Strategic Management - Gucci Case Analysis 1
Strategic Management - Gucci Case Analysis 1
Strategic Management - Gucci Case Analysis 1
Presented to Prof. David Duffill Strategic Management Robert Kennedy College, University of Wales October 24, 2010 Word count: 4221
Exhibits
Figure 1: Sales & Operating Margin in 1999 Source: HBS Case 9-701-037 ______________________ 4 Figure 2: Spread of Luxury Products Source: HBS Case 9-701-037 _____________________________ 5 Figure 3: Luxury Company Positioning Matrix _______________________________________________ 5 Figure 4: Luxury Company Competitive Assessment___________________________________________ 7 Figure 5: GUCCI in 1990 Strength, Weakness, Opportunity & Threat (SWOT) Analysis _____________ 8 Figure 6: GUCCI in 1994 - SWOT Analysis _________________________________________________ 9 Figure 7: GUCCI in 2000 - SWOT Analysis ________________________________________________ 10 Figure 8: Ohmae's 3C Model ____________________________________________________________ 12 Figure 9: Porter's Competitive Advantage (source: Strategic Management, 2000. pg143) ____________ 13 Figure 10: Ansoff's Corporate Strategy (Source: Strategic Management, 2000. pg 137)______________ 13 Figure 11: Strategic Assessment Framework. Source: Strategic Management, 2000. Pg 83 ___________ 14 Figure 12: Product Vs Brand Matrix ______________________________________________________ 15 Figure 13; Porter's Five Forces __________________________________________________________ 17
1. Executive Summary
The year is 2000, Gucci Group is at a cross road and its strategic decision at this juncture will define the future of the worlds fourth largest US$1.2 billion luxury group1. 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 through its recent acquisitions of Sergio Rossi and Sanofi Beaut. Between 1991 through 1993, Gucci lost US$102 million2, was strapped by cash constraints, and was unable to finance its own operations. 1993 also saw the end of the last Gucci family members control over the company and the brand and the company moved to Investcorps control. At that time, few would have thought that the total revamp of Gucci as a brand and its current industry leading position was possible. Guccis current management team has achieved exactly that in less than seven years. This significant turn around was a result of the recovery strategies adopted by De Sole and team, who revamped almost everything from products, pricing, marketing, distribution and logistics to the management committee. The leadership team believed that they needed to expand beyond the Gucci brand of products to grow the groups top line further and this resulted in Gucci acquiring multiple brands. However, this multi-brand portfolio has posed a challenge to the current management structure in terms of managing it as independent brands. Establishing this structure and managing this new group efficiently with four brands will decide the future course of Gucci, 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. This unique situation within the group combined with the stiff competition from Mot Hennessy-Louis Vuitton (LVMH), Prada, Herms 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. Especially, the recent battle between LVMH and Gucci and the 19.6%3 LVMH holding in Gucci may pose a threat in the coming days. Also, PPRs 40% holding4 and its chairman Pinaults interest in Guccis future and his own investment in French group Sanofi, which owns the Yves Saint Laurent (YSL) brand and related licenses and products, makes the overall stakeholders relationship complex from where it was 12 months ago. This report aims to assess in detail the above mentioned stakeholders interests, competitor positions, Guccis brand positions in the marketplace, and Guccis consumer expectation and recommends the possible move forward approach for Gucci Group in the year 2000 and beyond.
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 3 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 4 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Figure 1: Sales & Operating Margin in 1999 Source: HBS Case 9-701-037
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing 7 Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Strategic Management Gucci Case Analysis 5 advertising is around 10.6% by luxury companies8. With increased demand for new styles and models every season, the need for demand forecast and investment in design and production has been on the rise. With the need to differentiate between luxury brands, 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.
Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
The competitive position mapping table below was done based on five key areas that are recommended by Macmillan (2000) for assessing competitive advantage. Though it is done as Gucci versus rest of competition, specific examples have been provided from the data available in the case study. GUCCI Cost-based Advantage Its recent remaking effort and its outsourced manufacturing model has helped to reduce cost and thereby price by 30%. 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. It also has different range of products including jewelry, watches, leather, apparels etc. The acquisition of YSL resulted in a new branding the Saint Laurent woman and rebranding exercise resulted in Gucci woman. Two brands that suits different situation or clientele In a 150 years old industry, Gucci has been around for 77 years. Though it had ups and downs, 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 35% reduction noticed in the leather bag manufacturing cycle 104 days to 68 days. It also built 20-30%11 additional capacity to cater for growth in Rest of Competition The in-house manufacturing model adopted by Hermes, 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, LVMH focused more on leathers in the luxury products and others like liquor. As shown in figure 2, not many brands have a spread of luxury products and they mainly focus only on high margin leather products or watches only LVMH, 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 products market image and success. However, the same may not apply to fast moving ready-towear product lines and that calls
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Strategic Management Gucci Case Analysis 7 GUCCI the current outsourced production line, which will position them to address any growth quickly Heavy focus on technology by senior management is visible as part of Guccis revamping effort. This includes online sales, EDI network connecting12 Gucci-suppliers-partners, and data mining on customer preference and market demand management etc. Rest of Competition 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, there is a hesitation to adopt the technology aspects fully by many luxury companies. 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.
