Structure, Performance, Strategies and External Environment of Gucci: Analytical Essay

Introduction

This paper aims to analyze the structure, performance, strategies and external environment of Gucci, one of the most famous companies in the world.

The company overview will give an insight into Guccis history and achievements.

This section will be useful to understand the importance of this firm in its field and the position it has gained throughout the years.

The paper will continue with the definition of Guccis mission and vision. A strategy analysis will be conducted to understand Guccis values and the way it applies them to set its goals. In this section, it will be possible to acknowledge how the firm operates in the market remaining coherent with its beliefs.

Being Gucci a multi-business company, it supplies products in the sectors of clothing, accessories, jewelry, fragrances, and makeup. This report will focus on the clothing department of the company, to analyze and better understand the pillars of the main source of Guccis profits.

The external environment will be evaluated by taking into account both the general and the competitive environment, crucial in the analysis of the factors affecting Gucci. The definition of the industry in which Gucci competes will be essential at this stage, since the 6 segments forming up the general environment, affect each industry in a different way and extent. Here the issues of industry selection and the threats related to it will be evaluated.

In the analysis of the competitive environment, Porters 5 forces model will be applied to Gucci to understand its position in the market-wide environment. This will be carried out by evaluating the degree of influence that each of the five forces exercises on Gucci.

Further examination will be conducted by executing the SWOT analysis. This section will point out the strength, weaknesses, opportunity, and threats that Gucci must face within its industry. Furthermore, the detection of strategic groups will be included in this paper to understand the wider behavioral patterns (in strategic terms) of the luxury industry, in which Gucci competes in.

1. Overview

Gucci is an Italian company founded in Florence by Guccio Gucci in 1921. It is considered one of the most desirable luxury fashion brands all over the world, and it focuses on prestige and exclusivity.

Guccio Gucci was born in Florence in 1881 from a humble family; his father was an Italian artisan who made leather goods. As a teenager, he traveled across European capitals such as Paris and London, where he worked as a waiter, concierge, and lately as a maître. In 1897, Guccio Gucci worked as a lift attendant in the renowned and prestigious Savoy Hotel, where he was inspired by the elegance of the hotels guests. Gucci returned to Florence in 1921, where he used all his saving to open a small shop on Via Vigna Nuova. Guccis first store sold products- such as high-end luggage, shoes, gloves, and bags – that were made with high-quality leather crafted by the best local artisans. Gucci’s creations were inspired by horseracing. Success came quickly for Gucci, as his store became popular among tourists and the Tuscan nobility.

Consequently, due to higher demand, the store location was moved to a larger headquarter in Lugarno Guicciardini. During fascist period, Guccis production had to find different ways to import leather and other materials, thus the brand started to create its products with atypical materials- such as hemp, flax and jute- to overcome League of Nations embargo against Italy. In those years, Gucci manufactured the famous bamboo-handled bag, which was inspired by the shape of the saddle bag. In 1938, Gucci opened its first store on Via Condotti, in Rome. In 1951, Guccis opened a store on Via Montenapoleone, in Milan. Around this time, the green-red-green plot became the companys official trademark. In 1953, Guccio Gucci died and his four sons inherited the company.

In that same year, another Gucci store was opened in New York City. In the 1960s, Gucci adopted the popular two crossed GG logo, and after that all of their productions- bags, luggage, leather goods and first pieces of clothing- were characterized by the presence of this logotype.

During the 60s, new stores were opened in London, Palm Beach, Paris, and Beverly Hills. Celebrities of that time -including Liz Taylor, Sofia Loren, Ingrid Bergman, Audrey Hepburn, Jacqueline Kennedy and Princess Grace of Monaco- were seen wearing Guccis designs. The brand’s popularity among celebrities contributed to further improve the companys image and reputation. In the 70s, the company expanded to Eastern capitals, and stores were opened in Tokyo and Hong Kong. In 1974, there were over 14 stores distributed worldwide and a year after that, the first fragrance was launched. In 1982, the company was transformed into an S.p.A. company and leadership passed to Guccis grandchild Maurizio, who possessed 50% of the company. In 1985, Guccis legendary loafer was exposed at the Metropolitan Museum of Art in New York, where it became part of the permanent collection.

