Strategic Management – Gucci Case Analysis 1

Strategic Management – GUCCI CASE ANALYSIS

by RKC MBA Student

Presented to Prof. David Duffill Strategic Management Robert Kennedy College, University of Wales October 24, 2010 Word count: 4221

.................................................................................................................5 FIGURE 3: LUXURY COMPANY POSITIONING MATRIX.....15 FIGURE 13.............................................................................SWOT ANALYSIS........4 FIGURE 2: SPREAD OF LUXURY PRODUCTS – SOURCE: HBS CASE 9-701-037.................................................................................................................................................................................................................................................. RECOMMENDED MOVE FORWARD STRATEGY..13 FIGURE 11: STRATEGIC ASSESSMENT FRAMEWORK........................................ OPPORTUNITY & THREAT (SWOT) ANALYSIS......................................................................................................13 FIGURE 10: ANSOFF'S CORPORATE STRATEGY (SOURCE: STRATEGIC MANAGEMENT..................................................... SOURCE: STRATEGIC MANAGEMENT.............................................................14 6................... LUXURY GOODS MARKET OVERVIEW & COMPETITIVE POSITIONING ...... CONCLUSION............................... 2000...................................................................................................... GUCCI’S LATEST STRATEGIC MOVES.............. PG 83..................................... 2000..........................................................................................7 FIGURE 5: GUCCI IN 1990 – STRENGTH....................................................14 FIGURE 12: PRODUCT VS BRAND MATRIX.......................9 FIGURE 7: GUCCI IN 2000 .....12 FIGURE 9: PORTER'S COMPETITIVE ADVANTAGE (SOURCE: STRATEGIC MANAGEMENT............................................5 FIGURE 4: LUXURY COMPANY COMPETITIVE ASSESSMENT................................................17 .................................................. WEAKNESS.......................................Strategic Management – Gucci Case Analysis 2 Table of content EXECUTIVE SUMMARY................. 2000........................................... PORTER'S FIVE FORCES..........................................................SWOT ANALYSIS.3 2........................12 5............................... PG 137).............................17 Exhibits FIGURE 1: SALES & OPERATING MARGIN IN 1999 – SOURCE: HBS CASE 9-701-037...........10 FIGURE 8: OHMAE'S 3C MODEL. PG143)...........8 FIGURE 6: GUCCI IN 1994 .....4 4.................................................................................

pricing. Gucci is a 77 years old group. competitor positions. 1993 also saw the end of the last Gucci family member’s control over the company and the brand and the company moved to Investcorp’s control. and Gucci’s consumer expectation and recommends the possible move forward approach for Gucci Group in the year 2000 and beyond. who revamped almost everything from products. Between 1991 through 1993. Establishing this structure and managing this new group efficiently with four brands will decide the future course of Gucci. (A) by Mary Kwak. few would have thought that the total revamp of Gucci as a brand and its current industry leading position was possible. HBS Case 9-701-037. (A) by Mary Kwak. The leadership team believed that they needed to expand beyond the Gucci brand of products to grow the group’s top line further and this resulted in Gucci acquiring multiple brands. 2001. Prada. cosmetics. 2001. Also. HBS Case 9-701-037. This unique situation within the group combined with the stiff competition from Moët Hennessy-Louis Vuitton (LVMH). (A) by Mary Kwak. jewelry.V. was strapped by cash constraints. fragrance. Hermès and other brands who are also aggressively trying to expand by adopting similar strategies will pose a significant threat to the Gucci group in the next decade. watches. However. More importantly.V. Harvard Business School Publishing 3 Gucci Group N.2 billion luxury group1. multi-product group with worldwide presence through its recent acquisitions of Sergio Rossi and Sanofi Beauté. (A) by Mary Kwak. single brand company that was focused on small leather goods has now transformed itself into a multi-brand. At that time. Harvard Business School Publishing Gucci Group N. the recent battle between LVMH and Gucci and the 19. Gucci’s current management team has achieved exactly that in less than seven years. it now sells a wide range of luxury goods starting from leather goods. 2001. 1 2 Gucci Group N.Strategic Management – Gucci Case Analysis 3 Executive Summary The year is 2000.V. marketing.6%3 LVMH holding in Gucci may pose a threat in the coming days. what started as a single product. It has transformed itself over the last 77 years and moved from a family owned entity to a public listed company. apparel. PPR’s 40% holding4 and its chairman Pinault’s interest in Gucci’s future and his own investment in French group Sanofi. This significant turn around was a result of the recovery strategies adopted by De Sole and team. Harvard Business School Publishing . shoes. Harvard Business School Publishing 4 Gucci Group N. 2001. Gucci lost US$102 million 2. silk ties & scarves etc. makes the overall stakeholders relationship complex from where it was 12 months ago. established in 1923 in Florence selling luggage imported from Germany. Gucci Group is at a cross road and its strategic decision at this juncture will define the future of the world’s fourth largest US$1. this multi-brand portfolio has posed a challenge to the current management structure in terms of managing it as independent brands. This report aims to assess in detail the above mentioned stakeholders’ interests. and was unable to finance its own operations. which now has US$3 billion in cash from the infusion by Pinault-Printemps-Redoute (PPR) and is now looking for more strategic acquisitions as a strategy to grow the group. After 77 years of its existence.V. HBS Case 9-701-037. Gucci’s brand positions in the marketplace. HBS Case 9-701-037. Especially. which owns the Yves Saint Laurent (YSL) brand and related licenses and products. distribution and logistics to the management committee.

