GLOBAL BRAND MANAGEMENT, A CRITICAL CASE ANALYSIS OF GUCCI GROUP IN 2009
DIB xxx: INTERNATIONAL BUSINESS
ANNE KHALAYI MATUMBAI
REG. NO: xxxx
A TERM PAPER SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (MBA), UNIVERSITY OF NAIROBI
At the beginning of 2008, Gucci Group had opened its largest store to date on Fifth Avenue in New York. It had risen to become the world’s third-largest luxury retailer, with over 500 directly operated stores and more than 3.8 billion Euros in sales. The group had up to nine different brands which included Bottega Vaneta, Yves Saint Laurent (YSL) and shoemaker Sergio Rossi. The company had performed well even after the departure of star designer Tom Ford and former CEO Domenico De Sole. However, the challenging global economic times in 2009 raised the question whether it was time, again, to re-adjust Gucci’s portfolio, especially as YSL continued to lose money. This paper reviews previous studies done on Gucci and the general luxury fashion industry. It then briefly highlights the general theory and body of knowledge on strategic brand management. It observes that in the fashion, luxury and design industries, brand development and enhancement rely on numerous factors; quality; design; communication and advertising; events; and distribution channels. The paper then reviews David B. Yoffie and Renee Kim (2010) Gucci Group 2009 case analysis and concluded that the group had a strong brand (Gucci), was less diversified, had identified niche and emerging markets as the next frontier of growth and was still playing second fiddle to competition in many aspects. It then recommends that Gucci Group should have pursed both strengthening of Gucci and pushing the multi-brand strategy to the next level.
Table of contents
Table of contents 3
1. Introduction and Objectives 4
2. Literature Review 5
3. Gucci 7
3.1. YSL and Expansion Plan 7
3.2. Management Shake-Up 7
3.3. Strategic changes and brands’ performance 8
3.3.1. Gucci 8
3.3.2. YSL 8
3.3.3. Other brands 9
3.3.4. Competition and Gucci in 2009 9
4. Conclusion 10
4.1. Strengths 10
4.2. Weaknesses 10
4.3. Opportunities 11
4.4. Threats 11
5. Recommendation 12
1. Introduction and Objectives
This paper will examine the Gucci Group in 2009. It aims to confirm how the Gucci Group had transformed itself into the world’s third largest luxury retailer with multiple brands. The company had performed well even after the departure of star designer Tom Ford and former CEO Domenico De Sole. However, the challenging global economic times in 2009 raised the question whether it was time, again, to re-adjust Gucci’s portfolio, especially as YSL continued to lose money. At the beginning of 2008, Gucci had opened its largest store on Fifth Avenue in New York. It had risen to become the world’s third-largest luxury retailer, with over 500 directly operated stores and more than 3.8 billion Euros in sales. The group had up to nine different brands which included Bottega Vaneta, Yves Saint Laurent (YSL) and shoemaker Sergio Rossi.
The reasons why Gucci is examined in this case is that at one time, Gucci?s brand value was destabilized by the damaging effects of its family management, and the company was pushed to the brink of bankruptcy, with its position as a luxury brand about to be lost. However, Gucci achieved a dramatic revitalization owing to changes in both management and designers, and not only regained its position as a luxury brand but also achieved further development. This was despite the fact that the new Gucci Chief Executive had no prior experience in the fashion industry experience and a key designer in the mould of Tom Ford had left the group. These events overturned the general idea that the success of Gucci depend on the designer (Tom Ford), rather than the brand name. The new CEO, Robert Polet, stated that the brand is always more important than the designer because the brand will stay with us, and with your children and our children’s children, out into infinity. For this reason, identifying brand management techniques and management strategies during the brand regeneration period means deriving techniques to managerially control brand value. In addition, we can see reluctance by Gucci to pursue new acquisitions under its new CEO, while competitors were driving significant brand expansion programs. Therefore, it is considered to be a good example to clarify that value and equity plays a key role in building a luxury international brand. Moreover, by 2009, 89% of Gucci Group operating income depended solely the Gucci brand. This apparent lack of diversification saw Gucci first-quarter sales dip by 3.3% in 2009, after years of steady growth. Based on the above, this paper examines Gucci.
2. Literature Review
There are a number of published works on Gucci. They describe scandalous quarrels in the Gucci family or Gucci acquisition stories by LVMH Moët Hennessy-Louis Vuitton SA?LVMH?and Pinault-Printemps-Redoute SA (PPR)in a non-fiction novel style. In addition, as a paper that describes a collaboration system between Gucci and small-and medium-sized enterprises in Italy, we can cite “Large and Small Firms in the Italian Fashion Industries”?Sandrine Labory, 2003). Meanwhile, one of Harvard Business School?s case study materials “Gucci Group N.V. ” mainly describes Gucci?s genealogy as an enterprise until 2000 and its turnaround by Domenico De Sole. Among other papers, “The Nature of Parenting Advantage in Luxury Fashion Retailing ? the Case of Gucci Group NV”?C.M. Moore and G. Birtwistle, 2005?discusses Gucci Group?s superiority as a conglomerate. As the research about luxury brand management, there are “The Luxury Strategy ? Break the Rules of Marketing to Build Luxury Brands ?”?Kapferer, JeanNoël, and Vincent Bastian 2009), “The principle of Louis Vuiton”?Shin?ya Nagasawa 2007), “Chanel Strategy ? Management of the Ultimate luxury brand ??Shin? ya Nagasawa and Kana Sugimoto 2010). Among these researches, they show how luxury brands control and manage their brands to maintain or enhance their brand position and they advocate ?Luxury Strategy?. About innovation domain, there are many researches such as “Innovator?s Dilemma: When New Technologies Cause Great Firms to Fail”?Christensen, Clayton M. 1997? and so on. These are the main previous literature and studies.
