Gucci, the brand name responsible for many trendy and fashionable products, has been in business since the early 1920’s. Their high-end, expensive line of clothing and accessories is the standard in the affluent ready to wear luxury product industry. In the middle of the company’s lifespan, they lost their way by trying to create too many products that overextended their market. This had a negative impact on the exclusivity of the brand. It wasn’t until the mid 1990’s that they cleaned up their image along with their production and distribution system to again make themselves into a truly elite brand once again. Threat of New Entrants (High)
The threat of new entrants into the luxury goods industry is relatively is high. Capital investment is low because the cost of materials such as leather and fabric can be relatively inexpensive. However, the cost of producing watches and other intricate pieces can be somewhat expensive unless specific product knowledge is attained, or unless the product is outsourced to other companies. Technological know-how is a great advantage to retailers. Personally producing a product not only gives better control over the production process, but it is a selling point if the quality is high. However producing one’s own product is not necessary and many times is not the case. Guccio Gucci, the original founder of Gucci, started his company by selling luggage imported from Germany which elevated into a small workshop, and later flourished into a billion dollar brand name. One of the main reasons for new entrants into the industry is the high profitability that is possible. Another reason that the threat of new entrants is high is that switching costs are low. Most value is based upon how the item is perceived. If an item is trendy or fashionable, it can be sold quite easily at a high price. Rivalry (Medium)
The luxury goods industry is somewhat competitive. Among the top contenders are: Prada,...