Case Study - Giorgio Armani

Giorgio Armani - the ultimate fashion brand

The Giorgio Armani brand owned and run by the founder designer Giorgio
Armani has earned the much hallowed space in the fashion industry through
its superior design, relevant themes and trends. It maintains the aura of a real
luxury brand. Not only has Giorgio Armani become one of the most respected
and known brand names in the fashion and luxury brand industry, it is
also one of the most highly valued fashion companies in the world with a value
of nearly 3 billion Euros.

The Giorgio Armani brand strategy

The mention of the Annual Academy Awards ceremony brings to mind the
glittering ritual, the red carpet, and the galaxy of Hollywood stars. The
Academy awards have become as much an event about films and awards as it
has about the celebrities and their fashion statements. One of the regulars at
the Annual Academy Awards event along with the stars and the glamour has
been the ultra premium and exclusive fashion wear from the Giorgio Armani
stable - the Armani suits donned by the leading Hollywood men and the
Armani evening gowns and other haute couture dresses worn by the celestial
Hollywood beauties.

The Giorgio Armani company owned and run by the founder designer Giorgio
Armani has earned the much hallowed space in the fashion industry through
its superior design, relevant themes and trends appealing to the current crop
of customers and by maintaining the aura of a real luxury brand.

Introduction

Giorgio Armani started the company of his namesake back in 1975. Being a
designer himself, he made apparel with his sense of aesthetics, beauty and
luxury, a sense that appealed to the elite of the society that today includes the
royalty of Belgium, the royal families of many Asian countries and even the
opulent women from the Middle East and the high and mighty stars from
Hollywood among many other prominent customers. For almost 30 years now,
Armani has been a privately held company with the founder Giorgio Armani
being the sole shareholder.

With many sub-brands designed under the parent umbrella brand of Giorgio
Armani to cater to the specific needs of different market segments, it has
become one of the strongest fashion and luxury brands in the world. Not only
has Giorgio Armani become one of the most respected and known brand
names in the fashion industry, it is also one of the most highly valued fashion
companies in the world with a value of nearly 3 billion Euros.

Giorgio Armani is also very expansive in Asia Pacific with its multiple future
growth markets for luxury brands. For example, China is embracing premium
fashion and luxury goods at an increasing pace, and Giorgio Armani has been
one of the forerunners to exploit the market potential. There are
approximately around 10-13 million Chinese luxury brand customers. Giorgio
Armani opened its Emporio Armani store next to Shanghai's historic "The
Bund" in 2004 and plans on opening nearly 30 stores by the end of 2008.

The Brand Philosophy

Unlike the usual practices of branding that are normally seen in the consumer
goods industry, the branding philosophy in the fashion and luxury goods
industry is quite unique and personality based. Most of the famous fashion
houses like Christian Dior, Yves Saint-Laurent, Gucci, Versace, Giorgio Armani
and many others were built on the personality of the founders. As design is the
most important ingredient of fashion and luxury apparel, the individual style of
these designers becomes crucial to creating and sustaining the fashion brand
strategy. It is these unique designs and patterns that reflect the personality of
their creator that gives an identity to the brand and helps to differentiate it
from the crowd.

The Giorgio Armani fashion house, like many other fashion houses, has been
built primarily on the unique personality and identity of Giorgio Armani
himself. The brand takes on the identity of the founder through the designs
created.

Though this aspect of the fashion industry provides fashion houses with a
strong sense of differentiation that can be conveyed in a tangible and visual
form, it also poses a serious threat. When an entire brand and fashion house
are built on the basis of the founders' personality and identity, it becomes a
major challenge to keep the brand going after the demise of the founder,
something many of the fashion houses have realized in the recent past.

The Giorgio Armani Brand Architecture

Whenever a brand gains popularity and acceptance from its target customers
in its core business, the next obvious step for the brand is to charter a new
course by venturing into different product lines, different segments, and ever
different markets. This phenomenon seems common across industry sectors.

Giorgio Armani with its iconic popularity amongst the elite of the society and
the fashion literate segment of the market has followed similar steps by
extending the brand. Today the Armani brand architecture encompasses one
corporate brand and five sub-brands, each catering to different sets of target
customers and at different price levels.