V. Of these. LVMH’s revenue was about US$8. It is highlighted that the gross margin is higher in the case of watches and leather goods @ 75% to 80%. ranked number 7 as per 1998 sales figures and they recently jointly acquired 51% of Fendi for US$600 million.V.1 Luxury Goods Market – Key success Factors The following factors about the luxury industry highlighted in the case study will be useful in comparing Gucci with its competitors in the industry. Both LVMH and Prada have been actively acquiring stakes in competing luxury goods including Gucci. 2001. Luxury Goods Market Overview & Competitive Positioning The worldwide luxury goods market is estimated to be around US$60 billion in size with sales growing 6% annually. For its part. Similarly. HBS Case 9-701-037. LVMH spent US$2. Secondly. HBS Case 9-701-037. (A) by Mary Kwak. There are about 35 top companies in the luxury market that produces about 60% of the goods. 6 are believed to be in the US$1 billion and above revenue category. Harvard Business School Publishing Gucci Group N. the average spend on 5 6 Gucci Group N. Harvard Business School Publishing 7 Gucci Group N. Its Louis Vuitton brand alone accounts for 18% of its revenue and close to 30% of operating margin (see figure 1). (A) by Mary Kwak. LVMH works closely with Prada.9 billion on acquisition in 1999 alone on Krug. Figure 1: Sales & Operating Margin in 1999 – Source: HBS Case 9-701-037 2. Prada recently acquired 51% in Helmunt Lang and 75% of Jul Sander and controlling interest in Church & Co in the last 12 months in addition to Fendi. 2001. the primary consumer of luxury goods is women in the age group from 25 to 50 and a major portion of such sales for many brands are from Asia (especially Japan).V. (A) by Mary Kwak. 2001. Tag Heuer. followed by Silks @ 65% to 70% and apparel @ 50%7. Chaumet.Strategic Management – Gucci Case Analysis 4 2. The number one player. and 10 are pegged between US$100 to US$500 million5. HBS Case 9-701-037.2 billion in 1999. 15 to 20 in the US$500 million to US$1 billion range. Harvard Business School Publishing . and Ebel in addition to Fendi and Gucci6.