In 1987, an Arabic investment company, called Investcorp, bought the companys shares when Aldo Gucci and Maurizio Gucci left the brand. After a few difficult years for the company, in 1994 Guccis director Domenico Del Sole appointed Texan stylist Tom Ford as the brands new creative director. Tom Ford revolutionalized Guccis image through remarkable marketing campaigns that made history. He re-introduced the iconic bamboo bag and the horse bit clutch bag; his first 1995 campaign was an enormous success and was merely focused on jet-set glamour. The Federation of European Economic Press named Gucci company of the year after Domenico Del Sole listed the company in the stock market in 1998. In 1999, Gucci became the property of the Kering S.A (called PPR at that time) which to this day controls the company. In 2004, both Del sole and Ford left the company due to contractual issues. Robert Polet was appointed as the new CEO of Gucci Group and Mark Lee became the companys new CEO. John Ray and Alessandra Facchinetti took over men and womens designs. Frida Giannini was promoted to the position of Guccis new creative director in 2006 after she smartly relaunched the Flora print. In 2006, Gucci signed an agreement with Procter & Gamble for the production and distribution of the brands fragrances. In 2009, Patrizio Di Marco became Guccis new CEO, succeeding Mark Lee. Frida Giannini also re-launched a new and modern version of the bamboo bag and the Jackie O bag. In December 2014, creative director for Guccis womens ready-to-wear and accessories Frida Giannini and CEO Patrizio di Marco were requested to step down from Gucci. Kerings Chairman and CEO Francois-Henri Pinault asked Bizzarri to become Guccis new CEO. In a statement, Kering declared that Bizzarri will support Guccis brand elevation strategy to continue to strengthen the brands international growth; this leadership transition will not result in any change in the organization of Kerings luxury activities.

During the last nine decades, Gucci has played on its competitive advantage -through which it has created a new and distinctive line of items- to deliver quality products and consequently gaining market share. The company has constructed a refined concept of fashion, using charisma and intuition, but maintaining the original aspects of production.

Guccis company has expanded its activity all over the globe; sponsorship deals with A-list celebrities have contributed to grant the company international status and recognition. In addition, starlets and top models have worn the brands clothing, accessories, and shoes for high-fashion magazines editorials, raising brand awareness and reputation around the globe.

Among the various Italian fashion houses, Gucci is at the forefront of the digital market, according to the ranking drawn up by Contactlab and Exane BNP Paribas. The ranking analyzed the level of digital and cross-channel competitiveness of 34 fashion brands and luxury on a global scale. Kering, that has grown in 2017 reaching 6.2¬ billion in revenues, has moved from the third place in 2018 to the first, on a par with Burberry, a label that held primacy for years.

Selecting the appropriate business approach and implementing the right strategy, as the new leaders Marco Bizzarri and Alessandro Michele did, helped the company to obtain the desired results. According to that ranking, the company has spread its image, successfully selling both traditional products, such as leather goods, and different accessories.

Moreover, Gucci has won several international awards, including ISO 14001 (Environmental System), LEED (Leadership in Energy and Environmental Design) and FSC (Forest Stewardship Council). This year, at the Italian Fashion week of Milan, the company has been awarded brand of the year and its CEO Marco Bizzarri was nominated best leader, for the third consecutive time.

2. Selection of a business

Kering is a conglomerate that administrates the development of some renowned labels: Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen, Pomellato, Brioni, Dodo, Boucheron, Qeelin, Girard-Perregaux, Kering Eyewear, as well as Gucci. According to Kerings official website, Gucci is the leading luxury brand that boosted Kering revenues; as a matter of fact, in 2018 Gucci alone made up for the 63% of Kerings recurring operating income. As illustrated in Table 2.1, Guccis revenue peaked to 8 billion euros.

Table 2.1

Table 2.2 depicts the rank of the most valuable Global Brands.

