Posted by: itm2011 | May 15, 2011

Star-Designer Strategy: Rebuilding Gucci with Tom Ford

Star-Designer Strategy: Rebuilding Gucci with Tom Ford

 

 

Objective: To study how Gucci faced a serious challenge of rebuilding the brand after its fall down.

Brief History

         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. Maurizio failed. Years later, Tom Ford and Domenico De Sole are given the credit for turning Gucci around in 1994 and turned the company into a powerhouse luxury brand. This case study will discuss why Maurizio failed to transform Gucci and how Tom Ford and Domenico De Sole rebuilt Gucci again.

Luxury Industry

             Luxury market is around $60 billion global industry. The competition is high and its entry barrier is low. In this industry, consumer preferences are constantly shifting, causing the concept of luxury itself to change over time (Hanna). Therefore, brands are constantly refreshing their products lines. Also, this industry is a risky business because brands need to have the ability to know what consumers want before they know it themselves. Many successful luxury brands such as Hermes and Chanel had heritage and prestige. These are very important aspect of luxury market as a result it takes time and effort for consumers to perceive as a luxury brand. Since the economic crisis, the sales in luxury industry declined however reminds very steady due to emerging markets in India, China, Russia and Brazil. There is a trend in the luxury market recently, which is creating more affordable items to mass market. For example, Lavin for H&M, Vera Wang for Kohls,  Roderte for Target. Is trend is exciting for customers who cannot afford “real” luxury however brands need to be aware of maintaining their brand reputation and quality.

Reorganization and Repositioning

            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.

Mistaken Perspective of Gucci

            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.

Invescrop’s Decision

           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.

Tom Ford and Domenico De Sole

          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 indentifying 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.

Pricing

           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

            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.

Product and Manufacturing

            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.

Distribution

           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.

Expansion of Gucci Group

          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.

Conflict with PPR

          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.

Evaluation

            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.

Gucci after Tom Ford

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 (Passariello). 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 (Gucci-Designer Fashion Label).

Star-Designer Strategy: Marc Jacobs

           Marc Jacobs at LVMH is a similar story to Gucci’s “one star designer strategy”. He is one of the most prolific and provocative forces in global fashion.  In 1997, Jacobs was appointed Creative Director of Louis Vuitton, where he created the company’s first ready-to-wear line. At Louis Vitton, Marc Jacobs updated and refreshed the company’s image as a luggage maker to one of the most fashionable ready-to-wear and accessories (Marc Jacobs). He even successfully introduced seasonal collaborations on handbags with artists like Stephen Sprouse, Takashi Murakami and most recently American artist Richard Prince and rapper Kanye West. He recreated a brand targeted to younger customers with trendy and fashion-forward look. Sales in Louis Vitton started to increase tremendously and Louis Vitton became the “it-bag”. He became the star of the brand just like Tom Ford. It is hard to describe Loius Vitton without Marc Jacobs. After becoming the face of Louis Vitton, he launched his own company named The Marc Jacobs International Company, L.P. and Marc Jacobs first freestanding store opens up on Mercer Street in New York City in 1997. As of 2011, Jacobs remains the Creative Director for Louis Vuitton and his own line still remains successful.

Star-Designer Strategy: Phoebe Philo

          In 2010, Phoebe Philo, creative director of Celine, named Designer of the Year at the British Fashion Awards for the second time. She was known as the star designer at Chloé. During 2001 through out 2006, when she was the creative director, Chloé becomes a luxury global brand with critical and commercial acclaim for its ready to wear and accessories. Chloé sales shot up 40 percent after the revival of the brand. In 2006, she resigns from Chloé and takes a break from the industry. Phoebe Philo has done a fine job of bringing Chloe’s heritage of delicate fluid clothes up to modern speed (Phelps).

After Phoebe Philo left Chloé, Paolo Melim Andersson was appointed as creative director, Chloé faced decrease in sales and struggled with their brand identity. Andersson appeared to struggle to marry his own hard-edged aesthetic with Chloé’s traditional girly side that Phoebe Philo established strongly for the brand. Andersson presented only three seasons and was replaced by Hannah MacGibbon. Two creative directors were replaced only with in two years. In the transition of different designers, Chloé had negative impact on their brand image. As of 2010 Philo has shown two collections for the Celine, receiving highly enthusiastic reviews from fashion editors worldwide and great customer response to her aesthetic (Bumpus). Again rebuilding the Parisian luxury brand, Celine from its downfall.

Conclusion

          In recent years, as fashion houses have become global brands; there is considerably more pressure on designers to function as all-points creative directors (Horyn). 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.


Sources:

Kwak, Mary, and Yoffie David. “Gucci Group N.V. (A).” Harvard Business School. 9-     701-037. (2001): Print.

Kwak, Mary, and Yoffie David. “Gucci Group N.V. (B).” Harvard Business School. 9-701-089. (2001): Print.

Kwak, Mary, and Yoffie David. “Gucci Group N.V. (C).” Harvard Business School. 9-702-479. (2002): Print.

Renee, Kim, and Yoffie David. “Gucci Group in 2009.” Harvard Business School. 9-702-479. (2010): Print.

Larocca, Amy . “Collectible Gucci.” New York Magazine (2004): n. pag. Web. 26 Apr 2011. <http://nymag.com/nymetro/shopping/fashion/features/n_10025/index1.html&gt;.

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“Biography.” Celine Offical Website (2011): n. pag. Web. 14 May 2011. <http://www.celine.com/en/index.asp#/phoebe-philo&gt;.

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Barnett , Leisa. “breaking news: a new girl at chloe.” Vouge (2008): n. pag. Web. 14 May 2011. <http://www.vogue.co.uk/news/daily/2008-03/080310-breaking-news-a-new-girl-at-chloe.aspx&gt;.

Horyn, Cathy. “More on the Change at Chloé.” New York Times (2011): n. pag. Web. 14 May 2011. <http://runway.blogs.nytimes.com/2011/05/09/more-on-the-change-at-chloe/&gt;.

Passariello, Chirstina. “Gucci Unpacks ‘La Dolce Vita’ .” Wall Street Journal n. pag. Web. 14 May 2011. <http://online.wsj.com/article/SB10001424052748703399404575505423060865984.html&gt;.

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