Several of these have global reach with some brands limiting their presence and others expanding aggressively. Figure 2: Spread of Luxury Products – Source: HBS Case 9-701-037 2. (A) by Mary Kwak. L X R M R E P S T O I GM T I U U Y A K T O I I NN A RX H h i g Tf a y if n Hr e e ms Y e S i t L ue t v s an a r n C A SC L SI Vno e edm G G Sr i e go Rsi os GO E SEII P CF C P r ic e Pa a rd LM V H GO A R A H L BL EC YL S C uu e ot r Gci uc Pe r i re Cr i a dn F ra a o er g m N W A HO E FSI N E p ro mo i Amn r ai Rao a l e s n be Figure 3: Luxury Company Positioning Matrix 8 9 Gucci Group N.6% by luxury companies8. With increased demand for new styles and models every season.2 Luxury Goods Market – Competitive Position Mapping From a position mapping point of view. (A) by Mary Kwak. As for products. Emporio Armani etc in the low end tier. Harvard Business School Publishing . 301 departmental stores and 54 duty free shops for variety of its products9. LVMH has 1005 direct stores where as Gucci has only 126 stores but uses different sources like 6700 point of sales for watches. LVMH and Prada take the mid-tier followed by Ferragamo. Gucci.V. With the need to differentiate between luxury brands.Strategic Management – Gucci Case Analysis 5 advertising is around 10. Harvard Business School Publishing Gucci Group N. the need for demand forecast and investment in design and production has been on the rise.V. there is a heavy focus to revamp the distribution network and strengthen directly operated stores and control the manufacturing quality with stringent quality or take the production in-house. 2001. HBS Case 9-701-037. 2001. Hermes and Vendome form the high priced luxury goods range. For example. HBS Case 9-701-037. many of these are moving from traditional classic prints to new fashion.

the same may not apply to fast moving ‘ready-towear’ product lines and that calls for focus on demand management Differentiated Product or Service First mover Advantage Time based advantage 10 11 Gucci Group N.V. watches. (A) by Mary Kwak. HBS Case 9-701-037. The acquisition of YSL resulted in a new branding the ‘Saint Laurent woman’ and rebranding exercise resulted in ‘Gucci woman’. GUCCI Cost-based Advantage Its recent remaking effort and its outsourced manufacturing model has helped to reduce cost and thereby price by 30%. leather. Though it is done as Gucci versus rest of competition. Harvard Business School Publishing . However. 2001. specific examples have been provided from the data available in the case study. the recent strategy has put it back on growth track. 2001. apparels etc. LVMH focused more on leathers in the luxury products and others like liquor. Hermes and several other brands have been in the industry longer than Gucci and are well known to the consumer and are considered the pioneers with first mover advantage Products like Kelly bag from Hermes had a long waiting list and became a fashion statement that worked to Hermes advantage given the product’s market image and success. It also built 20-30%11 additional capacity to cater for growth in the current outsourced Rest of Competition The in-house manufacturing model adopted by Hermes. not many brands have a spread of luxury products and they mainly focus only on high margin leather products or watches only LVMH. LVMH and many others have shown to increase the fixed investment and thereby resulting in lower return on invested capital and thereby reducing cost advantage and increasing the price Many competitors focus heavily on customer services experience as part of maintaining their luxury branding efforts. However. As shown in figure 2. Two brands that suits different situation or clientele In a 150 years old industry. A 35% reduction noticed in the leather bag manufacturing cycle – 104 days to 68 days.V. If this track record continues it will overtake the leaders The revamp effort has reduced manufacturing time considerably in many product lines. It also has different range of products including jewelry. (A) by Mary Kwak. It also minimizes fixed investment and helps to maintain its return on invested capital at 36% 10 It focuses heavily on the unique customer service experience to maintain its brand image. Though it had ups and downs.Strategic Management – Gucci Case Analysis 6 The competitive position mapping table below was done based on five key areas that are recommended by Macmillan (2000) for assessing competitive advantage. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N. Gucci has been around for 77 years.

