Gucci Business Assignment

1. Introduction

Gucci is a luxury brand started by, founded by Gucci Gucci in 1921 as a leather goods store in Florence. Today the group has acquired more brands under the Gucci Group, YSL, Veneta Bogetta, Alexander Mcqueen, Steve McCartney, are some of the brands under the Gucci group and Gucci itself is one of the largest luxury brands in the world. After ups and downs during the 80s and 90s the group managed to find firm ground and grow under the leadership of DeSole and Creative Director Ford. PRR a French Luxury retailer has acquired majority stake in the Group, which led to the exit of De Sole and Ford in 2004. Robert Polet, former head of the Ice Cream and Frozen foods at Unilever has taken over the Management at Gucci. He comes with experience of managing multi brand retail but is new to the fashion industry. Each brand under Gucci group functions as a separate entity, with its own DNA, creative director and CEO. Till 2004 many of the brands were still making losses, as Group CEO Polet designed his first strategy around making most of the brands profitable or at least made them break even. Polet believes in the strategy of decentralizing power and giving leaders room to take their calls and manage decisions... The group has been moving on the right track since 2004. The economic downturn in 2008 does not bode well for the group, for the first time in four years Gucci CEO is talking about slowing down his growth projections. Polet needs to take a call on how to drive the group through the coming crisis

2. Why did Gucci create a corporate group of luxury brands? Why may the Gucci Group be worth more than the sum of its parts?

Gucci group created a corporate group of luxury brands in order to cover a large chunk of the luxury retail market. Gucci today has brands catering to all range of customers, and ranging from perfumes to shoes to clothes and accessories to leather. This helps in capturing customers who buy more than one brand. Another vision supporting the acquisition of a wide array of brand was to foster synergies such that the brands can share resources, both supporting and organizational. This would help in achieving economies of scale.

Today the Gucci group owns a wide array of brands, each brand comes with its own DNA and function independently, shared resources are limited to back end IT in some regions and the Lean Central Management comprising of Human Resources, Strategy, Finance and Communication. The idea to keep the brands separate, springs from helping them maintain their individuality, for the customers, all the brands compete with each other portraying them as somehow connected to each other might mix up the brad message and dilute the brand image. Another aspect that cannot be shared is creative inputs; each brand has its own look and style which is often called brand DNA, it is important to maintain these differences in the brands as, which can primarily be done at the creative level. If all the brands start looking like each other it will be damaging to all of them. Clearly at the front end not much can be shared by the brands, what can help create synergy, making the group more than a sum of the parts is back end resources? At the back end all the brands would have some common needs, raw materials, IT support, market information, customer information, supply chain management are some of the areas where resources and information can be shared. All the brands require similar raw materials for manufacturing, such as metal, fabrics, leather, buttons etc. if the bulk of these materials can be centrally sourced, it would help the group leverage scale from suppliers. Some brands would have better know how of sourcing materials in certain areas, sharing such information would be beneficial to the entire group. similarly incase market and customer information. Currently the brands have individual methods of collecting information on markets and style and trends, as all the brands function in the luxury segment, such information can be shared with each other, this will help remove the weaknesses if any, that the brands have. All the brands function in the luxury segment and operate out of stores, but each brand has an individual supply network, supply networks can be shared to overcome costs such as logistics and inventories. In the luxury segment one important way to reach out to customers is through direct contact, sharing customer information would enable all the brands to reach out to the maximum number of consumers. Learning from each other is the best way these brands can leverage synergy and generate value. For example Bottega Veneta and Balenciaga were outperforming other brands through the recession; it would be helpful to other to learn what they are doing right. The culture of learning is not yet present in the Gucci group; Polet could help foster this culture.

3. Discuss the pros and cons of Gucci loyalty card. Should the different stores and regions share their customer information? Why or why not? Should the different brands of the Group share their customer information?

Loyalty cards are a way to maintain a connection with the customers, firms use these cards to store information about the consumer and keep a tab on their buying habits, tastes and styles that help them maintain an effective marketing communication. It helps generate repeat value for the consumer and many a times discounts are given to incentivize consumer to shop more. Gucci group owns a host of luxury brands, which operate separately, Polet, wants to introduce a system of loyalty cards in order to ensure that there is method to retain customer information, build a relationship with the consumer, and track their tastes and shopping patterns. Customers who opt to shop at luxury stores look as much for the experience as for the product, front end sales personnel are trained to cater to this very customer need. As of now all the brands in the Gucci group operate in silos they have their own methods of tracking customer tastes and preferences and storing customer information, but this information is not shared horizontally along brands, thus if a Gucci regular walks into the YSL store, the sales person at the YSL store would have no means of tracking down the information Gucci already has about the customer. A loyalty card would help in this regard. One of the biggest pros of a loyalty card is that it helps retain customer information. The collated information of all customers across all brands would be many times the individual customer base of say Gucci. This would help all the brands design their individual campaigns targeting a larger customer base. But this does not mean that Gucci should jump on the opportunity of launching a Loyalty Card program. In the luxury segment such a program comes with its disadvantage also. Luxury markets depend on the customers need to feel different, till date loyalty programs are associated with bulk retail stores, launching them in the luxury ,market segment might dilute the brad image in the eyes of the consumer. The customers believe they have a relationship with the brand, asking them to present a card every time they shop might be harmful to how they view that relationship, this is evident by the customers claims that they believe carrying a loyalty card would be tacky. Loyalty cards are generally launched to increase sales by giving consumers discounts on purchases. The customers of the luxury segment do not view discounts by the same eye as general, they might believe that this means the product is low on demand or last season. Moreover these discounts will erode the operating profit more than have a positive impact on revenues It is vital to collect customer information, but it is advisable that it be done more discreetly and not through loyalty programs. The Gucci brands should share customer information with each other, but need to be careful in direct communication with the customers as overload of communication might dilute the image of even those brands to which the customer is loyal, but this information can be helpful in studying consumer preferences and trends. The Gucci brands should function as a single entity while maintaining separate fronts for the consumers.