In 2018, Gucci was ranked at the 4th position, reasserting once again its presence among the top five most prestigious luxury brands worldwide.

Table 2.2

Gucci operates on a multi-business level.

Italian fashion and leather goods brand produces and distributes a broad array of leather goods, shoes, watches, jewelry, fragrances, cosmetics, luggage, handbags, and high-end apparel. Among its many businesses (where other comprises of cosmetics and fragrances), leather goods represent Guccis most popular and most remunerative product category, as shown in Figure 2.1.

Figure 2.1

We chose to analyze Gucci because it is one of the most relevant worldwide brands, as well as Kerings most lucrative label. Guccis most profitable product category is represented by clothing (leather goods, shoes and ready-to-wear) and for this reason, we chose to evaluate this specific business.

3. Strategy Analysis: mission, vision and strategic objectives

In any firm, strategic management is a key step to fill the gap between a firms values and ideas and their practical realization. The first element, the so-called strategy analysis, consists in identifying a common vision for the whole company, which will delineate a common direction, the big picture, the source of passion for the job; then, mission will arise, more concrete than the vision, and objectives, to be achieved in a specific timeline.

In the last decade, Gucci has been a great example of how great is the impact a good strategy analysis can have on the volume of sales. The companys conduct changed since Marco Bizzarri became the new CEO in 2014 and Alessandro Michele was appointed as the new creative director in 2015; since then, Gucci has become extremely modern and more prone to experiment than its competitors.

Many elements of Guccis mission and objectives are presented to stakeholders and the vast public; such mission and objectives are periodically updated following Guccis Ethic code, written for the first time in 1996. The main vision statement is: to become a worldwide leader in clothing and accessories industries, in the field of luxury and of sport and lifestyle.

Another important vision statement is: Empowering imagination.

These vision statements reflect different missions and timely objectives, which are:

Defend and promote creative people. For example, three years ago Gucci hired a graffiti artist called ‘GucciGhost’ to collaborate for the autumn/winter 2016/2017 collection; he was known online for his stylised double-G logo tag. He was not extremely famous and he didnt have a lot of experience in firms, but Gucci decided to experiment and praise his creativity.
Customizing more products and online services. This was meant to make shopping more similar to an adventure, rather than to a simple transaction: Guccis online store shows a lot of wonderful pictures (see below) and offers free returns, find-in-store options, product information and gift wrapping; also, the website features ready-to-wear collections as curated as they appear on the runway. Creating an immersive and unique e-commerce experience, in a world characterized by globalization and online networks, is a brilliant strategy.
Further working further on the Artisan corner project, by adding sections in every store where customers can see Guccis craftsmen in action and learn about past and present techniques of production. This mission is meant to show Guccis hidden aspects to customers, and especially the high skill and quality standards for their goods.
Being more relatable and more friendly with the customer; the mission is not to sell a product, but to sell a dream, a lifestyle. Forget how much it costs, and wear what makes you happy is the slogan. To pursue this, Gucci is working hard on its appearance and the imagery associated with the brand, through Instagram posts, magazines, and the [image: ]official website.
Strengthening the popular culture relationship. The mission of selling a dream is achieved, for example, by using celebrities, such as Lady Gaga and Beyoncé as testimonials. They have great visibility and, for most people, represent the life of dreams.
Paying more attention to young consumers: This is part of the more inclusive brand mission, since, traditionally, luxury brands always target middle-age people, and Gucci has always projected an aura of exclusivity, while now the company wants to make fashion for everyone, including young people; for this reason, Gucci is working on a geek-chic aesthetic, which is very popular among millennials. Also, the company created the hashtag #TFWGucci (thanks for watching) on Instagram and Facebook, pairing funny images with pictures of their products, with humorous captions. In order to understand and meet the desires of young adults, Gucci created a committee called Shadow Comex, which is made up of people around 30 years old: this young team is deeply involved in strategic decisions, and the CEO discusses with them the same topics that he discusses the traditional, main executive committee (the Comex). So, another mission for Gucci today is to obtain the feedback of millennials and show them that luxury fashion is for them, too. This strategy seems to be working pretty well since it allowed Gucci to reach many objectives: for example, in the third quarter of 2017, sales spiked by 49%, hitting $1.82 billion. Today, young adults aged between 18 and 34 years old account for more than half of Guccis consumers.
Working on environmental sustainability. Gucci affirms that it’s their duty to use their position as a luxury brand to pioneer and promote sustainability; this is linked to the focus on young adults because millennials care a lot about environmental issues. Gucci began to work in this direction in 2004 and in June 2010, the company introduced 100% recyclable packaging; last year it started its fight for animal welfare by joining the Fur Free Alliance, along with other luxury brands. Fur products were worth only about ¬10m annually in revenues to Gucci, so the financial impact was limited.
Corporate Social Responsibility. Gucci focuses a lot on the human aspect of their business and is fighting for employees rights, gender equality in the workplace and fashion industry, empowerment of local communities and against the exploitation of child labor. The company created the Kering foundation against violence on women and joined Global Compact in 2008.
Defend diversity, which means introducing new styles in all categories with no gender-specific pieces, for example. This is, according to the current CEO, the key to promoting respect and to create a sustainable business.