3%.25%  Champagnes.9%. 2001. there is a hesitation to adopt the technology aspects fully by many luxury companies. Technology Based advantage Figure 4: Luxury Company Competitive Assessment 2.9%  Others – 2. cognac -26% & Perfumes & Cosmetics .3 Luxury Goods Market – Best Positioned Players in 2000 While there are several players in the luxury product industry. Ties & Scarves – 1.8%. 2001. Jewelry – 3.3%. and data mining on customer preference and market demand management etc.20% o Gucci Group  Leather Goods – 41. which will position them to address any growth quickly Heavy focus on technology by senior management is visible as part of Gucci’s revamping effort.V.6%  Watches – 19. (A) by Mary Kwak.7% 12 13 Gucci Group N. HBS Case 9-701-037. (A) by Mary Kwak. EDI network connecting12 Gucci-suppliers-partners. This is because of a common belief that an exclusive clientele would prefer a traditional luxury shopping experience and luxury is not synonymous with e-commerce.Strategic Management – Gucci Case Analysis 7 GUCCI production line. wines.27% & Selective Retailing . This includes online sales. LVMH and Gucci are best positioned to take on the competition and grow further for the following reasons: • Aggressive leadership at the Headquarters level • Focus on creativity & innovation in product design and every aspect of business • Usage of technology to boost sales. track quality and demand management • Focus on creating a unique client shopping experience • Aggressive acquisition strategy to grow the top line by adding unique brands • Aggressive marketing strategy and advertisement spend • Stringent cost management • Sizable Cash in hand • Diversified portfolio13: o LVMH  Leather Goods & Fashion . Ready-to-Wear – 14. Shoes -13. Harvard Business School Publishing Gucci Group N.V. Harvard Business School Publishing . HBS Case 9-701-037. Rest of Competition and reducing manufacturing cycle time for fast moving products While some brands have realized the internet potential and established website and online shopping.

3. Dawn Mello’s aggressive focus to revamp the products and re-launching them as a classic brand. lavish spending by M.000 causing them to book a net loss during this period14. However. their gross profit was above 50%. (A) by Mary Kwak. their SG&A was nearly 70% with headcount more than 1.1 Gucci in 1990 With Maurizio Gucci back in control and with a vision to build a US$1 billion corporation by focusing on exclusive clientele. Opportunity & Threat (SWOT) Analysis 3. U lo n ar ic s ma rod pri f w m de i p e ul no ed cc am u c G co c E du e G be re ak ket ve F ar iti M ens s .Gucci. Weakness.Strategic Management – Gucci Case Analysis 8 3. However. 2001. This is the period that saw Gucci operations almost coming to a stand still and also saw Gucci resisting a heavy weight like LVMH from a forceful takeover. This is also the period where the company moved from being acquired to acquiring two other famous luxury brands.S wd d cts u ce . the economic downturn caused by gulf war. U. Gucci’s position in Luxury Business – 1990 to 2000 The ten years period (1990-2000) that is being addressed here is the most significant period in Gucci’s 77 years history. INTERNAL R e ev D xpe am D eliv ns ped M rop er ive p o ell in y n & ro M ver o re po igh pro duc . recession.2 Gucci in 1994 14 Gucci Group N. Gucci should have taken off well in 1990. Though they had revenue of less than US$200 million.V.R o . aggressive product knockout overnight and a tarnished brand image with fake Gucci products all dampened any possible progress.G nig m in tm d ts An u al cc ht ove t of are ucti we yt on re d sa ic i la to le al ck di su o s so b t sk ed m in rg le ills b an A an bu us y me W ize t in pr ri es ea od ca d s uc & kn ts POSITIVE e iv us cl t ex en te on r nv s to rei ea cr cu ec & r fo di s to y o e uct nd on an is t iv si at od ra p Vi omp ion le re pr ic b cor c iss te s c he ss st M lien o a p t cla nve c ell am s f I M ev ci a g o R uc kin G ac B a $1 n llio bi S tr en g th po e E -m rt Po xpa ark un et re te nd in la n t ity te ia int g w d lt o as co o ne m ac w em pa qu m e ni ire ar rgi es in ket ng to s O p EXTERNAL Figure 5: GUCCI in 1990 – Strength. Harvard Business School Publishing T hr ea t S W O T es s NEGATIVE on si es ec wn . lack of cost control.S. Investcorp’s financial support. HBS Case 9-701-037.

