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The year is 2000, 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$1.2 billion luxury group. Gucci is a 77 years old group, established in 1923 in Florence selling luggage imported from Germany. It has transformed itself over the last 77 years and moved from a family owned entity to a public listed company. After 77 years of its existence, it now sells a wide range of luxury goods starting from leather goods, fragrance, cosmetics, shoes, watches, apparel, jewelry, silk ties & scarves etc. More importantly, what started as a single product, single brand company that was focused on small leather goods has now transformed itself into a multi-brand, multi-product group with worldwide presence. The case Fashion Faux Pas: Gucci & LVMH deals about the hostile takeover and the legal battle between the aforementioned companies in the controlling ownership of Gucci shortly after its initial public offering. Thus, J4 examined the actions pursued by Gucci as it has practiced the “poison pill” mechanism. With such a study, the proponent aims to recommend actions that will enhance the competitiveness of the company. Further, the group identified area of opportunity in which the internal organization of Gucci can focus on to deliberately align its strategies with its mission and vision. To achieve these goals, the proponent used several tools in congruence with the identified problems hindering the company’s endeavor to achieve its goals. The proponent initially looked into the internal structure of Gucci through its company profile. Acknowledging the significant impact of external environment and the fashion industry in the performance of the company, the proponent used the PESTL Analysis and Porter’s Five Forces of Competition Analysis. With the PESTL, it was found out that the economic and social aspects of environment have the utmost impact to the company. Porter’s result on the other hand posted a moderate to high level of competitiveness within the fashion industry. Furthermore, the proponents included other analysis of general environment to completely realize what action(s) to undertake to satisfy the goals of Gucci.
TOWS Matrix evaluates the company’s historical transactions and strategies to gain a better picture of the company’s current status and lead the proponent to a realistic action plan for the future. This tool is an aid to identify strengths and opportunities that can serve as armours in battling the weaknesses and threats in the organization. With the integration and matching of the results of the tools used, the strategic action chosen as the grand strategy was determined to be the pursuance of market expansion. This can help the company proceed to development and growth. This action is appropriate since the company’s status in the industry has been at par with the superior brands like LVMH, Prada, Hermes, and the like.
A Case Analysis:
The proponents aim to examine the actions pursued by Gucci in the case when LVMH attempted a hostile takeover. Other intents of the groups are the following:
(1) To identify strategies that will help maintain and strengthen the company’s competitiveness in the luxury goods industry. (2) To identify opportunities that will satisfy the company’s mission of rapid growth development in the next five years. (3) To propose tactics and/or courses of actions that Gucci can undertake to increase its market share by 10% next year.
The battle between LVMH & GUCCI brought the latter to spill a “poison pill” (ESOP) into competition with the former’s attempt of hostile takeover. Gucci then faced a dilemma on how it will reposition itself in the fashion industry and how it will find opportunities to enjoy organic growth to proactively prevent takeover of a competitor like LVMH.
Rodolfo’s death paved way for the eventual control of his son Maurizio of the Gucci Company and further mismanagement caused him to introduce déclassé products which further cheapened the then-weakening Gucci brand name. President John F. After Guccio’s death in 1953. The business was set up for liquidation and Maurizio was forced to sell his shares in the company to Investcorp in August 1993. Kennedy’s wife.A Case Analysis: COMPANY PROFILE The House of Gucci or famously known as Gucci. and pens. was founded by Guccio Gucci in 1921. During the late 1970s. silks. As one of the world’s leading luxury fashion brands.S. which were priced at considerably lower points than the other items in the company’s accessories catalog. cheap counterfeit Gucci products began appearing. The company suffered heavy losses in October 1993. such as cosmetic bags. GAC proved to be profitable but it had resulted to the lost of Gucci’s reputation as the one of the world’s most stylish brands. Jackie Kennedy. Aldo created the Gucci Accessories Collection (GAC) wherein the main intention was to boost the Gucci Parfumes Branch and it was operated by his sons. Rodolfo’s contribution was much less than what Aldo and his sons did. Soon. . His two sons. Rodolfo and Aldo acquired equal 50% shares of the company. This became a big stain to the company’s name. Family quarrels and disastrous business decisions had brought to the downfall of Gucci. This was the start of Gucci’s turnaround and redemption with Investcorp’s bold move of hiring Domenico de Sole as Gucci’s CEO and Tom Ford as Creative Director. lighters. his son Aldo helped the company lead the company to a position of International prominence. timepieces and fine jewelry. shoes. ready-to-wear. with the knockoffs looking exactly the same as the originals. Gucci targeted the Far East for further expansion in the late 1960s wherein they opened stores in Hong Kong and Tokyo. They also developed on that time their famous logo. GG. the establishment remained one of the premier luxury goods establishments. Gucci is known for its renowned reputation for quality and Italian craftsmanship. manufactures and distributes highly desirable products such as leather goods. designs. opening the company’s first boutique in New York. GAC consisted of small accessories. the Flora silk scarf and the Jackie O shoulder bag which was created by U.