In the fashion, luxury and design industries, brand development and enhancement rely on numerous factors. First of all, the quality of the products that the brand identifies, to the point that the former may be considered a tangible dimension of the latter (Kapferer 2004). Secondly, marketing communication and advertising in particular, communicated both offline (primarily through the trade press) and online, helps to spread awareness of the brand and of its distinctive characteristics and image (Aaker 2003). Organising and participating in specific events is another way that the company can maintain relations with the public (Drengner et al. 2008). But the element that many people assimilate to a communications tool, and which represents the meeting point between product demand and corporate supply is the point of sale (Kent 2003). In the fashion, luxury and design industries, companies often launch loyalty programmes to establish a continuous dynamic relationship with demand and to create specific purchasing opportunities. These programmes require considerable investment, to develop and support product intangible assets (product brand and product brand equity, product design and before and after-sales services) and the intangible factors of the point of sale (opening hours and days, before/after-sale support, personnel training, and location above all) (Brondoni 2010).
Although Kapferer in the first chapter of his book Strategic Brand Management (1997) underlines the importance of incorporating the consumer’s perspective of the brand, several times he states that, before knowing how we are perceived, we must know who we are.” (ibid: 71). And he continues: “It is not up to the consumer to define the brand and its content; it is up to the company to do so.” The inside-out perspective is clearly visible in the illustrations of the linkages between the “brand’s DNA” and the identity in which the culture of the organizations plays a vital part. A third view, closely related to the second view, is the “capabilities and resource view” where a preoccupation with communication from an inside-out perspective can be identified. One representative of this view is van Riel (1995) who in his book “Principles of Corporate Communication” points to the importance of becoming aware of and establishing concepts that could be considered as central values which function as the basis for undertaking any kinds of communication.” (ibid.19). But how are these values identified and established? Van Riel defines the answer as: “Representatives of the various communication specialists jointly develop the “common starting point” derived directly from the chosen communication strategy, itself a consequence of the company’s actual and desired corporate identity and the company’s image.” (ibid: 19). In terms of “point of departure” he states that: the company must know itself well, i.e. it must have a clear picture of its real situation, in order to present itself clearly through its behaviour, communication, and symbolism.” (ibid: 33). Whereas van Riel takes a holistic view on communication, others have emphasized certain aspects such as symbolism or aesthetics. The last aspect was emphasized during the nineties, and the term “marketing aesthetics” became a buzzword (Schmitt and Simonson 1997).
3.1. YSL and Expansion Plan
Professor David B. Yoffie and Renee Kim (2010) note in the case that Gucci acquired YSL in 1999 with the belief that they would recreate the sensational success the Gucci brand had achieved at the Group. The turnaround was hinged on the successful Gucci model, with the Group more than doubling YSL stores from 25 in 2000 to nearly 60 by 2003. The growth in store was done alongside a bran regeneration plan, where previous YSL licenses were terminated. The fact that licenses provided more than half of YSL revenue and significant share of margins was ignored. Gucci’s CEO also had a plan to diversify YSL’s portfolio from ready-to-wear and the European markets. Exclusive YSL designs developed by Tom Ford at Gucci generated some attention; however, it failed to improve the brand’s financial performance with YSL’s operating losses increasing to 109 million Euros in 2003. This significantly missed Gucci’s forecast of rapid profit growth starting 2003. Meanwhile, Gucci Group continued to grow its brand portfolio, driven by a vision to create a multi-label company. Some of the brands acquired included Alexander McQueen rival LVMH and Balenciaga. The Group also made horizontal integrations strategic moves (in Europe and Asia) aimed at improving production and distribution.
3.2. Management Shake-Up
In 2001, Pinault-Printemps-Redoute (PPR) agreed to end a long and protracted battled with LVMH over Gucci by agreeing to purchase a 20% stake in Gucci group held by LVHM. At the same time PPR agreed to a put option to pay a set price in March 2004 for the remaining shares in Gucci. The PRR-LVMH settlement was juxtaposed with a terror attack in the US, the break out of the Iraq war and an outbreak of SARs fever in Asia. The global economic slowdown that followed led to about 10% drop in Gucci sales for the year 2002. Concerned about the decline in revenue, PPR took a keen interest in the Gucci business and had different strategies to brand management they planned implement at the Group. For instance, PPR no longer wanted Ford to retain his creative power at both Gucci and YSL. Domenico De Sole and Tom Ford each resigned soon after, having failed to reach an agreement for a new contract with their French parent. The departure of De Sole and Ford, considered by the fashion industry as the dream team that build the Gucci brand rocked the fashion world with most commentators and analysts predicting the