Luxury, an introduction The term luxury is ambiguo

Luxury, an introduction
The term luxury is ambiguous as it refers to a wide range of products, services, businesses, concepts and perceptions. Kapferer (1996) argues that there is a problem with the word luxury; ‘It is at once a concept (a category), a subjective impression and a polemic term. Thus what is luxury for some is just ordinary for others.’ Despite the diversity of views, there are common attributes of luxury in its different forms. These include ‘rarity’ and exceptional quality.
When it comes to defining a luxury brand, a distinctive attribute from mass-market brands is heritage. Heritage enables the luxury brand to build a point of difference around a specific history. This typically relates to a unique talent, set of skills (e.g. craftsmanship), vision and entrepreneurship.
Gucci like a number of Italian and French luxury brands, (Hermès, Prada, Louis Vuitton) was originally a leather goods business, which has evolved of the years to be a global luxury fashion brand famous for both leather goods and Ready-To-Wear (RTW) apparel.
History and origin of Gucci
Gucci was founded by Guccio Gucci in 1921 when he opened a leather goods company and small luggage store in his home city of Florence. Prior to that Guccio had worked as a porter at the Savoy Hotel in London, where he witnessed the refined aesthetic and lifestyles of the wealthy classes. His ambition on returning to Florence was to produce beautifully hand crafted leather goods for such clients. A key part of his ability to achieve this was to harness the unique craftsmanship and manufacturing skills of local Italian artisans.
The business grew both in sales and in reputation throughout the mid Twentieth Century and the brand began to get a reputation among the sophisticated international clientele who visited Italy.
Within a few years, the label enjoyed such success the sophisticated international clientele on vacation in Florence thronged to Gucci- bottega, seeking the equestrian-inspired collection of bags, trunks, gloves, shoes and belts. Many of Guccio- Italian clients were local horse-riding aristocrats,
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and their demand for riding gear led Gucci to develop its unique ‘Horsebit’ icon - an enduring symbol of the fashion house and its increasingly innovative design aesthetic.
By the 1970s Gucci had become a leading international luxury designer name, having expanded across Europe and into North America and Asia. In 1970, Guccio Gucci- two sons Aldo and Rodlofo became equal shareholders in the company. Aldo Gucci was responsible for the enormous growth of the company during this period and is credited with turning it into a global luxury fashion brand, launching Gucci RTW (Ready-to-Wear). However, poor strategic management (particularly in relation to licensing) and family feuding over ownership and control resulted in Gucci losing its direction and reputation for quality. This is ironic since Aldo Gucci famously said “Quality is remembered long after price is forgotten.”
In 1979 the company launched a new diffusion line called the Gucci Accessories Collection (GAC), which was designed to broaden the brand- appeal and increase revenues. Its launch signified a turning point in perceptions of the brand as this is when it lost control over the quality of many of its products. The GAC comprised approximately 22,000 products (most under licence) including key chains, alcohol, playing cards and even toilet paper, all carrying the Gucci name. By the late 1980- the GAC was being sold through a very diverse range of retail outlets, a fact which was responsible for Gucci- ‘drugstore’ image. The GAC strategy also led to enormous amounts of counterfeiting activity including fake Gucci bags, which featured the GG logo in plastic covered canvas. In 1977 alone Gucci undertook 34 lawsuits over a six-month period.
Decline of family control
Family tensions were exasperated when Aldo Gucci- son, Paulo began to sell products under his name (Paulo Gucci), further diluting the brand. Aldo- brother (Rodolfo) died, leaving his 50% stake in the business to his son Maurizio. Various internal disputes led to Aldo Gucci being sent to jail and so in 1987, Aldo Gucci- family sold their 50% stake in Gucci to the global investment business, Investcorp. The financial press at the time reported; ‘The Bahrain-based Investcorp has revealed itself as the mystery buyer who has acquired a 47.8% stake of Guccio Gucci SpA of Italy and 43% of Gucci America as well as minority stakes in Gucci subsidiaries in London, Paris and Hong Kong. Its stake was built up over the past nine months by the New York-based investment bank Morgan Stanley.’
In 1989 Maurizio became Chairman of Guccio Gucci S.p.A. and attempted to revive the brand. In that year Dawn Mello former President of luxury retailer Bergdorf Goodman, was brought into the brand as editor and RTW designer in order to re-establish its reputation. Between them Maurizio and Mello cut two-thirds of Gucci- product lines (from 22000 to 7000) and re-visted price points. Well aware of Gucci- tarnished image and the value of its name brand, Mello hired Tom Ford in 1990 to design a RTW line. However, by then the damage had been done. A senior Gucci executive said of the company at that time; “Gucci would not truly be considered a luxury company by luxury goods players like Chanel and Hermès. It was pretty much trading on its past reputation. A very large proportion of business at that time was driven by the ‘interlocking G’ canvas material, which was very inexpensive to produce and had very low price points. No truly discerning luxury goods client would shop at Gucci.”