C ive d G ket nd trib dam In ord ess de ar s a dis ter s r an m ice & F gg r m n r A e-b d o d p ring n A R en re ctu ci i sp we ufa uc Lo an d G m ste Li . Gucci finally made a double digit operating margin of 12% after several years15. De Sole took over as COO and Ford was appointed as Creative Director. D ry fro pp EO ve yle e st .Strategic Management – Gucci Case Analysis 9 With Maurizio Gucci out of Gucci. INTERNAL n tio ca & lo ic & ass t e l or c ou e st m ed . HBS Case 9-701-037. This variety of products and several unique brands helped Gucci to address different needs of new age clients as well as the traditional classic clients. Gucci has established itself as a trendy. In addition. Its cash rich position has helped it to look for other potential acquisitions to strengthen its brand and product range. A VM d s L ran b . helped to bring Gucci back to a growth path in 1994.V. In 1994. 2001. Harvard Business School Publishing Th re at O pp or S W O T ea kn es s St re ng th O S r ga Pa tore niz w rt s a pa ere ner loo tion ym un s a ke in en ha nd d te dis t a pp m rr ar nd y w an ible ray su ith ufa pp p ctu or en re t di rs ng NEGATIVE POSITIVE 0 m 35 fro n r$ fo H titio er h d M bi LV pe ot er om nd ov from e c a a ke n siv ad Ta illio res Pr m gg H . there was a 30% growth in revenue. setting quality targets etc. advertising. SG&A reduced to 52% with 1096 employees.a ry th t o nd -g f o or w ar es tu n ity EXTERNAL Figure 6: GUCCI in 1994 . product remake from classic to trendy. production and distribution network revamp. C or of e st d rk ci nz ct w ne Yo uc la re ng e he G s F Di pi s n ew gt ' ve am i a io iz orp ati ev cc g tren tion & N r r u in s u au tc re M ves . stores look & feel revamp. With its group operating margin projected to be in the range of 16. Their aggressive approach and end-to-end focus on market image revamp. it also successfully acquired multiple brands and created four unique brands with several product lines. gross profit increased to 64%. its stocks traded at an all time of US$10015 Gucci Group N.C le So O O d an W S C ign m ons ific In a r o a n Tr cre ket lida t m en as tio a n rk dy i n of et re g d lu gr ad em x u ow y. (A) by Mary Kwak.SWOT Analysis 3. After several flat and loss making years.8%.3 Gucci in 2000 By 2000. new fashion brand with more than seven product categories.

INTERNAL ts uc s 4 od i a pr ss n lio ear Ro l bi -w io % $2 -to erg 0% 45 ss dy S 5% 2 to ro rea L & 2 .4 Critical Moves that repositioned Gucci In an effort to reposition Gucci in the marketplace. (A) by Mary Kwak. lowering prices upto 30% and thereby positioning Gucci below Hermes and Channel as a mid-tier brand at par with Prada and Vuitton • 16 Gucci Group N.V. the company got most of its fundamental measures and key success factors right in the Gucci products and it now faces a different challenge of managing a multi-brand company and preparing itself to embrace the new challenge.ra G ucc ess bra pe pe sin o % o S ucc e d rs 50 rs crea S iqu cte ea w ea in un roje 4 y elo 4 y nt P st A b ast vale a & l ui L G e S r th eq fo ash C W S tr en gt h S po d to c rt Po olla k t ra un m s rs di Si ult sibl ng ity lo gn iple e e at ca ifi P $1 c p x le rom l m an rod pan 00 ad in ar t O u si -1 in en ke p ct on 20 g po lin w t to ce ith rtu e on of ni lin ety e co fro pr m m es m en erc ce e O p EXTERNAL Figure 7: GUCCI in 2000 . Harvard Business School Publishing Th re at S W O T ea kn es L s on es trat g te L ta eg rm ac owe blis y y m qu r he et ult ire op d to i-b be ra d era nd bu ti si ng ne m ss ar gi n fo r POSITIVE s NEGATIVE ds an y br g b d in & an ld ct ho PR du ock . buys. ve c f 2 abo 7% o of YS t o 3 d ch of n n te gi gin m llio ar ar fro ec laun nch bi oj m m g $3 g ng gin pr ful lau l s s n ci tin ti to g uc es fu nd ra ra . shops.Strategic Management – Gucci Case Analysis 10 12016 during this period. price. 2001. Though the transformation journey is not completed yet. 2005) as follows: • Product: Move from traditional classic image to aggressively glamorous edge and launch of ready-to-wear collection with youthful spirit targeting the new age fashion client who consumes. place and promotion (Kotler. Price: De Sole & team personally repriced every item.P s o le pr st s sa ion e nt rtie pl ee etit lti ifica l pa u -fr M ign rna ty mp S xte H du co M in ng e V L rop eni D tiff S . HBS Case 9-701-037.SWOT Analysis 3. De Sole and Ford addressed the 4P’s of the marketing mix namely product. disposes and buys again.

