Gucci‘s overall strategy was to vertically integrate to strengthen its overall brand image. After vertically integrating they acquired other luxury retailers to continue to grow horizontally and to increase economies of scope. The economics of the luxury goods industry changed forcing Gucci to modify its strategy. Consumers demand shifted from classic style buyers to style conscious buyers. Gucci not only had to change due to the economics of the industry but they also had several problems with their existing structure. Hence Gucci made the following moves to reposition it to compete in the new economics of the luxury goods industry. Gucci
The partnership between DeSole and Ford addresses the company’s inability to have streamlined decision making and consistent branding throughout the company. By partnering product design and strategy, Gucci can now make product and business decisions that deliver a consistent message externally. All products and communications will support the brand image of a luxury goods retailer that Gucci wants to deliver to the marketplace. The cost cutting and targeted layoffs address Gucci’s poor cost structure. While profit margins were healthy, the extravagant spending by the former CEO was reducing profitability. The company had excess headcount in some areas and less in others. The layoffs improved Gucci’s cost structure and streamline the organization. Secondly, Gucci lacked the management talent to run a high end luxury company. By laying off underperforming managers and hiring experienced business executives, Gucci significantly improved the quality of its management team. The cash investment by PPR protects Gucci from hostile takeovers by competitors. The improvement in Gucci’s capital structure enables Gucci to move from an acquisition target to a potential acquirer of substitutes and new entrants. This is critical because in the fashion industry, new brands are always emerging in the market. The $3 billion dollar cash...
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