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Made in Italy
Much of the desire for products of luxury brands is connected with the provenance of manufacture. Provenance is associated with notions of artisan skills and craftsmanship which are concentrated in specific countries and regions. Over time the authenticity of a luxury brand- product becomes inextricably connected with place of manufacture - what is known as ‘Made In..’ The two countries most associated with luxury are European, namely Italy and France. With the exception of wines, where regional vineyards (and varieties of grapes) form brands of wine, Paris is preferred as a nomenclature for ‘Frenchness’ whereas Italy carries its own holistic reputation.
Michele Norsa, CEO and Group Managing Director, Salvatore Ferragamo, argues that 80% of an Itallian luxury brand- value lies in the image, exclusivity and uniqueness; “Made in Italy is not just a way of production, it is the uniqueness of details (fabrics, prints, finishing). Italian creative culture and the skill set of its artisans are a competitive advantage. Customers are much more sophisticated than few years ago and can easily spot differences. For luxury brands made in Italy is key.” He added“Damages to an intangible value (image) are very hard to rectify”, which made specific reference to the dangers of manufacturing products outside Italy.
Investcorp buys and sells Gucci
In 1993 Investcorp bought the 50% of Gucci that Maurizio owned and within a year appointed Domenico De Sole as Chief Operating Officer. Soon after, Dawn Mello resigned as Creative Director and Tom Ford took over. Maurizio was the last of the Gucci family to be involved in running the brand. In the fiscal year 1993, Gucci posted less than $200m in revenue and made losses of $40m. According to De Sole, “There was no clarity to the direction of the company and no cost controls, an equation that added up to financial disaster.” As Domenico De Sole set about redesigning the brand with Tom Ford he said, “Investcorp wanted to keep it traditional but we could see changes were essential. They did not complain so long as shareholders’ returns went up.”
In 1995 Investcorp sold a significant proportion of its shares, gaining listings on the New York and Amsterdam Stock Exchange. Financial reports; ‘Investcorp, the Bahrain-based investment group, has announced that it intends to float 30% of Gucci Group, the Italian luxury goods manufacturer which it now wholly owns. In a statement, Mr. Paul Soldatos, a member of Investcorp's management committee, said that since the original acquisition in 1989,"Gucci has substantially completed a major repositioning of the Gucci brand. 1995 Share Flotation Values Gucci At $1.3Bn. Investcorp, obtained $22 per share in its offering of shares in the Italian luxury goods group Gucci on 18 October. Gucci said in a statement that demand "was very strong" and that the offering was "substantially oversubscribed" so that a second tranche of 8.5mn shares was offered in addition to the original 16mn. This implies that Investcorp has received $539mn.
In March 1996 Investcorp sold its remaining stake in Gucci. Financial reports; Investcorp, the Bahrain-based international investment group, has announced that the global offering of 26.4mn common shares in Gucci Group NV has been priced at $48 per share. Investcorp said that both the US and international branches of the offering were oversubscribed and the underwriters have exercised their overallotment option of an additional 3,925,099 shares in full.
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Development of the Gucci Group under Ford and De Sole
The Gucci Group, as it became known, was a collection of brands which were the targets of strategic takeover activity by De Sole and Ford. To some extent the M&A approach solved the problem of how to increase luxury brand revenues without over extending any individual brand. Ford quickly took charge of Gucci (the biggest brand by sales within the group) and Yves Saint Laurent. He soon acquired a reputation as a global name and extremely talented designer blending Italian style, beautiful tailoring and sexy American glamour. However, much of the success of Gucci was down to Ford- ability to understand the luxury market. He was also good at spotting creative talent and was responsible for bring Alexander McQueen into the group under his own name. Alexander McQueen went on to be a jewel in the group long after Ford departed in 2004.
Key to Gucci- success was Ford- philosophy that the creative director of a brand needed creative control and oversight of all aspects of the business from product through communications to distribution and service. In his view one person needed to decide how to focus and communicate the brand- DNA through a unique point of difference across all brand touch points.