A Case Analysis: In 1999. Vision: To become the global multi-brand. Mission: To become a group leader in the luxury market at world-wide level through: putting into effect and maintaining. The company’s objective was to enhance its rapid development and growth plans. The company offers the following products and brands: Luxury goods Women’s ready to wear Luggage Handbags Leather goods Time pieces Shoes Jewellery Ties Scarves Eyewear Perfumes Cosmetics Skincare products . Gucci is one of the leading luxury brands in the world with several luxury brands under its portfolio like Balenciaga. MAJOR PRODUCTS and SERVICES Gucci Group produces a range of fashion products and related items. Pinault-Printempts-Redoute (PPR) made a strategic investment worth $2. well-diversified luxury goods company leader.9 billion and eventually became the current owner of the Gucci Group. Yves Saint Laurent and Alexander McQueen to name a few. At present. as well as to bring about great flexibility to its production and business processes.
Yves Saint Laurent Yves Saint Laurent includes all revenues from the sale and licensing of Yves Saint Laurent branded products other than those from the wholesale distribution of Yves Saint Laurent perfumes. YSL Beauté: YSL Beauté includes revenues from the sale of perfume. . cosmetics and watches. Gucci Group Watches Gucci Group Watches includes the production and distribution of Gucci and other Gucci Group brand watches.A Case Analysis: BRANDS: Alexander McQueen Balenciaga BEDAT & Co Bottega Veneta Boucheron Gucci Sergio Rossi Stella McCartney Yves Saint Laurent YSL Beaute Segment information The Group has five operating segments: Gucci Division (excluding Gucci Timepieces) Gucci Division (excluding Gucci Timepieces) includes all revenues from the sale and licensing of Gucci branded products other than those from the wholesale distribution activities of the Gucci brand watches. make-up and skincare products other than Gucci and Boucheron brand perfume.
A Case Analysis: Gucci vs. each determined to get their own way. It can also be seen as the battle between two personalities. CEO of Gucci. instituted ESOP in the form of Trust. market position. De Sole of Gucci and Bernard Arnault of LVMH. This is viewed as a company-centred move because as was mentioned. It is highlighted that the gross margin is higher in the case of watches and leather goods @ 75% to 80%. and brand superiority over time. employees can not expect for premium and dividends. ESOP was merely a Trust.4%. The company also. Gucci has been alarmed of the possible hostile takeover. rather only shares that converted into its power to retain its majority voting rights. a firm sets up a trust and makes tax-deductible contributions to it. Gucci maintains high profitability from the certain product lines . extending up to 34. regardless of the other minority shareholders. To establish an ESOP. did not actually issued stocks to accumulate additional capital. meaning. and efforts by Gucci management to defend against the intended takeover at all costs. In the case of Gucci. They maintain the company’s profitability. LVMH: The Battle for Control The battle for the takeover of Gucci by LVMH. namely the management of Gucci itself versus the other majority stakeholder LVMH. De Sole. Luxury Goods Market – Key success Factors Comparatively. The case can be seen as mainly a battle between the two majority stakeholders in Gucci. is a classic example in the fashion goods industry. The following are claims of LVMH against Gucci’s poison bill creation: Nature of ESOP An ESOP is a type of employee benefit plan designed to invest primarily in employer stock. followed . With the growing percentage of shares of LVMH. it has created ESOP as a strategy to protect the ownership of the management and its long-time employees.