4. The External Environment

The external environment can affect a business widely, therefore it is necessary for the firm to analyse it peculiarly, in order to exploit all possible opportunities and to best deal with the potential issues that may arise. To do so, firms monitor, scan and forecast the external environment they compete in. At this stage, Gucci will analyze its industry characteristics such as concentration level, competitors market shares, the presence of substitutes, product differentiation among rival firms, etc. Constant surveillance of such factors will be necessary to respond promptly to any changes and shocks that could affect the brand. This analysis will lead to the understanding of the general and competitive environments Gucci operates in.

General environment

The sector of Gucci we are analyzing belongs to the clothing industry, however, being Gucci an haute-couture brand, it must also be located in the luxury industry. This differentiation is important to be made when assessing the general environment since the 6 segments in which it is divided -demographic, sociocultural, political, technological, economic and global- vary depending on the type of industry the firm competes in. The first difference that must be highlighted is within the economic aspect. Economic downturns, for instance, would certainly affect the clothing industry: in fact, during a period of economic contraction population has less disposable income and will give priority to necessity goods such as food, mortgages, education, healthcare etc. rather than to new clothes. However, the luxury industry generally addresses to a wealthier customer base, which is usually less affected by economic crisis. In the same way Gucci, as part of the luxury sector, is less threatened by shocks in variables such as GDP trends and consumer price index (CPI) changes. On the other hand, it must be said that, as Gucci is on the stock market as part of the Kering SA group, it is affected by other economic and global variables such as changes in the stock market, global trade trends and agreements.

Another key segment affecting Gucci is the socio-cultural aspect. Being a textile business, Gucci has to deal with external pressures coming from three different groups: womens rights activists, environmentalists, and human rights activists. To anticipate and manage potential protests and reputation-damaging problems, Gucci must not underestimate these external threats. As a matter of fact, there is evidence supporting the fact that Guccis managerial department has given this kind of issues the right importance.

Like any other clothing firm, more than half of Guccis employees (59%) are women. According to the New York Times, Kering group announced a new parental-leave policy that grants a minimum of 14 weeks of paid maternity or adoptive leave and five days of paternity or partner leave for all employees who have worked there for more than a year. This policy, of course, includes Gucci. Further evidence shows Guccis efforts in salaries equality. Table 4.1 and Table 4.2 show that the slight higher average male pay is, at least in part, compensated by a higher proportion of bonuses assigned to female employees, presenting, in the end, an overall fairly equal pay.

Table 4.1

Table 4.2

Tables 1 and 2: equilibrium.gucci.com

For what concerns the threat of human rights activism, Gucci has taken further action after the 2014 scandal, that saw Gucci accused of exploiting Chinese workers in the production of handbags. Gucci has then declared its intention to increase control on its suppliers. Such a scandal is proof that human rights and ethnicity issues are to be considered important when dealing with sociocultural effects from the external environment.