While Ford concentrated on the marketing, De Sole focused on increasing sales by improving the distribution through adjusting the supply chain and distribution channel strategy. Tom Ford- role was to increase sales by improving the product (creativity, image and quality) and the retail strategy. The latter effectively meant placing more focus on service and the shopping experience which is hard to control when the brand- products are being distributed to consumers via third party partners (e.g. licences, franchises and department stores or multi-brand boutiques).
Almost immediately Tom Ford- collections were a hit with consumers and the fashion press. Ford- philosophy reflected an increased sophistication in the marketing and sale of luxury goods throughout the 1990-; “I realised a long time ago that one can either design a dress or design a brand. The exercise of designing is still the same: the same creativity, the same eye and the same intuition are still needed, but the parameters are different. For me, there was never an option: a dress does not exist in a void, it exists in a world and its context can radically alter its effect or its success, or its appropriateness for that matter.”
Both De Sole and Ford recognized the importance of both the product and the selling environment. Ford; “I cannot emphasize enough the importance of product. It is the key. All of the advertising in the world can’t help sell a pant that makes your butt look wide or a dress that makes you fell fat or a shoe that makes your ankles look thick.” De Sole; “The heart of our business is a great product in the perfect environment, which I trust Tom Ford, the designer, to deliver.”
Multi-brand strategy
By 1999 the Gucci was thriving and had ambitions to grow via a multi-brand strategy. The Gucci Group, as it became known, grew through M&A to become a collection of luxury brands. Each brand had been a specific takeover target by De Sole and Ford. The process began by acquiring SanofiBeauté in 1999 in a deal with Artemis, the parent company of PPR. The brands comprised Yves Saint Laurent and YSL Beauté, and branded fragrances such as Oscar de la Renta. The luxury sector became alive with considerable strategic M&A activity at around that time as the main
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conglomerates (LVMH and Richemont) battled to acquire luxury brands in order to grow their individual group revenues.
Although the need to overcome restricted growth of exclusively-positioned luxury brands was one reason for an M&A growth strategy, strategic logic in brand management was another motivating factor according to De Sole; “We have no intention of buying just to empire build. I see no point in being so laissez-faire that you buy and then leave the company to get on with it. We buy only where a company can flourish and where it fits into and enhances the group through its heritage and quality, even if its fallen on hard times. The young designers we take on for excitement and because we can help the business grow. They have to be talented and commercially aware.”
According to De Sole, the core ingredients of Gucci- success are focus, talent, speed, calculated risk, a clear understanding of the market and discipline; “This is how we work we acquire businesses. The starting point was when Gucci Group bought SanofiBeauté and YSL. We discovered an interesting situation: a wonderful name with worldwide recognition, but operated around licences.”
The emerging Gucci Group fought off a hostile takeover bid by Bernard Arnault (LVMH) as De Sole worked with PPR to defend itself. Francois Henri Pinault of PPR and Bernard Arnault were strong adversaries. The cost of PPR- help was a 40% stake in Gucci Group by PPR, which subsequently provided the foundation for a complete takeover in 2004. In a busy acquisitive period, between 1999 and 2002, the Gucci Group added the following brands to its portfolio;
Italian shoe manufacturer and brand Sergio Rossi, French jewellery brand Boucheron, Alexander McQueen, Bedat&Co, Balenciaga and Stella McCartney (from Richemont).
During the period 2001 - 2004 the Gucci Group reported a significant drop in profits, which it put down to difficult macro events (such as 911, SARs and the second Iraq war). However, analysts argued it was more to do with its intensive multi-brand growth strategy.
By focusing on a multi-brand strategy the business diverted attention and resources away from the core (cash generating) Gucci brand. In addition the new brands required significant investment and were loss making. Once again Ford and De Sole fought shareholders’ and analysts’ calls for diffusion lines or at least lowering the selling prices of ‘entry-level’ products. De Sole wasn’t worried as he understood strategic investment took time to yield results; “At the end of the day, it- the product and the product quality that really matter. Maintaining a high product quality also means maintaining high retail prices. Cutting prices by something like 30% would be lunacy. We don’t see ourselves as retailers but as brand managers. We are unbelievably disciplined in how we control our brands.” By 2002 the Gucci Group had become the third largest luxury brand conglomerate after LVMH and Richemont.
Towards the end of 2001 there was a Settlement Agreement among Gucci, PPR and LVMH which put an end to LVMH- ambitions to own Gucci and set in motion the eventual takeover of Gucci
 