The signature Giorgio Armani line: This is the main collection of apparel
that consists of the signature Armani suits, Oscar gowns and so on, which are
of the ultra-premium price points and essentially targeting consumers in the
35-50 year old age group.

Armani Collezioni: This is Armani's venture into a slightly lower market

segment. This basically caters to the segment of people who aspire to wear
Armani apparel but cannot afford the ultimate signature line, or to those who
crave to add extra products to their existing portfolios. The Armani Collezioni
brand, with a price point of almost 20% lower than the main line, provides an
excellent line of affordable fashion.

Emporio Armani: Targeted especially at the young professional segment in

the 25-35 year old age group, the Emporio Armani brand provides
contemporary designs that are relevant to the target customers.

Armani Jeans: This is the lowest range of Armani apparel. This is to the value
segment what the signature line is to the premium segment. Catering
necessarily to the young adults in the 18 to 30 year old age group, the Armani
Jeans collection provides a trendy yet fashionable and luxurious line of
apparel.

A/X Armani Exchange: This is the licensed brand of chain of retail outlets of
Armani fashion house. This serves as the ultimate testimony to the power of
the brand. By providing the entire range of its apparels and accessories,
Armani Exchange provides customers with the complete feel of the luxurious
fashion of Giorgio Armani.

However, the Giorgio Armani brand architecture can be misinterpreted by the

prospect. For instance, the differences between Emporio Armani and Armani
Collezioni are often quite insignificant. Furthermore, in January 2005 the
Armani group launched Armani Prive to stands for its haute couture collection.
Giorgio Armani and Armani Prive can cross borders creating confusion in the
mind of the buyer.

These sub-brands help Giorgio Armani to operate in many segments of the

fashion apparel market. But this is not all. Not only does Armani straddle many
segments of the same product category, but also many different product
categories.

Leveraging its strong brand equity in the fashion apparel market, Giorgio
Armani has ventured into other related categories like eye wear, watches and
cosmetics. These are made available in each of the above-mentioned brand
categories to ensure that it is available to the different segments of the
market. It is usually argued that eye wear, perfumes, watches and cosmetics
are strongly related to fashion and luxury and thus it is natural for fashion
houses to extend their brands into these categories. Giorgio Armani is a very
strong example for this argument. By leveraging its expert knowledge of the
fashion and luxury industry, Armani has been able to come up with winning
concepts in the other product lines of cosmetics, watches, jewelry and eye
wear.

But Armani has not stopped at just these product categories: Armani has
extended the brand into multiple other categories such as Armani Casa (up-
market furniture), Armani-branded Dolci (confectionary), and Armani-branded
Fiori (Flowers). And to add to this wide portfolio of brands, Armani very
recently struck a deal with a Dubai-based property group Emaar to come up
with a chain of 14 Armani branded hotels and resorts by 2011.

As is the trend in the fashion industry to operate in the entire spectrum from
apparel, jewellery, cosmetics, watches, perfumes and luxury hotels, Armani
has been able to leverage its brand equity to be present in most of these
lucrative sectors.

Today, Armani group has a retail network of 60 Giorgio Armani boutiques, 11

Collezioni, 122 Emporio Armani, 94 A/X Armani exchange, 13 Armani Junior , 1
Giorgio Armani Accessori and 16 Armani casa spread over 37 different
countries.

With so many things going on in the Armani stable, it might seem a pretty
picture at the outset. But this huge portfolio of brands and product lines
creates a much bigger set of challenges to the Giorgio Armani brand strategy
in the future.

Giorgio Armani's future brand challenges

The founders' dilemma: This phenomenon is classic and occurs for any
company that is built on the basis of a strong and charismatic founder and
leader. As the main competitive advantage for the company is the
founder/leader himself, neither the founder nor the company would think of
life after the founder. Moreover, whenever the companies' success and
survival depends very heavily on the existence of a single person, such
companies and its leaders should take proper action from an early stage so
that proper leaders can be nurtured within the organization.

