descriptions
• Typically embedded in the culture rather than fully
explicit
 4 – Test Judgment

• Using Success and Failure Analysis

• Key question: whether the business is performing
better or worse than it would as a stand-alone,
independent company
• Strategists must understand to what extent the
unusual performance is due to the influence of the
parent
Heartland Businesses
• 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 Businesses
• Some parenting characteristics fit; others do not
• The parent both creates and destroys 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
Ballast Businesses
• 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
Alien-Territory Businesses
• 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
Value Trap Businesses
• Fit in parenting opportunities but a misfit in CSF
• Burdened with unreasonable overheads, overspend
on balance-sheet items, prevent from grasping
market opportunities in a timely manner
 Introduction
• 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

Early 1995-Oct 1999 Nov 1999-July 2001 Aug 2001- April 2004

Gucci Brand Multi-brand Gucci Group

Stabilization Phase Acquisition Phase Consolidation Phase
 Definition of the luxury brand
Four central features of a luxury brand (Phau and Prendergast, 2001)
– 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 dimension.
o Respect to brand image (history-culture),
o Product quality, credibility and excellence (product integrity)
o Personality and consumer group support (endorsements)
o Brand image investments (marketing)
 The dimension 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 influence
2. Linkage influence
3. Functional and services influence
4. Corporate development activities
 Five groups of “parent company characteristics”

1. The parent’s mental maps

2. The parenting structures, systems and processes
3. Functions, central services and resources.
4. People and skills.
5. Decentralization contracts

Source : Goold et al.. (1994)

 A brief history of Gucci
Founded in Florence in 1923 as a manufacturer and retailer of
fine leather goods. With its associations with royalty and film
stars, the Gucci brand had become synonymous with luxury.
In 1979, Gucci introduced the Gucci Accessories Collection, made
the Gucci’s equity as a luxury brand had become untenable.
By the late 1980s, Gucci was disarray. Investcorp acquired all the
shares from Gucci family by 1993. Domenico De Sole as President
and Chief Executive Officer in 1995, and Tom Ford as Assistant
Creative Directior.
 Brand Stabilization Phase:
early 1995-October 1999
 Re-restablished control of Gucci 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”.
 Brand Stabilization Phase:
early 1995-October 1999
 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.
 Create a balanced product portfolio for a luxury brand
“improve operations and margins”
Gucci Loafers, to generate media interest and prompt
consumer expenditure.
 Brand Stabilization Phase:
early 1995-October 1999
 Establish a luxury marketing communication 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”.
 Brand Stabilization Phase:
early 1995-October 1999
 Create a luxury brand consumption 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
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.
Multi-brand Acquisition Phase
(Nov 1999 – Jul 2001)
• 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.
“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.”
Gucci Group Consolidation Phase
(Aug 2001 – Apr 2004)
• 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.
 YSL’s REJUVENATION
DIMENSION
1. Re-established Control Over Product Design and Manufacture
 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.

2. Re-established Control Over Product Distribution

 Launch of flagship chain in key world centers.
 Increase directly-owned stores → Increase contribution in total sales.
 YSL’s REJUVENATION
DIMENSION
3. Create a Balanced Product Portfolio for a Luxury Brand
 Elimination all diffusion line which incompatible with luxury brand.
 Product introduction : branded leather accessories, shoes, watch,
etc.
 Make iconic product for one season.

4. Establish a Luxury Marketing Communication Platform

 Investment to improve and re-launch the worldwide image.
 Features in more than 100 leading fashion and lifestyle magazines’ front
cover.
 YSL’s REJUVENATION
DIMENSION
5. Create a Luxury Brand Consumption Experience
 Store renovation.
 New store concept.
 Store openings, expansions and refurbishments.

6. Tom Ford – Design Direction and Control

 Appointed as YSL’s Creative Director.
 2001 – CFDA Award (Designer of the Year).
 2002 – CFDA Award (Accessories Designer of the Year) .
Gucci Group Synergies
• Independently managed core brands with each distinct
image and brand values.
• Careful distinction between :
 Brands’ area that need autonomy.
 Brands’ area that need guidance at Group level.
• CREATION OF VALUES BETWEEN PARENT AND SUBSIDAIRY
COMPANIES.
• The measurement of Parenting Advantage is not
straightforward :
+ Improvement in income.
+ Increase number of customer transaction.
+ Improvement in media recognition.
– Only Gucci Fashion and Gucci Timepieces secured an operating
profit.
 VALUE CREATION
PARENT - SUBSIDAIRIES
1. Stand-alone Influence
 Clearly defined strategy : High quality merchandise, controlled distribution,
systematic communication and solid execution.
 Creative control : In-house design
 Group’s direct influence in fiscal terms.
 Objective for each business → clearly defined.

2. Linkage Influence
 Intra-group supply and resource utilization
• Sergio Rossi → (shoes) → Yves Saint Laurent
• Gucci → (leather goods) → Yves Saint Laurent
• Gucci Group Watches → YSL, Bedat & Co. and Boucheron
 VALUE CREATION
PARENT - SUBSIDAIRIES
3. Functional and Service Influence
 Group provides central support to each brand with respect to communication, image
and finance.

4. Central Group Service

 Provide store development activity.
 Administration and information system centrally controlled.
 Management personnel : manager transfer & recruiting talent.
 Group resources (product development, production and logistics) support subsidiaries.
 Raw materials & media procurement for all brands is a centralized function.

5. Corporate Development Activities

 Acquisition of other business, none have been sold on by the Gucci Group.
 Developing a Luxury Fashion
Brand Framework
• Luxury brand strategy to maintain long-term
growth and profitability :
 Control product design and quality.
 Global distribution and communication.
 Maintain the image of the brand.

• Parenting Advantage :
– Group : transfer of luxury branding expertise.
– Subsidiary : implemented radical transformation to
match group brand model.
Model for Luxury Fashion Branding