Lastly, as textile industry, Gucci has to deal with the impact on the environment, therefore keeping an eye on waste and emission thresholds is another key element to avoid incurring into sanctions or environmentalists protests that could threaten Guccis reputation. As a matter of fact, Gucci has an updated website showing environment-friendly goals and achievements. The following table is an example from such a website.

Table 4.3

Competitive environment

The other branch of the external environment analysis concerns the competitive environment. The best way to evaluate it is through the close study of Porters five forces.

Guccis Porters five forces analysis

The threat of new entrants: is relatively low.

The luxury industry is quite concentrated, with the top 10 companies making up for almost 50% of total sales. Furthermore, all brands have an extremely high image and well-known names, making it hard for a new entry to stand out and establish itself in the market. Another factor playing against newcomers is that haute-couture is one of the most expensive sectors among industries, therefore a substantial initial capital investment is needed. The fact that economies of scales are highly recommended in this business, makes the barriers to entry even tougher to overcome. In conclusion, Gucci does not face a great threat from new entrants.

Suppliers’ bargaining power: high.

The supplier bargaining power depends on the brands ability to raise prices and lower quality of goods without losing profit. Guccis brand image is so well established that even if the company raised prices or reduced the quality of its couture, the majority of their customers would still buy from them.

Buyers bargaining power: low.

Guccis clientele is likely to be generally wealthy, therefore customers are not ‘price sensitive’ and cannot force prices down. Furthermore, businesses in the luxury industry are more concentrated than buyers, who are therefore left with no bargaining power.

The threat of substitutes: high.

Within the brands in the luxury industry, the level of prices for a similar product is also similar therefore the customers cost of switching brand is low. The threat of substitutes also comes from the wider fashion industry, where medium level couture is gaining market share. Customers are showing interest in similar-looking but cheaper products, becoming an additional threat for the higher level industry in which Gucci competes.

Rivalry among existing competitors: high.

As mentioned above concentration in this industry is fairly high, 47,2% (concentration ratio of top 10 companies) with a few leading brands or groups heading the market. This oligopolistic-like environment sets the basis for higher levels of rivalry among existing competitors. Furthermore, substantial barriers to entry and high operating expenditures make it difficult to leave the market (barriers to exit), leaving the already performing firms threatening each other. Guccis strength on this aspect is product differentiation, which gives it a strong brand image and reduces rivalry, at least, on its highly differentiated products.

Clothing comes at various qualities and prices; Gucci is well known to be a luxury brand, famous for the excellent but expensive products that it offers on the market. Other companies that adopt a somewhat similar strategy are, for instance, Chanel, Versace, Balenciaga, Dior, Hermes, Armani, D&G, LV, and Burberry.

All these companies play on the uniqueness and sophistication, the added value of their product, which explains the higher price. Furthermore, they rely a great deal on fame and reputation.

This inextricable dependance means Gucci and suchlike companies invest large sums of money on brand image and trademark to build goodwill. This is one of the major weaknesses of the company.

This inextricable dependance means Gucci and suchlike companies invest large sums of money on brand image and trademark to build goodwill. This is one of the major weaknesses of the company. [image: ]

Nevertheless, it is necessary to guarantee one of their greatest asset: strong brand recognition. This, along with grade-A clothing, ensures celebrities buy from them, which entails notoriety; this is a huge opportunity, especially because famous people set trends, and as a fashion company, Gucci must keep up with the latest tendencies. One of them is the need for sustainability, that is revolutionizing the entire world, not just the fashion industry: this is good news and bad news because it offers the possibility for the industry to reinvent its products, but it also implies research and higher costs.

Guccis turnovers, what with it operating worldwide, are indissolubly tied to the state go the global economy and business cycles. Of course, among the greatest threats for this business, there is also competition; this much can be said about any firm.

All in all, Guccis health as a company is at a very good level.

Since fashion never ends, it evolves with the time and it varies depending on the place, if Gucci keeps in tune with what is in vogue and implements effective management and strategies, it will profit from all the opportunities that the ever-changing global economy and fashion industry will provide.

References

Journal articles

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Websites

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