The Giorgio Armani company is a classic case of founders' dilemma: Giorgio

Armani, the CEO and owner of the Armani brand is in his early 70s. However,
the company seems not to have made any plans for life after Giorgio Armani.
In a recent interview, Giorgio Armani was quoted as saying that the search for
a corporate partner and a successor was "not for the today, not for tomorrow
but perhaps for after tomorrow". Though there have been cases where
companies after much effort have been able to stand up and live after the
demise of their founders, those are the rarities. Armani should formulate a
structure in his company along with his key management people to put in
place a definite structure that identifies and nurtures future and upcoming
leaders who can carry on the business even after the demise of any single
individual. This aspect gains a bit more importance in the fashion industry as
the personality, concept and ideas of individual designers prove to be real
competitive advantages. Keeping this in mind, Giorgio Armani should tackle
this challenge when there is still a considerable amount of leeway to play with.

Brand dilution due to over-stretch: The primary objectives of businesses

are to earn profits and to enhance shareholder value by maximizing ROI. One
of the main reasons that businesses invest in branding and brand
management is for the same reasons. Strong brands, as is well known, provide
companies with a very powerful tool to enter newer markets with limited
investments by leveraging their strong brand equity. It gives companies
numerous revenue streams. Given this simple but strong fact, it is not a
surprise that most of the strong brands in the world have leveraged their
brand equity and extended their brands into newer product categories, newer
markets and even newer market segments.

Armani, when analyzed in this light, has extended its strong brand equity a bit
too far. Though the core business of Armani is in fashion apparel business, it
has extended its brand into categories as different as luxury hotels and even
confectionaries. The examples that immediately come to mind are those of
Calvin Klein and Pierre Cardin. One of the many reasons that these brands
diluted their brand equity was because they used their brand names on a very
wide range of products. One of the main factors that make fashion houses and
their products premium are their exclusivity. By franchising their brand names
to literally everything, these brands lost a significant portion of their strong
brand equity.

Though Armani might have extended its brand to hotels because luxury travel
is catching up fast as a fad with elite travelers, managing the brand along
these different dimensions could be a massive challenge.

Managing brand architecture: Given Armani's portfolio of brands within the

fashion segment, as in many of the other markets that it operates in,
effectively managing this portfolio of brands will prove to be the biggest
challenge in the future. As the brand moves into different territories, interacts
with different sets of customers, and represents different personalities, it
becomes quite a task for maintaining consistency across all of its marketing
communications and other activities. Though Armani has been using the
corporate brand name in all its sub-brands, and across all its offerings, it is
indeed a double-edged sword. On one hand, this gives Armani a great
opportunity to build a very strong corporate brand but on the other, it gives
rise to a huge risk of diluting the brand equity. Given this strategic dilemma,
Armani has to tread carefully in the future. Armani should also realize that its
existence is mainly due to its strength in the fashion apparel business. As the
brand extends through different landscapes, Armani should not lose focus as
new pressures on resources build up.

Maintaining financial independence: Armani is a rarity from a financial

perspective as well. Giorgio Armani has been the only shareholder of the
company from its inception till now. Armani has not taken any bank loans
either. It has been one of those rare companies which has managed to have
very healthy operating profits and ploughed back almost 700 million Euros into
the business since 1999. Having this financial independence has helped
Armani immensely as the company tests newer territories. With no pressures
from shareholders and without having to bother about meeting quarterly
targets, Armani has been able to operate quite successfully. As is commonly
known in the fashion industry, it takes a considerable time for the concept and
products to take root in the market. For any company to sustain this gestation
period, it needs to operate in an environment where there are no day-to-day
financial pressures. Having this kind of financial independence to operate in
has been one of the key success factors for Armani.

But to continue as a one man company in the future could be quite difficult.
With consolidation happening in many industries, it might just be a matter of
time that it catches up with the fashion industry as well. When such a thing
happens, it could pose a big challenge to the working style of Armani and its
continued success. In this light, Armani might want to think of other options
when it has a choice and before something is thrust upon it.

Sustaining consistent brand personality: One of the main aspects of a

fashion brand is its personality and its identity in the marketplace. Building
and sustaining a personality that is relevant and one that resonates with the
customer base is one of the most difficult aspects of building a strong brand.
Armani, with its presence in diverse markets, a very wide brand portfolio, and
interacting with diverse set of customers, faces this huge challenge of building
a relevant and resonant personality. With the ever growing competition in the
fashion industry and ever growing brand portfolio, building and nurturing this
personality will prove to be a very big challenge for Armani in the future