Gucci Strategic Analysis

Topics: LVMH, Gucci, Luxury good Pages: 8 (2690 words) Published: July 30, 2011
1. What are the characteristics and attractiveness of industry? The characteristic of luxury goods industry
Gucci, Hermes and Louis Vuitton, all of these brands had been found more than 150 years ago. With the high amount of profit, as well as the sales growing 6% every year could make luxury goods industry one of the highest profitable market in the world. The industry has seven main product categories which are; leather goods, footwear, high-end apparel, silks, watches, jewelry and perfume. The target group of this industry is women in the upper income brackets between the ages of 30 and 50. However, in Asia, most customers are women between ages 21-25. In the past, most designer tried to focus on timeless designs that allowed them to sell the product time to time. Even if the products could not be sold out within a year, they could sell them again the following year. In doing these, they could lessen the over –production. The attractiveness of luxury goods industry

In order to analyze the attractiveness of the industry, Porter’s five competitive forces are used to determine ability of the firm. These are the five forces; threat of new entrants, threat from substitution products, bargaining power of buyer and supplier and the existing rivalry in the market. * Threat of new entrants

The threat of new entrants in this market is in the medium level. As the barrier of entry is very high as the company must has high investment and capital to develop their technologies to cope with existing brands, and to enter the distribution channel. Some small companies do not have capabilities to implement operation management as good as the existing company. They have to put much effort to truly understand the nature of this industry. Also some countries have certain laws that might limit their distribution ability. * Threat from substitution products

There are very little of substitution products. Due to no substitution products that can really replace the luxury goods, the quality is different. * Bargaining power of buyer
Even though the potential buyers have their own favorite designer, they may switch from brand to other brand easily. They usually buy products from different brands in relation to different goods. However, some are considered loyalty to particular brand as well. Even though the numbers of buyers in this industry are only few but they are a large player in the industry. They all are willing to pay for high price product. * Bargaining power of supplier

The bargaining power of supplier is in lower level as all their products have yet been established into the market. Contrarily, the regular brands are more well-known to general customers worldwide. * Existing competitors in the market

There are several competitors in the market that are in better position than Gucci itself such as Hermes, Louis Vuitton, Prada or Chanel. These brands have very high quality products and good marketing plan as well. It is quite tough for Gucci to handle with them. So the level of the rivalry is high. 2. The competition within the industry

The luxury market is highly competitive at present, with competition intensifying. The size of luxury goods market worldwide is estimated around US$60 billion with growing rate at 6% annually. There are about 35 top companies which produce 60% of goods. In one year, 6 companies were believed to earn more than US$1 billion while 15 to 20 earned US$500 million to US$1 billion range. 10 companies can earn US$500 to 100 million and the rest was up to US$500 million. The top player was LVMH that disclosed the total revenue of US$ 8.2 billion in 1999. The key item of most top brands like LV, Chanel, Hermes and Gucci was leather goods such as handbag, silks and apparel. Even though there was economy recession in most countries, the luxury market was slightly affected as new segment of customers emerging. There are more working women and men who want to pamper themselves with the...
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