.Strategic Management – Gucci Case Analysis 11 • Place: Knowing the importance of client buying experience in the luxury market. De Sole and team revamped and strengthened the network of every directly operated store by redesigning and positioning it for younger and hipper clients. In addition. Gucci also revamped the manufacturing aspects and reorganized and integrated the whole organization welding many parts of Gucci into one whole and provided employees’ stock options for the first time in the entire luxury industry. It also launched a website to reserve its place in e-commerce world Promotion: De Sole & team revamped the marketing approach and crafted the promotions carefully focusing on rebranding of Gucci and positioning the brand as luxury and quality focused avoiding mention of pricing and discounts • The 4P focus allowed Gucci to position the right product at the right price and at the right place with the right promotions.

De Sole and team did exactly that by acquiring the two famous brands.V. and will have challenges growing beyond a certain point. Relative superiority is achieved by comparing products with competitors and investing to either improve the attractiveness of the product or reduce the cost. HBS Case 9-701-037. C so es u t mr V au l e e u l a V C ma y o pn Cs ot C mei os o p tt r Figure 8: Ohmae's 3C Model 4. However.1 Analyzing Gucci’s move using Ohmae’s Strategic Triangle Ohmae’s (2000) 3C’s strategy states that the company and its competitor(s) are competing both on cost and value in offering a product or service to a customer. Gucci’s competitor LVMH did follow a similar approach by creating synergy among its unique brands and negotiating various cost aspects as a group with suppliers. advertisers etc. In the following sections. is linked to De Sole’s view of any exclusive luxury brand. This acquisition gives Gucci a new range of product and identity – the Saint Laurent Woman. If the synergy between brands is established early. One of which is building on relative superiority. Ohmae suggests four strategies. it will be able to use its current distribution facility and save extensively on the cost of promoting the new brands. The cost of this risk is US$1 billion at this point – the amount Gucci paid to acquire YSL. Gucci’s two recent acquisitions show that De Sole & Team’s strategic intent is to grow the top line beyond that stagnant point using acquisition as the approach. In order to attain competitive advantage in such a competitive situation. 2001. we will analyze Gucci’s 2000 strategy using three well-known strategic management frameworks.Strategic Management – Gucci Case Analysis 12 4. pg 6. there by achieving a 20% savings on expense17.2 Analyzing Gucci’s move using Porter’s Generic Strategies Porter’s Generic Strategies shown in figure 9 below serves as a framework to make strategic choices in a competitive business environment. Gucci will be able to achieve the same 20% cost saving or even more. Gucci’s Latest Strategic Moves Gucci’s latest move of acquiring Yves Saint Laurent and Sergio Rossi. (A) by Mary Kwak. this is an unknown territory that they are exploring as De Sole & team are deviating from the current successful course of running a single brand approach to multi-brand organization in order to grow the top line. HBS Publishing . In addition. Its success or failure will decide how Gucci’s future will take shape in the next decade. Porter suggests that the scope of the market and how it attempts to compete are the two fundamental choices that 17 Gucci Group N. 4. two famous luxury brands.

