1) Map the competitive positions of different players in the luxury good business among the “cost

leadership” (Y-axis) and “Product differentiation” (X-axis) strategy map. Where is Gucci’s position on
this map in 1990, 1994, and 2000 respectively.

2) What were the critical strategic choices made by De Sole in his turnaround strategy. Try to match
this to internal value chain activities of Gucci.

Players in the business?

Segments?
Strategies?

<History of Gucci>
1953: Gucci opened a shop in New York, its first outside Italy.
(미국 호황과 더불어 sprouted up in Chicago, Phillie, San Francisco, Beverly Hills and Palm Beach)

By the late 1980s, some 22,000 products, including tennis shoes, playing cards and cigarette holders,
bore the Gucci Name. Fake Gucci bags.... The ubiquity of the double Gs.

Brian Blake recalls “Gucci would not truly be considered a luxury company by luxury goods players
like Chanel and Hermès. It was pretty much trading on its past reputation... No truly discerning
luxury goods client would stop at Gucci.

1980년 후반부터 개판.

- sprawling North American distribution network which had grown out of control.
- Between 1990 and 1994, Gucci America’s store tally fell by almost half, from 42 to 26. In cities
where Gucci remained, the company renegotiated rents, reduced square footage, and cut staff in
order to lower the break-even point.
- Gucci’s repositioning program cut deeply into sales.
- We were just producing more and more losses (Brian Blake)
- Maurizio Gucci lacked business and analytical skill
- prices were too high
- production was disorganized
- delivery was a nightmare
- no clarity to the direction of the company
- no cost controls (this means that cost leadership strategy도 아니고 이도저도 아니었다.

In the early 1990s, the entire industry was suffering from a downturn. (요인: Gulf War, U.S recession)

Thanks to its unique customer base, the luxury market was less vulnerable to economic slumps than
many other categories, but still, as this period showed, it was no way immune.

<What players usually did in the industry during the 1990s>

- We are all going after the same consumer (Tom Ford)
- Many companies invested heavily in advertising. (average spending from 9.4% of sales (!995), 10.6%
in 1999.
- common for luxury goods firms to enlist A-list celebrities, like Madonna, to sport their brands
- the indsutry moved away from its classic image toward a more fashion-oriented approach
- classic image = timeless designs, varying little from year to year (reduction in inventory
risk)
- 1990s: consumers expected new styles and new models every season.

<Manufacturing>

1) in-house
- vertically integrated approach
- by Hermes (by mid-1990s, the company employed almost 600 artisans handcrafting leather goods
in workshops outside Paris)
- single craftsman was responsible for all the steps involved in assembling a handbag, which might
take 17 hours of more
- Hermes (80% of its products in such way)

2) outsourced
- Gucci, Prada (outsourced most of their production through a carefully controlled network of small
Italian firms)
- minimized fixed asset investment
- 1998, return on invested capital of 36% in 1998, compared to 19% for Hermes,

<Distribution>

- Trend in latter part of 1990s --> greater relaince on DOS (directly operated stores)
- most industries pulled back from wholesale distribution through department stores or independent
boutqiues.
- costly BUT, maintaine complete control over presentation, service, pricing and the range of
products that were sold
- reduced vulnerability to gray market or parallel trade
- duty-free sales 부진 --> many companies put increased effort into developing local markets,
which were less sensitive to short-term macroeconomic moves.
- most of the companies reluctant to ecommerce exceept for Tifanny and LVMH
<COMPETITORS>
- 35 companies shared 60% of the market
- $1 bn: 6 firms,
1. LVMH 2. Vendôme 3. Cartier 4. Vacheron Constantin 5. Mont Blanc

Positioning set different firms apart

Leather goods:
Hermès (top of the market, Kelly bag) $4,300 Price was not imp, wmn crowded Hermès waiting
lists around the world
Chanel bargain hunter, ($1500) one step down the ladder

Gucci, Louis Vuitton, Prada ==> middle range, basic leather models typically ranging from $600-
$1100

Ferragamo (lower end of the luxury scale)

- Most successful luxry companies were family-owned or controlled

Armani, Versace, Ferragamo, Prada, Bulgari, Hermès, and Chanel
- ownership was concentrated in the hands of the founding designer who had given the house his
or her name
(-) frequently lakced capital and management deoth
unique challenge: keeping the brand going once the original designer had left the scene

<Gucci in 1990>
- 엠생 그 자체
- From 1991 through 1993, Gucci’s losses amounted to $102 million.
- Gucci was unable to finance new collections and advertising or even to pay suppliers and
employees.
- Gucci’s core customers was a wealthy, somewhat conservative, older woman
<Gucci in 1994>
- 개혁의 시작 by De Sole
- Reorganize and reposition the firm
- instituting professional management and financial controls, cost-cutting was an early priority for
the new team.
- 50 people were fired at the corporate level,
- negot. with unions --> manufactre workforce cut by 100

- focused on upgrading Gucci’s productions and delivery systems

When I inherited control of the company in 1994, everything was in disarray. People were
demoralized and paralyzed. Everyone was in a panic.

