Transformation of Global Luxury Branding Case Study of GUCCI
Guccio Gucci opened a small shop selling leather goods on the via del Parione in Florence in
1923. He sold luggage imported from Germany and offered customers with repair services. As
the luggage business prospered, he opened his own workshop to produce his own design. The
business in the 1920’s created huge profit and success however in the 1930’s Gucci began to
face some challenges when the sanctions imposed on Mussolini. He faced shortage of imported
leather yet this challenge gave him innovated idea of using new materials such as canvas and
produced small leather goods, wallets and belts that are still big part of the Gucci company.
Gucci became an internationally known luxury brand after World War II and over the next
two decades the company flourished. In the1970s Gucci began to fall down due to internal
conflict. Most of the conflict was between Aldo and Rodolfo Gucci, the founder’s surviving sons
over strategy and control of the company. Rodolfo Gucci died in 1983 and left his 50% stake in
the company to his son Maurizio. One year later, Maurizio seized control over Gucci and
determined to transform Gucci into a modern retail organization. But, Maurizio failed.
When Maurizio was in control of Gucci, his first move was to name Domenico as president
and managing director of Gucci America. He was a Harvard Law School graduate and became
the first professional manager to play a senior role at the family-run company. De Sole was a
smart businessman; he saw the need to restructure the whole company. He fired 150 out of
900 employee and hired highly experience managers in retail business. He expanded Gucci’s
control over distribution, reducing channels and acquired all of Gucci’s North American
franchises in three years. On the other hand, Maurizio had a grand plan of his own, creating $1
billion company by limiting distribution to exclusive clientele.
Maurizio positioned Gucci next to Chanel and Hermes. Maurizio did what any businessman
would do to bring up the company again. He raised price, reduce and control distribution, and
bought back franchises to reduce overexposure. Despite his grand plan, Maurizio lacked
business and analytical skill to rebuild the company. Prices were too high. The price points of
the products were competing against Chanel or Hermes; however, customers valued less.
Gucci’s reputation was severely destroyed that it was hard for the customers to see it as a
luxury brand. Maurizio missed one critical aspect which was the customer’s perception.
Investcrop, a Bahrain-based investment group that was backing Gucci financially, thought it
was time for Maurizio to step down from his position. Maurizio’s repositioning was not
working. The sales were dropping even more and the direction of the company was unclear.
Not only Gucci but also the entire industry was suffering from the economic crisis. There was no
return to Investcrop and in order for them to continue supporting Gucci; they needed to force
Maurizio out. By 1999, luxury goods were a $60 billion industry, with sales growing 6% per year.
It was time for Gucci to climb up the ladder again. It was the right moment in luxury industry for
Domenico De Sole as COO and Tom Ford as creative director to reinvent Gucci.
De Sole focus on upgrading Gucci’s production and delivery system, while Tom Ford took
charge of design. They were the perfect combination. Both leaders had the personal drive to
save the company. Their fist challenges was taking many parts of Gucci into a united company.
Under Investcrop’s guidelines, the seven Gucci operating companies finally combined for the
first time. In 1995, Domenico De Sole was named CEO of the entire Gucci group. Now, Gucci’s
marketing, pricing, product design, distribution, manufacture was an intertwined system to
represent one brand -Gucci.
Remaking of the brand under the control of De Dole and Ford started with identifying the
right direction for Gucci. They decided that focusing on fashion was important for Gucci to
change its customer perception. They changed their products from classic to fashion conscious.
Tom Ford relaunched leather goods, shoes and ready-to-wear collection with a sexy and
glamorous edge. Gucci’s target customer was shifted from classic, older, wealthy and
somewhat conservative to fashion-conscious customer. The new customer was modern,
youthful, urban and age did not matter. The new customers have less brand loyalty than old
targeted customer however they replace everything they have every season to follow the
trend. It was good customers base to have.
The new leaders reviewed its pricing structure. De Sole and the leather goods merchandiser
personally repriced every single item in the collection, lowering the prices on average 30%. This
pricing point positioned Gucci next to Prada and Louis Vuitton. This strategy was to represent
good value to the customer and to broaden the customer base. Compared to Maurizio, the new
leaders took customer’s perception into account when rebuilding the brand. Gucci became a
customer centric company.
Marketing was an important element for Gucci to show the world how Gucci had changed.
If price was considered the short-term, marketing is the long-term strategy to attract
customers. Gucci nearly doubled their advertising budget to $11.6 million in 1994. Gucci’s
advertising was created in-house and focused on redrawing the image of the company. Gucci’s
advertisement transferred from product-oriented advertisements to brand associated
advertisements to capture the image of the world that the new customers want to be part of.
Gucci’s advertisements became famous and provocative under Ford’s inspiration showing new
level of creativity in artistic expression and commercial impact. Another critical marketing
strategy for Gucci was to “make Tom Ford a star”. Tom Ford happened to fit the new image of
Gucci at that time which was edgy, sexy, feminine and trendy. He got great physical
appearance, handsome and, he was the star behind the new Gucci. Tom Ford’s lifestyle was
exactly cohered with Gucci’s new image and Ford became the iconic symbol for Gucci.
Image was important for Gucci, but product was also important in rebuilding Gucci. They
needed to focus on quality craftsmanship of the products. The company’s supplier relationships
had been severely damaged due to Gucci’s inability to pay. De Sole and Tom picked Tuscany as
their “DNA” of the company due to its high artistic capacity and small independent factories.