Strategic Management – Gucci Case Analysis 13 any business needs to make in a competitive environment.c l ui es s e of rn " t n ad f ei g sa d r " po ut r d cs NR O AR W B OD RA So e fB sn s Atv i s c p o ui es ci i e t . This assessment again confirms the conclusion in section 4. pg 137) The assessment in section 4. De Sole and team have taken the right step after six years of continuous growth in Gucci brand by acquiring two significant luxury brands to improve their market position.1. De Sole’s decision to buy the two businesses falls under expanding in existing market through a new product. cost or price will not make much difference to attract or grow its clientele. which will be developed by acquiring new products (under product development).3 Analyzing Gucci’s move using Ansoff’s Corporate Strategy The third model that we are using to analyze Gucci’s strategic decision is from Ansoff (2000).d e f aue u po i e f r r v do d te h c nu e os m r Cs F c s ot ou Cs ot L a es i edr h p L O W B sn s s e sa o e. Ansoff’s corporate strategy matrix shows that a business grows either by expanding market or product. Accordingly. 4. Gucci needs a stronger differentiator in the form of having products that are different in ways they are valued by its exclusive clientele. 2000.3 concludes that growing by acquisition is an accepted strategic choice in such a competitive environment. Dge o Po utD f r ni to e r e f r d c i ee tai n f H I G H B sn s a st ui e s i m o d f r ni t i ee tae f wh a m l i i t n s a l n m ro t r e m k t u b e f ag t a e r sg et em s n H h rpo uto c ssa d i e r d ci n ot n g e t a a ea d d e t r s xr v l . Therefore. The key to success from here on is to modify the corporate mission.ot ui e s e k l wr c s a v na e n s a da t g i a ml l n m ro m k ts g e t u b e f a e em s r n L r es a b sn s e ag . vision and strategy intent towards integrating and creating a synergy between the acquired brands both internally and externally. C mei i e o p ttv D f r ni to F c s i ee tai n ou f Sr t g s t ae i e D f r ni to i ee tai n f Figure 9: Porter's Competitive Advantage (source: Strategic Management.2 and 4.1 that YSL acquisition exactly provides that advantage to Gucci. pg143) 4. 2000. With Gucci’s scope of market clearly defined as exclusive clientele for luxury products. Figure 10: Ansoff's Corporate Strategy (Source: Strategic Management.

the focus for the last six years was revamping and recovering the loss making business. However. Recommended Move Forward Strategy Gucci has made significant progress over the last six years after the departure of the last Gucci family member under the De Sole and team’s management. reducing the price. Figure 11: Strategic Assessment Framework.2 Strategic Assessment Once a high-level strategic intent is established. 5. As Gucci is expected to acquire more businesses in the coming days. Perhaps. Since then. it lacks a bigger strategic intent to take this positive transformation into next level. The strategic intent will also make it clear the reason for planned acquisitions and value that the group is trying to derive for its action. Now that Gucci has achieved that goal by revamping the product line. The last time Gucci had a strategic vision was under the last Gucci. Gucci had strategy and intent at design level but not at the corporate level. restructuring the distribution channels and improving the manufacturing method to maintain the quality and reducing the average time required to manufacture an item. This will also help Gucci to understand external business environment given the aggressive acquisition wave across the board by all luxury product makers who are consolidating and strengthening their market position. they need a bigger goal to integrate and innovate themselves and prepare for the progress in next decade. they lack a compelling strategic vision to take the organization to the next level.Strategic Management – Gucci Case Analysis 14 5. 2000. 5. Source: Strategic Management. where the vision was to grow the enterprise to a billion dollar organization. a detailed strategic assessment to take stock of internal and external situations needs to be performed to understand the possible areas where a synergy can be established and how it is being done by its competitors like LVMH. a detailed strategic assessment will help to identify the right future actions. While the progress made in the previous six years is essential for running a business. This is crucial given the projected lower margin from the acquired businesses. That will help Gucci group to identify and bring the synergy that they need at all level with the new acquisition and the subsequent ones that they may likely to go for in the coming days. Pg 83 .1 Strategic Intent Gucci immediately needs to define its strategic intent with a clear vision and tangible goal that inspires each and everyone in the organization as well as its clients and partners.