4. Assess the current product development / creative process at Gucci. What are its benefits and risks? What, if anything, should be changed in how Gucci develops new products?

Gucci developed a new product development program under De Sole and ford, which tries to integrate a 630 degree feedback into product design, and also tries to keep the designers creativity free. The program is called the triangle program. It begins with the stores sharing information with the merchandisers; the stores send weekly information on sales, preferences, seasonal collections and break this information up per function and per line. All this information is accompanied by opinions on what the stores feel, what the customers are reacting to well and what is not working for them. The merchandisers filter this information and streamline the data coming on to make it easier to comply with. A similar exercise is carried out on the competition. What they are doing and for them what is working for the consumers. All this information is converted to customer tastes in the form of a Merchandising grid, this grid plots the information acquired in the form of preferences for fabrics, patterns, styles and products along with price preferences of the consumers. The grid is designed in a way to rely all this information to the designers and is kept very basic to leave room for their creativity. Once the designers have created the products they are checked for feasibility keeping costs in mind, so that the detailing and designs are such that the product remains profitable, if any changes are required the product is again sent to the designers so that changes can be made and, the final designs are put into production. This method is fairly wholesome and takes inputs from all the ends of the spectrum, its main benefit is that is helps create what will sell, which is evident as the designs developed through this method help fill stores. And do so while maintaining profitability .The question in front of Polet is that is it only important to fill stores, this question arises due to the risk attached to this method product development which shares so much information with the designers that sometimes the designers, would only design what can be sold rather than be freely creative, this is evident as many of Frieda's designs are considered more store material and less catwalk material. Luxury brands have followed the pattern of dictating to the consumers what fashion is rather than vice versa, following only consumer preferences might dilute the brand's point of differentiation and make it look like an imitation of other brands, which happened in the case of Baboushka handbag which seemed like a copy of LV's speedy bag. There are two changes that can be made to this process to make it give more room to creativity. Firstly designers should be kept isolated from the market insights when they are designing the product, once they have designed a range of products an exercise to match them to the consumer needs can be carried out so that the sales are guaranteed. This will help the brand come out with different products and still ensure that they match consumer needs... Once new products have been developed, communicaiton with the customers is a must such that the new trends are related to Gucci in their minds rather than looking like rip off of other brands. When dealing with luxury brands, a fine line needs to be maintained between creativity and commerce otherwise the organization is at the risk of becoming too general at one end and too niche at the other.

5. If you were Polet, how would you proceed to carry out your recommendation in Questions 2 and 3?

The recommendations in points 2 and 3 can be summarized as below

  • Increase sharing of resources between brands
  • Increase sharing of market information between brands
  • Increase sharing of customer information between brands
  • Improve brand communication

Currently all the brands function in Silos, the only organizational resources shared between them are at the top level, which are for strategy, human resources and finance. Other than brands even regions operate in Silos, this makes the entire functioning of the Group inefficient. Keeping the front end separate many back end resources can be shared between the brands and the regions. This can be initiated by requiring the people managing these functions in the different brands to meet regularly and discuss how they are doing in their functions. Currently only Polet meets with the CEO's and the CEO's meet with each other. Ideating collectively will help the people realize that many a times they are suffering from the same problems and they can be solved collectively much faster than individually.

The other negative impact of functioning in Silos is that the brands do not share any information with each other; this increases the world load for each brand. Market information such as demographics shopping patterns and preferences are common to all brand and can be shared. Creating a portal and giving each brand the responsibility to collect and analyze information on a certain region will help foster this relation. This will help collect richer information across regions and will help brands weak in one region learn from the expertise of the strong brands, similar steps need to be followed for sharing of customer information. Customer information city wise, should be uploaded onto the portal, including their spending pattern preferences, size etc. Any brand willing to access that information can log on to the portal. Merchandising collects information from stores in Silos, if all that information is clubbed together and analysis shared, it will make the information all the more richer.

Gucci is slow in sending out communication regarding new products to customers, new products should be matched to customer preferences and direct communication should be shared with them, making them feel special and giving Gucci the advantage of being the first mover setting new trends.

6. What elements of Freedom within the Framework enable Gucci to capture the benefits of the Group? Are there any elements in Polet's management philosophy that are inconsistent with leveraging the benefits of the group?

The biggest benefit of freedom within framework that Gucci can reap is that gives the individual brands the freedom to function independently, this is very important for the creative freedom of the brand and helped all of them maintain a separate image. The centralization of power gives the CEO's the right to design their own lines and communication. What is inconsistent with leveraging the group's benefits is that at certain levels all the brands need to be brought together, letting all the brands functions separately, removes room to create an environment where they can share resources and information. Sharing information and leveraging scale is the way to increasing profit in this era of economic downturn. Leaving each brand on its own will only foster inefficiency. Poet should take steps to merge the back end function of each brand and ensure that the front end is kept separate.