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Figure 5: GUCCI in 1990 Strength, Weakness, Opportunity & Threat (SWOT) Analysis
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Strategic Management Gucci Case Analysis 10 potential acquisitions to strengthen its brand and product range. With its group operating margin projected to be in the range of 16.8%, its stocks traded at an all time of US$10012016 during this period. Though the transformation journey is not completed yet, 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.
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037. Harvard Business School Publishing
Strategic Management Gucci Case Analysis 11 Price: De Sole & team personally repriced every item, lowering prices upto 30% and thereby positioning Gucci below Hermes and Channel as a mid-tier brand at par with Prada and Vuitton 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. 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. 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.
Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037, pg 6. HBS Publishing
Strategic Management Gucci Case Analysis 13 scope of the market and how it attempts to compete are the two fundamental choices that any business needs to make in a competitive environment. With Guccis scope of market clearly defined as exclusive clientele for luxury products, cost or price will not make much difference to attract or grow its clientele. Therefore, Gucci needs a stronger differentiator in the form of having products that are different in ways they are valued by its exclusive clientele. This assessment again confirms the conclusion in section 4.1 that YSL acquisition exactly provides that advantage to Gucci.
Figure 10: Ansoff's Corporate Strategy (Source: Strategic Management, 2000. pg 137)
The assessment in section 4.1, 4.2 and 4.3 concludes that growing by acquisition is an accepted strategic choice in such a competitive environment. 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. The key to success from here on is to modify the corporate mission, vision and strategy intent towards integrating and creating a synergy between the acquired brands both internally and externally.
Strategic Management Gucci Case Analysis 15 In addition, the growth in rest of Asia is expected to increase the market share of luxury products from the current 18% 18 to higher. This will help to achieve the desired operational results and better align the future strategic choices when planning for the next acquisition.
The above will set the tone for the most needed actions that Gucci as a group needs to focus in the next decade.
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Gucci Group N.V. (A) by Mary Kwak. 2001. HBS Case 9-701-037, pg 19. HBS Publishing
Strategic Management Gucci Case Analysis 16 In the range of luxury goods, leather goods and watches carry the highest level of profit. While leather goods forms 41% of the Guccis portfolio, watches contribute only 19.8%. Similarly, silk items like tie & scarves, the second most profitable items forms only 1.9% of its portfolio. Also, jewelry only forms 3.3% of the portfolio. The company can focus on all these three areas for organic growth as well as strategic acquisitions In terms of regions, Asia, the fastest growing region in the world only contributes 18.3% of the revenue. With most of Asia on the rise and economy doing well and projected growth in double digits, this is an area Gucci can focus for organic growth
6. Conclusion
A quick analysis of the luxury market using Porters five force model will give us a view that the supplier and buyer power are relatively muted in the luxury industry. For example, the suppliers are more worried that the work will be moved in-house given the design uniqueness, quality focus and needs to restrict the mass production in luxury products. Similarly, 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. Similarly, 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 chances of substitutes are also very rare for a luxury product as they are exclusive in nature. That leaves us with competitive rivalry as the only possible threat for a luxury product group like Gucci. In 1999, LVMH versus Gucci saw rivalry brands Prada and LVMH joining hands to block Gucci from acquiring Fendi. Both the rivals joined hands subsequently to launch a hostile takeover bid to acquire Gucci itself. This is an area that the Gucci Group needs to focus, 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.
In summary, Gucci is very likely to succeed given the presence of aggressive leadership, innovation focus, creative designs, being employee and supplier friendly, and its cash rich status. The YSL and Sergio Rossi products bring more choice to its client base without any duplication of the current product base. If the subsequent mergers are also done in similar way and if Gucci could establish operational efficiency leveraging its current manufacturing and distribution framework, that will position Gucci as a cost effective and successful multi-brand, multi-product luxury maker globally.
7. Bibliography
Macmillan, H. & Tampoe, M., 2000. Strategic Management. New York: Oxford University Press. Kwak, M. & Yoffiie, B., 2001. Gucci Group N.V. (A). Boston: Harvard Business School Publishing. Kotler, Philip, and Kevin Lane Keller, 2005. Marketing Management. 12th ed. Upper Saddle River: Prentice Hall.