The main characteristics of luxury goods are: . A Case Analysis: Spread of Luxury Products – Source: HBS Case 9-701-037 Luxury goods industry The Luxury Goods industry is defined by the personal consumer goods positioned in the high end of the market. especially in terms of design .Premium pricing The luxury brand is perceived as being exclusive (82% of consumers). Luxury products transcend product functionality. Traditionally.by Silks @ 65% to 70% and apparel @ 50%. Only 55% perceive it as lasting and only 51% perceive . the Luxury Goods industry has been associated with French families and designers and is becoming a global industry. Secondly. high quality (80%). stylish (75%) and extravagant (65%).A strong branding that relates to an exclusive and wealthy lifestyle. 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).High quality. .
USA accounted for 30%. The market is divided among: · Fragrance and cosmetics (24 to 37% of the luxury goods. and is supposed to be 7-10% between 1999 and 2003. and Asia for 36% (increasing to 60% if we include purchases abroad by Asian tourists).3% between 1996 and 1999. Europe for34%. The market growth has been 6. Market segmentation A Case Analysis: Total sales in 1999/2000 amounted to USD 60 to 80 billion.it as expensive. . depending on estimates) · Ready-to-wear and fashion (14-30%) · Leather and shoes (13-16%) · Watches and jewellery (8-32%) · Wines and spirits (15-22%) · Table wear (4-5%) · Accessories (5-9%) Geographical segments The market is divided into 3 geographical areas: in 1999. The market can be divided into different business segments and geographical areas.
PESTL ANALYSIS A Case Analysis: .
They are the intangible image and the perception built around the brand. one of the reasons for which is to lessen the bargaining power of the suppliers. . or are easily out. but rather on quality and image perception. the competition is not on price. Suppliers The bargaining power of the suppliers depends on the segment.A Case Analysis: Porter’s Five Forces Model Analysis Industry rivalry The competitiveness in the industry can be qualified as relatively high. There is however a trend for larger houses to buy smaller suppliers and to deprive the market form access to those suppliers. extravagance and lasting image makes it difficult to be for a long time in the business. this leads to the concentration and vertical integration trend in the industry. as well as on the ability to attract the right designers. As some tended to have increased bargaining power. Competitors The barriers to entry are very high. the dynamics of the industry are: few big players and only the best. The trade off between exclusivity. stylishness. as the others either cannot get in. Until now. The barriers to stay are also very high: there is a continuous need to "feed" the image. but given the high margins and the customers' perception about the price. There are hardly any barriers to exit given the high barriers to entry and to stay and the low barriers to exit. there is not observed concentration among the suppliers of the luxury goods industry among themselves. to maintain the perception but still to respond to customers' needs and changing expectations.
They are considered to be both a great opportunity (show no price sensitivity when buying the "hottest" product) but they are also a threat. They can potentially expand the market quite dramatically. who selectively trade-up to higher levels of quality. which makes the threat of new entrants less significant.a. are quickly acquired by the big names of the industry. because both are not necessarily compatible. Estimates predict that their number will increase from ~ 26 millions in 2000 to ~ 40 millions in 2005 (an increase of ~ 9% p. can represent a threat by capturing the volatile middle market customers. In addition. These customers go after the established name and the perception build around it. as they are part of the upper-middle class. "They are more demanding. . these new entrants. New entrants The new entrants are mainly new designers who start their own brand on their own. However. taste and aspiration The super-rich customers (or High Net Worth Individuals) seem not subject to the world economic cycles. All these elements take time to be built. trendiest design. This implies for the luxury goods industry a difficult equilibrium between the two kinds of customers. if successful. if remaining independent. after the quality and design. by providing them the needed infrastructure for growth. more selective and show less brand loyalty than the super-rich class".A Case Analysis: Customers There are two types of customers: • • The super-rich The middle-market customers. which increasingly have to be marketed in creative and expensive ways".) The middle-market customers are those that are willing to buy luxury goods. they are a growing number. This can lead to a difficult trade off between satisfying a smaller number of loyal customers and a larger number of more volatile customers. new entrants. but "they want the hottest. Usually.
