Gucci Case

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Gucci’s agile supply chain1
Professor Corrado Cerruti, University of Roma Tor Vergata, Italy and Professor Alan Harrison, Cranfield School of Management, UK Case date: 2005

Gucci Group: a brief overview
Gucci Group, with consolidated sales over 3.2bn, is a world-leading, multi-brand company in the fashion business. In addition to the core Gucci brand, the Group incorporated other leading brands such as Yves Saint Laurent, Sergio Rossi, Boucheron, Bottega Veneta and Balenciaga together with designer brands such as Alexander McQueen and Stella McCartney (exhibit 1). Leather goods, and in particular bags and accessories, represented the traditional core business of the group, with a growing presence in ready-to-wear clothing and shoes. The major distribution channel is directly operated stores (DOS), which contributed roughly 50% of Group turnover. Gucci is a global company, with Europe accounting for just over 40% of sales: the USA, Japan and ‘Rest of the World’ each contribute roughly 20% (exhibit 2). Gucci Group was founded in 1923 by Guccio Gucci, and developed rapidly after World War II to become internationally known as a luxury brand. In the 1970’s, arguments and legal disputes within the Gucci family brought about a rapid decline in fortunes. At the end of the 1980’s the company - in spite of the entry of the Arab investment group Investcorp – was in poor shape financially. The famous brand was also suffering because of the extensive practice of licensing. Starting in 1994 under Domenico De Sole, Gucci underwent a rapid turnaround process. This painful experience not only aimed to cut costs and locations, but also to build a modernised company. Thanks to the cheerful contributions of Creative Director Tom Ford, it also built a renewed brand. Within a five year period, De Sole – together with Tom Ford as stylist, Renato Ricci as head of human resources, Bob Singer as chief financial officer and James McArthur as director of strategy and acquisitions – managed to increase company sales almost four times (table 2). The turnaround gave Gucci a leading world-wide position, allowing the company to return to positive earnings and then to finance a strong acquisitions campaign and moved towards the present multi-brand configuration. The major acquisition was Sanofi Beautè. This company owned YSL licences and comprised two major divisions: YSL Couture for Yves Saint Laurent ready-to-wear and YSL Beauté for cosmetics and fragrances. The traditional Gucci

The authors would like to thank Vivencio Fernandez de Aragon - General Manager of Gucci Logistica – and Karl Heinz Hofer – Production Manager - for their support in providing us with essential information for this case: any errors are our responsibility!

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fashion and accessories division accounted for the largest part (54%) of group revenues, and of the margins (240%). However, the newly acquired brands allowed the group to nearly treble its sales in the 5 years from 1999 (1174m) to 2004 (2,544m). Following acquisition of Gucci group by Pinault Printemps-Redoute (PPR) in May 2004, a new management team led by CEO Robert Polet was set up. PPR started investing in Gucci in March 1999 in order to help Gucci management to face up to a hostile takeover bid by LVMH, one of its strongest competitors. On September 10th 2001, following a settlement with LVMH, PPR increased its interest in the company to 53%2. In April 2004, following a strategic investment agreement with LVMH, PPR offered to purchase all Gucci public shares. After the acquisition, PPR started de-listing Gucci shares from the New York Stock Exchange and Euronext Amsterdam in July 2004. Gucci Group is now the pillar of PPR Luxury Goods division. While very international in its presence, its management and its ownership, Gucci was still rooted in Florence, and in the craftsmanship strengths of the Tuscany region. All of its traditional leather production (bags and accessories) was carried out in the...
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