Gucci Group

Joe Murillo

Gucci Group

BUS 469-03

1. Identify the competitive positions of the different players in the luxury goods business. Who are the best positioned players? Why?

        Different players in the luxury goods business include Louis Vuitton, Sephora and Prada. LVMH, who is the parent company, sales grew by 38% in 2007 from 2003, and increased operating profit margin from 16% to 22% over that same period. Brands within LVMH like Louis Vuitton and Sephora contributed to this growth, demonstrating their favorable competitive advantage within the luxury goods business. With LVMH incorporating a multi-brand strategy, there is some companies that remain in debt and do not contribute to the conglomerates growth. Prada, for example, found itself in $950 millions in debt. Though they experienced a $66 million increase in net profit and a 17% increase in sales, their poorly executed plan of expansion, paired with poor market conditions contributed to substantial losses.

2. Where was Gucci positioned?

        Gucci’s position in the luxury goods market was favorable from 2005-2007, thanks to the growing international market. Gucci began to shift their focus on products and advertising to more traditional methods such as ready-to-wear collections and advertisements focusing on the products itself. During this time, Gucci continued to expand through acquisitions and opening of new stores. Though Gucci had a favorable competitive position in terms of financial returns, many experienced fashionistas thought of Gucci as losing its personality as a company.

3. Evaluate DeSole's latest strategic move to buy Yves Saint Laurent (YSL) and Gucci's expansion.

        Gucci Group acquired YSL in 1999, and predicted rapid profit growth by 2003. Gucci spent a large portion of the budget in expanding YSL stores worldwide from 25 in 2000, to 60 in 2003. Their plan was to revitalize the YSL brand by terminating licensing deals, which I think was not the best idea. The majority of YSL’s revenue came from these licensing deals, so eliminating them was a bold strategic move by De Sole. YSL’s products became bolder, just like their strategic moves, in attempt to regain market share. Unfortunately, Gucci Groups forecasted growth never came to be, as YSL experienced operating losses of 109 million euros in 2003.

        Gucci’s expansion strategy mirrored LVMH, as it attempted to diversify its brands within its portfolio. They acquired Alexander McQueen, from LVMH, and acquired Balenciaga, who both were elvated to cult-like status in the fashion community. Gucci made a smart strategic move in acquiring companies that gave them control over production and distribution, such as acquiring design studios and distributors.

4. Would you have appointed the "Ice Cream Man," Robert Polet of Unilever, to run Gucci? What is your evaluation of his performance, to date?