This calls for a multi-brand. HBS Publishing . raw material etc. pg 19. This will also provide opportunities for additional savings from synergies and economy of scale established in space.1 Recommendations for Strategic Intent • • • De Sole needs to set a sizable growth target for Gucci group – double the revenue base (US$ 3 billion) in three years through acquisitions and organic growth De Sole needs to set a quality target or policy statement for Gucci group – it should emphasize the need to maintain the highest level of quality and brand exclusivity on all products De Sole needs to set a profit target for all brands of Gucci – 20% operating margin through building synergy between products and brands The above will set the tone for the most needed actions that Gucci as a group needs to focus in the next decade.Strategic Management – Gucci Case Analysis 15 In addition. manufacturing. multi-product portfolio to be the key focus area for a luxury company.3. This will help to achieve the desired operational results and better align the future strategic choices when planning for the next acquisition. 5. HBS Case 9-701-037.3. it is important not to exploit it beyond a certain level and never mass produce. Figure 12 will provide a list of successful multi-brand. multiproduct companies Ml i Ba d u t r n/ S gePo u t i l r dc n Ml i Ba d / u t rn Ml i Po u t ut r d c S AC G O P WT H R U LM VH G C IG O P UC R U PAA RD HR E E MS BAD RN S geBa d i l n r n/ S gePo u t i l r dc n S geBa d/ i l rn n Ml i Po u t ut r d c RLX OE A MN R AI BL AI UG R P O UT R DC Figure 12: Product Vs Brand Matrix 18 Gucci Group N. 2001.3 Proposed Gucci’s Strategy going forward 5. (A) by Mary Kwak. 5.V. distribution.2 Recommended Strategic Actions • To maintain the exclusivity of a luxury brand or a product. This calls for a portfolio of brands and products to be built in order to grow the revenue. the growth in rest of Asia is expected to increase the market share of luxury products from the current 18% 18 to higher.

watches contribute only 19. The company can focus on all these three areas for organic growth as well as strategic acquisitions In terms of regions. silk items like tie & scarves. leather goods and watches carry the highest level of profit. Asia. Similarly.3% of the portfolio. With most of Asia on the rise and economy doing well and projected growth in double digits. jewelry only forms 3. Also. this is an area Gucci can focus for organic growth • .Strategic Management – Gucci Case Analysis 16 • In the range of luxury goods. While leather goods forms 41% of the Gucci’s portfolio.8%. the second most profitable items forms only 1.9% of its portfolio.3% of the revenue. the fastest growing region in the world only contributes 18.

The YSL and Sergio Rossi products bring more choice to its client base without any duplication of the current product base. multi-product luxury maker globally. If the subsequent mergers are also done in similar way and if Gucci could establish operational efficiency leveraging its current manufacturing and distribution framework. Both the rivals joined hands subsequently to launch a hostile takeover bid to acquire Gucci itself. That leaves us with competitive rivalry as the only possible threat for a luxury product group like Gucci. Conclusion A quick analysis of the luxury market using Porter’s five force model will give us a view that the supplier and buyer power are relatively muted in the luxury industry. Similarly. . being employee and supplier friendly. quality focus and needs to restrict the mass production in luxury products. creative designs. Gucci is very likely to succeed given the presence of aggressive leadership. In 1999. the suppliers are more worried that the work will be moved in-house given the design uniqueness. Similarly. that will position Gucci as a cost effective and successful multi-brand. and its cash rich status. innovation focus.Strategic Management – Gucci Case Analysis 17 6. plan and strategize well in the coming days be it about its own acquisition of other brands or other brands trying to acquire its assets. Porter's Five Forces In summary. Figure 13. This is an area that the Gucci Group needs to focus. For example. LVMH versus Gucci saw rivalry brands Prada and LVMH joining hands to block Gucci from acquiring Fendi. The chances of substitutes are also very rare for a luxury product as they are exclusive in nature. the possibility of a new entrant hurting is very remote given the steep investment cost and brand building lead time required to get recognized by the well-heeled buyers worldwide. the buyers are well-off individuals loyal to the luxury brand or need the luxury product as a status symbol and they will not switch to competitor products when their desired product is not readily available or priced higher.

Strategic Management. (A).V. Philip. 2005. Upper Saddle River: Prentice Hall. and Kevin Lane Keller. New York: Oxford University Press. Marketing Management. & Yoffiie. B.Strategic Management – Gucci Case Analysis 18 7. 12th ed. 2001.. H.. Gucci Group N. Kwak. & Tampoe. 2000. M. Bibliography Macmillan. Boston: Harvard Business School Publishing. . Kotler. M.

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