A Case Analysis: .
Hermes and Vendome form the high priced luxury goods range. GUCCI Cost-based Advantage Its recent remaking effort and its outsourced manufacturing model has helped to reduce cost and thereby price by 30%. For example. L X R M U U Y Luxury Company Positioning Matrix The competitive position mapping table below was done based on five key areas that are recommended by Macmillan (2000) for assessing competitive advantage. As for products.A Case Analysis: Luxury Goods Market – Competitive Position Mapping From a position mapping point of view. Several of these have global reach with some brands limiting their presence and others expanding aggressively. Gucci. many of these are moving from traditional classic prints to new fashion. It also minimizes fixed investment and helps to maintain its return on invested capital at 36% Rest of Competition The in-house manufacturing model adopted by Hermes. 301 departmental stores and 54 duty free shops for variety of its products. Emporio Armani etc in the low end tier. 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 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 . LVMH and Prada take the mid-tier followed by Ferragamo.
First mover Advantage In a 150 years old industry. there is a hesitation to adopt the technology aspects fully by many luxury companies.GUCCI Differentiated Product or Service A Case Analysis: Rest of Competition Many competitors focus heavily on customer services experience as part of maintaining their luxury branding efforts. watches. Gucci has been around for 77 years. This includes online sales. However. A 35% reduction noticed in the leather bag manufacturing cycle – 104 days to 68 days. It also has different range of products including jewelry. LVMH focused more on leathers in the luxury products and others like liquor. It also built 2030% additional capacity to cater for growth in the current outsourced production line. and data mining on customer preference and market demand management etc. It focuses heavily on the unique customer service experience to maintain its brand image. apparels etc. not many brands have a spread of luxury products and they mainly focus only on high margin leather products or watches only LVMH. leather. However. As shown in figure above. 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. 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. EDI network connecting Guccisuppliers-partners. Though it had ups and downs. 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. Time based advantage Technology Based advantage Luxury Company Competitive Assessment The TOWS MATRIX . the same may not apply to fast moving ‘ready-towear’ product lines and that calls for focus on demand management and reducing manufacturing cycle time for fast moving products While some brands have realized the internet potential and established website and online shopping. the recent strategy has put it back on growth track. If this track record continues it will overtake the leaders The revamp effort has reduced manufacturing time considerably in many product lines.
A Case Analysis: .
5. Leather goods. O4) THREATS 1. Limited target customer – the professionals EXTERNAL OPPORTUNITIES 1. O3. Presence of substitutes such as medium brand products 3. O5. T2. Strategic Alliance with acquired companies (S1. S6.INTERNA L STRENGTHS A Case Analysis: 1. Possible takeover of holding company PinaultPrintemps-Redoute 4. Market Expansion (S1. O4. S2. T2. Price of products are relatively high 3. O1. Fake Gucci Products 5. Product Line Extension ( T1. O5. O2. T4) 2. T4) . O3. Backward Integration (W1. 04. O3. 3. O6) 2. 6. T3. S4. Exposure to political and economic turmoil of local operations. W2. Innovation and Improvement of Current Technology (S3. wide market potential of luxury markets is growing in Asia Consolidation of other brands that can serve as competitive advantage Expansion of product portfolio The latest developments in multimedia technology for advertisements and marketing E-marketing Prominence of ecommerce leading to online presence WO STRATEGIC/TACTICAL ACTION 1. Related Diversification (S1. O2. S4. ST STRATEGIC/TACTICAL ACTION WT STRATEGIC/TACTICAL ACTION 1. S6.O5. O6) 4. Well-known brand 2. W3. O6) WEAKNESSES 1. O2. Product Development (W1. O5. T3. T1. O1. O3. S5. S4. Expansive product lines 5. S3. T4) 1. S2. O6) 2. S5. Wide-ranging presence worldwide 3. Stiffening competition 2. 4.T3. O5. O4. S6. Novel product lines matching up trends in customer tastes and preferences Controlled and integrated distribution network 6. Market Penetration (S1. Promising 2. O6) 3. O1. O4. O2. Company size is small 2. S2. W2. Skills and Technology Advancement Trainings (O3. Aggressive strategy through diversification and communication 4. S5. T1. O1. O1. watches and other accessories are Gucci’s first-line products SO STRATEGIC/TACTICAL ACTION 1.