That was their competitive advantage against Prada and Louis Vuitton. The leaders personally
revisited their entire manufacturing factory to choose the best and cut of the rest. De Sole
started a new program for the factories, which provided selected supplies with technical and
financial support. Doing so, De Sole created royal factories with increase in manufacturing
capacity. The new program enabled Gucci to share its risks and mistakes with the
manufacturing factories as well as flexible manufacturing capabilities. This was an important
transition for Gucci because since they change their product lines from classic to fashion
forward, they needed seasonal and shorter production runs. Gucci also used variety of methods
to maintain quality throughout its network. Gucci bought all of the leather used in its products
and did 50% of the cutting so that they can control the quality of the products that is sold to the
customers. Gucci’s production volume increased 277% and it was a huge success for Gucci.
Before the control of De Sole and Ford, Gucci was everywhere. The GG logo whether it was
real or knockoff, it was literally everywhere. De Sole massively reduced huge amount of
distribution channel and emphasized on strengthening the network of directly operated stores.
Gucci began to renovate its directly operated stores to attract the new and younger customers
to come into the stores. Gucci’s directly operated stores were accounted for 66% of sales and
others stores such as 60 franchised stores, 54 duty-free outlets, and 301 department stores
accounted for rest of the sales. Distribution means representation of the product to customers
because that becomes the shopping experience. Gucci had the total control over the entire
distribution channel that was available for the customers, which in other words, controlled the
image of how customers perceive the brand.
A turnaround of the company advised by De Sole and Ford, made Gucci one of the world’s
most influential fashion housesand a highly profitable business operation. To compete with
LVMH, they first bought two luxury companies – Yves Saint Laurent (also YSL beauty) and Sergio
Rossi to create a luxury house. Gucci is in transition to build a “luxury house” to directly
competing with LVMH, the dominant force in luxury goods marketing and retailing worldwide.
As of 2011, Gucci Group now also owns Boucheron, Bottega Veneta, Bédat & Co, Alexander
McQueen, Stella McCartney and Balenciaga.
PPR is a French multinational holding company specializing in retail shops and luxury brands
that gained ownership of 60 percent of the Gucci Group’s stock in 2003. In 2004, Tom Ford and
Domenico De Sole parted with Gucci group when they failed to agree with PPR over artistic
control of the company. It is said that the last spring collection under the direction of Ford and
De Sole was a critical and commercial success for Gucci. However, this was a huge drawback for
Gucci group because Tom Ford was once the iconic symbol of the Gucci. In 2005, Frida Giannini
was appointed as the creative director for women’s ready-to-wear and accessories and in 2006,
she also became the creative director for men’s ready-to-wear and the entire Gucci label.
Gucci considered almost every aspect of the business in terms of pricing, marketing,
product, manufacture and distribution. De Sole and Ford made the right decisions for the
company and it was a tremendous success. The two most important elements that Ford and De
Sole did were, they integrated different departments (design, marketing, distribution and etc.)
to reach one goal rather having different department operating separately. Second, they built
the brand image. Marketing and advertisements were promoting image than product, which
was taking different approach than other competitors.
In Gucci’s marketing plan, there were many risks involved with making Tom Ford a star of
the company. Some questions to consider when developing their “star-designer strategy” –
“what happens when there is no more Tom Ford in the company? And “was Ford given to much
power and publicity?”. Tom Ford became a huge star of the company and consequently was
given too much power. In 2004, parting from Gucci due to internal conflicts with PPR, Gucci
faced a challenge by losing its iconic star of Gucci Group. In 2005, he announced the creation of
Tom Ford brand. Eventually, making another competition for Gucci Group to consider.
Without Tom Ford, Gucci will always have a big hole in their brand image. Among the
“fashion people” Gucci lost a lot of respect after Tom Ford departed the company. After Tom
Ford Left the company, Gucci announced three designers to lead the design team. Alessandra
Facchinetti, took full responsibility of Gucci’s womenswear, John Ray took over menswear and
Frida Giannini became creative director of accessories. Even though each one of the designers
made significant contributions to Gucci, replacing Tom Ford was not easy. Alessandra
Facchinetti quit after two seasons and was replaced by Frida Giannini in-house accessories
designer. In 2006, Frida Giannini became the creative director for the entire Gucci label. Her
early designs, which were a repudiation of her predecessor Tom Ford’s raw sexiness—earned
her low grades from fashion critics. However, she’s fared well so far; her collections have
enjoyed commercial success, although she has yet to shake up the sartorial climate on a Ford-
esque scale.
In recent years, as fashion houses have become global brands; there is considerably more
pressure on designers to function as all-points creative directors. Creative designers became so
important to brand image of luxury companies. It is hard to acknowledge the brand separate
from the designer. “Star designer strategy” almost became the norm of most luxury brands
such as John Galliano at Dior, Alexander McQueen at Givenchy, Karl Lagerfeld at Chanel and
more. This marketing strategy definitely gave instant success to the company by boosted sales
and rebuilding reputation of many luxury brands like Gucci. Tom Ford took a crucial role in
transforming Gucci to grow enormously in terms of brand image, sales and production after its
downfall. He also created higher entry to barrier for the luxury industry by selling not only the
product but also the brand image.
Star-designer strategy is risky since it is hard for the companies to forecast the effect on the
brand image after the absence of star-designer. The designers uniqueness and identity is
extremely strong in the recent years in fashion industry, it can give negative effect for the brand
image and may possibly struggle with the brand identity without the designers. It is hard to
conclude if star-designer strategy is successful in the long-term or not however, it is important
for luxury companies to have the ability to stay within its design philosophy of providing fashion
and brand image to its clientele no matter who is its head designer.