Firm infrastructure: Management philosophy = incredible sense of urgency. making immediate

decisions and doin everything three days ago. Work week ends and make calls 3 o’clock in the
morning.

-close partnership with Tom Ford.

- challenge: welding Gucci’s many parts into a coherent whole
(pg 8 마지막 문단 전체 참고)
- Under Investcorp’s guidance, the seven Gucci operating companies --- Guccio Gucci,
Gucci France, Gucci LTd. (UK), Gucci S.A., Gucci America, Gucci Japan and Gucci co Ltd (HK) were
combined for the first time.

STRATEGY: FOCUS ON FASHION

- strip off past image --> launch a ready-to-wear collection that broke radically with Gucci past.
- target: fashion-conscious customers / short attention span / less brand loyalty than others /
replace everything they have every season (5F bargaining power of buyers very strong)

- single purchases averaging $350-$450 in the US

- replace everything they have every season
- leather good 41%

- Gucci also created a merchandising function to collect customer data, channel market demands

PRICING STRATEGY
- lowering prices on average by 30%
- This strategy positioned Gucci below Hermès and Chanel and on par with Prada and Vuitton
Hermès $2,000 Gucci $950
(Product were equal, in terms of material, in terms of workmanship)
- Gucci aslo made it possible for a wide range of people to enter its world, by offering articles
ranging from scarves to fur oats (diff로 해석? cost leader로 해석?)
- determined to preserve Gucci’s luxury status
- resisted the temptation to extend th e brand by launching diffusion lines

MARKETING STRATEGY
doubled advertising expenditure (이건 differentiation advantage 구하려고 한 것 같은데???)
$5.9 mil in 1993 --> $11.6 mil in 1994 4.6 of revenues
2000년도에는 13% of sales 이건 완전 differentiation이잖아!!!

MANUFACTURING AND LOGISTICS

- Domenico De Sole’s first priorities was to hit the roads of Tuscany, woo the best of Gucci’s
manufacturers and cut off the rest (1993, supplier relations were the worst because of Gucci’s
inability to pay them)
personally visited every supplier

- new program for partners (provided selected suppliers with technical and financial support)
- faster and more predictable delivery of classic products
- encouraged guccis production staff to invest in technological innovations (computerized
equipment for cutting leather)
- high flexible production system built on three pillars: skilled artisans, advanced technology, efficient
logistics.

- (LEATHER GOODS): subcontracted the manufacturing of 95% of its leather goods

producing only items made from exotic skins, such as ostrich and crocodile, in-house
- 25 partner suppliers; gucci provided them with financing for materials and investments in plant
as well as technical expertise
- guarantee minimum production levels for partner suppliers.
- work largely by hand
- loyal suppliers

- methods to maintain quality

- provide training for suppliers’ workers in their own workplace
- inspectors checked quality control
- EDI network --> ensure the smooth flow of information through all stages of the
production process
- adressed bottleneck (104 to 68 days)
<Differentiation>
- proportion of new styles vs carry over 54%

DISTRIBUTION STRATEGIES
- strengthening the network of directly operated stores
- DOS: both flagship stores and shops-in-shops
- product 뿐만 아니라 매장도 young 하게 만들자~
-

잠깐만 얘네 hybrid strategy야?????

<Gucci in 2000>
- The Pinault infusion: The Pinault infusion and the Sanofi Beauté transactions transformed
Gucci into a multi-brand luxury group with nearly $3 billion in cash

The New Gucci Group

Between 1997 and 1999, Gucci increased the points of sales to a planned 6,000 doors (of better
quality overall) by the end of 2000. Gucci also realized considerable savings by consolidating back
office operations, such as warehousing, for all of its product groups.

Acquisiton으로 share를 쌓는 중

<Activity set으로 비교>

1990 Maurizio Gucci
1994 De Sole & Ford
2000 De Sole & Ford