	
2001	


2002	 



2003	
 

2004
 


Sales ($m)
 	
2258
	


2285

	 



2738
 
	


3227




Net Income
 
	337
	
278

	

244
 
	
217

 
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Group by PPR in April 2004. This meant that A/W 2004 RTW (shown in February 2004), was the last collection that Tom Ford designed for Gucci and YSL.
PPR Takeover
In April 2004 PPR took over full control of ‘the Gucci Group’ of brands, at which point Tom Ford and Domenico de Sole left. They could not reconcile the loss of autonomy demanded by PPR. Despite feverish media reports that the Gucci brand would collapse without Ford, the business has grown under the new management. Robert Polet took over as group CEO and focused the (group-) brands very clearly on individual market segments. Positioning statements were used to indicate the focus of each brand:
BRAND
			•Ã¯â‚¬Â Ã¯â€šÂ Gucci 
			•Ã¯â‚¬Â Ã¯â€šÂ YSL 
			•Ã¯â‚¬Â Ã¯â€šÂ BottegaVeneta
			•Ã¯â‚¬Â Ã¯â€šÂ Balenciaga 
			•Ã¯â‚¬Â Ã¯â€šÂ Alexander McQueen 
			•Ã¯â‚¬Â Ã¯â€šÂ Stella McCartney 
			•Ã¯â‚¬Â Ã¯â€šÂ Boucheron
			•Ã¯â‚¬Â Ã¯â€šÂ Sergio Rossi 
Positioning Statement
Seduction, powerful, accomplished Contemporary Chic
Timeless quality
Edgy Fashion
Genius and creativity Natural elegance Precious and mysterious Sexy and comfortable
In December 2004 Polet revealed a strategy that focused on Gucci- historic made-in-Italy quality and skills, dismissing proposals to dilute the brands image by introducing diffusion lines and moving production to low cost countries such as China. He explained; “Each brand, targets a specific market segment and has its own role in the Group. We identify the essence of each brand and act consistently with the brand- DNA. Key to all brands are superior craftsmanship, quality, design.” Polet argued that in order to keep customers’ dreams alive, the brands must stay fresh, relevant and contemporary.
In 2006 (November) Gucci opened one of its biggest flagship stores. It was in the Ginza district of Tokyo. In common with other luxury brands the flagship stores were specifically designed to ‘Show the most luxurious face of the brand’ (Mark Lee, CEO Gucci). In the first six months of trading the store recorded half a million visitors.
Gucci Forever
Today the brand is stronger than ever with FridaGiannini as the Creative Director and Francois Henri Pinault the visionary and supportive Chairman of parent company PPR. Gucci has made better use of new technologies than many other luxury brands and has a sophisticated online presence and new / social media strategy. A key element of its website www.gucci.com , which it describes as an ‘online boutique’, is the ‘World of Gucci’ area. This part of the sight endeavours to provide consumers with a greater understanding of what the Gucci brand stands for.
 
 
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Assessment Task
Read the case study ‘Gucci Group; a history of brand development’ which is focused on the way luxury brands communicate to consumers through innovative branding strategies. Then answer the two questions below.
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Critically analyse the importance of ‘heritage’ in luxury. Explain how Gucci has leveraged its own ‘roots’ to support its brand position.
(1000 words)
2.
Analyse the contributions of Tom Ford and Domenico De Sole to Gucci and the Gucci Group, up to its takeover by PPR in 2004. Comment on whether the current ‘World of Gucci’ part of www.gucci.com manages to project the heritage and values of Gucci in a way similar to the approach of Ford an De Sole.
(1500 words)
Assessment evidence
You should produce a 2,500 written response to the two questions and include visual examples (where appropriate) in numbered appendices. Harvard referencing applies. You should apply theory and concepts as part of your analysis. You may draw on sources such as WGSN and Euromonitor databases for further information.

Book Nmae The Luxury Strategy 2nd edition by J N Kapferer and V Bastein Luxury Brand Management "a world of privilege" second edition by Michel Chevalier and Gerald Mazzalovo