Improved market position Disadvantages 1. 1. it is given that the company finds a favourable pick of action in market expansion as it can venture into expanding in the growing economies in the Asian continent and other potential markets. Above average returns through widened market 4.A Case Analysis: Alternative Courses of Strategic/Tactical Actions The TOWS matrix aided the proponents to identify the strengths and opportunities of Gucci which can battle its own weaknesses and threats. Related Diversification . the group was able to come up with several alternative courses of actions which eventually will lead the company to strategically position itself as a fast-growing luxury goods brand. High investment is required to support the action 2. Through this matrix. Advantages 1. The company needs to undertake legal proceedings needed to enter new markets 3. Strengthening and adding more value to the company and its brand name 5. Nearer to its market as more distribution network will be added 1. Market Expansion Its well known brand and high consumer recall worldwide of its brand. Growth in terms of market share 2.
Widened product choices for consumers 3. Additional cost for training & development for human resources 4. improvements. new products that would create value for the company and would stabilize its financial position in the luxury good industry. Product Development Fashion fades too fast and for Gucci’s brand to remain fresh and new. The company may need to resolve operational efficiency issues and improve its supply and value chain management 2. Increase in market share Disadvantages 1. Innovation and Improvement of Current Technology The multimedia way of marketing the products can pave way to innovative operations for Gucci since its controlled and integrated network provided the company the tool to possibly seek this course of action for further Advantages 1. Strengthening and adding more value to the company and its brand name 4. Disadvantages 1. Advantages 1. Increase in product portfolio 3. it should create. Investment to Research & development is high 2. The company’s distribution network may be disturbed 2.Enhancement of marketing and broadening the scope of distribution 2. .A Case Analysis: Related Diversification is possible through the company’s aggressive strategizing and expansive product lines. It can serve customers faster and more conveniently. More established brand name and more value to the brand 3. Costly operating expenses 3.
The company needs to incur greater research and development expense 2. Uncertainty in product acceptance 2. Improved Quality Products 2. Increase in product portfolio and product mixes 3. High Investment costs 2. Backward Integration Gucci could cost in its production/ manufacturing of goods without compromising quality by means of backward integration.A Case Analysis: Advantages 1. Advantages 1. Gucci could distribute and sell its products at a lower price making them more competitive and could threaten substitutes. Increase in market share 3. Lower operating cost Disadvantages 1. Strengthening and adding more value to the company and its brand name Disadvantages 1. with this strategy. Strengthening and adding more value to the company and its brand name 5. Updated products and services 1. Improved customer Services 3. Improvement of financial base Disadvantages 1. Result of high debt for Gucci 6. This entails additional costs to the company . Improve cash and revenue base 2. Strategic Alliance with acquired companies The company can improve its cash base and expand its revenue base thereby increasing its market share if the company ventures into alliances with its acquired companies in order to promote and market its products. Advantages 1.
Increase revenue/sales 2. High Investment costs 8. Advantages 1. Improve cash and revenue base 2. Wide variety of products2. Strategic Alliance with Local Distributors and Retailers The company can easily penetrate the market if it can close an alliance with local distributors and retailers thereby increasing cash and revenue base. High Investment costs 2. Advantages 1. Disadvantages 1. Product line extension Gucci could also extend its product line and innovative products that are related to its core business. Research and development entails efforts and costs . Increase in market share 3. Strengthening and adding more value to the company and its brand name Disadvantages 1.A Case Analysis: 7. Increase in market share 3.
Operations Department.A Case Analysis: Activity Responsible Person Who Needs To Cooperate Resources Needed Timeframe KPIs/KRAs Market Expansion ➢ Conduct Market Study in Asia(first target market for further Expansion) Marketing Department. Human Resources. Human Resources.. Human Resources. Fixed Capital. Research & Development R&D. Technological Resources Last Quarter of 2001 onwards Project Engineering . Last Quarter of 2001 onwards Identification of demand in Asia ➢ Assessment of Marketing Market Study Department. Marketing Department. Result Financing department ➢ Launch of Gucci Human expanding in Asia Resource Department. Marketing Financial Resources. Finance. Marketing First Quarter of 2002 onwards Result indicating potential market in Asia based from rigid studies All employees of Gucci Financial Resources.
A Case Analysis: .
it helps the company gain increased customer loyalty and gain market share thereby providing a strong revenue and cash base It helps the company achieve strong staying power in the industry by having majority influence in the fashion industry trending backed up by partnerships aiding the company in lowering its cost and offsetting the threats of substitutes It helps the company PEST DG Analysis Porter’s Five Forces TOWS Analysis . The company has to penetrate new markets and achieve dominant leadership in the industry The company has more strengths than weaknesses which can be matched with its many opportunities to combat threats. Further.A Case Analysis: SUMMARY OF ANALYSIS Assessments Findings and Recommended Actions Economic. The company has to expand market and integrate the competitive advantage of acquired companies with strategic alliances There is a very high competition in the industry because of few but competitive players and of the high capital investment required in entering in the industry. Since the company possessed a large potential in market growth. Political and Legal segment has utmost impact to Gucci. The company should take advantage on the promising wide market potential of luxury markets. it should invest in market expansion How can it contribute to enhance its competitiveness? It helps the company gain sustainability despite the economic crisis.
A Case Analysis: MATCHING AND DECISION STAGE PEST DG ANALYSIS Market Expansion Market Penetration Strategic Alliances Porter’s Five Forces of Competition TOWS Analysis Market Expansion Decision Market Expansion .
Gucci has a strong brand image worldwide but it has not expanded yet into other markets mainly because for a couple of years of operations. Singapore are top five most countries that are seen by most researchers that can be tapped by Gucci. and potential new markets for existing products. China. Asia. Gucci will now be closer to its clients serving them with convenience and offering a wide array of products that are fresh and new. High net worth individuals are increasing in number in the region. In that case.Asian market. Gucci will also be able to hold its position to be one of the top brands in the luxury good industry. This would further lead to stronger brand equity and increase sales and profit and a higher dividends/income for stakeholders. Hong Kong. and seeks opportunities for revenue growth through new market opportunities.quite an opportunity for luxury good company like of Gucci. identifies untapped markets. Market Expansion satisfies the mission of the company to rapidly develop and grow. is a fast growing economy worldwide. The market expansion step will result in estimates for delivering new capabilities to current markets. With this strategy.A Case Analysis: Recommendation: The Market Expansion step is that period when a company assesses current markets. With the opening of new distribution networks in the selected areas in Asia. The step that the company can undertake is to capitalize on favourable opportunity. it will reduce cost in investments. Thus. it has focused in major markets in Europe and North America. according to studies. Gucci can also treat Asia as country-by-country region to identify and categorize more potential markets from the less ones. Japan. . Market share will substantially increase competing head to head with its competitors like LVMH. Korea. market expansion is the best pick for the company to strategically maintain and enhance its position in the industry as one of the superior branded product worldwide.
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