International Journal of Retail & Distribution Management
The nature of parenting advantage in luxury fashion retailing – the case of Gucci group
NV
Christopher M. Moore Grete Birtwistle
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Christopher M. Moore Grete Birtwistle, (2005),"The nature of parenting advantage in luxury fashion retailing
– the case of Gucci group NV", International Journal of Retail & Distribution Management, Vol. 33 Iss 4 pp.
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The nature of parenting
advantage in luxury
fashion retailing – the case of
Gucci group NV
Christopher M. Moore and Grete Birtwistle
Downloaded by Cornell University Library At 11:01 27 September 2016 (PT)
Division of Marketing, Glasgow Caledonian University, Glasgow, Scotland, UK
Abstract
Purpose – Examines the application and nature of parenting advantage within the context of luxury
fashion conglomerates principally as a means of understanding the synergistic benefits that accrue as
a result of brand consolidation within the sector.
Design/methodology/approach – Derived from company annual accounts, market analysts’
reports and other secondary sources, the paper delineates and evaluates the ten-year renaissance of
Gucci brand from a company on the verge of bankruptcy to its emergence as the world’s second largest
luxury group.
Findings – Through the identification of intra-business group synergies, it is clear that the
transference of brand management expertise and competence is the principal dimension of parenting
advantage in the Gucci Group.
Originality/value – From an examination of the Gucci Group’s brand management strategy,
resource investments and business development activities, the paper proposes a model of the luxury
fashion brand. This multi-dimensional model identifies the components of the luxury fashion brand,
locates their inter-connections and illustrates how these collectively can provide and sustain
advantage within this highly competitive sector.
Keywords Fashion industry, Premier brands, Brand awareness
Paper type Conceptual paper
Introduction
April 30th 2004 not only marked the termination of Domenico De Sole and Tom Ford’s
employment as president and CEO and creative director, respectively, of the Gucci
Group, but it also concluded a period of office whereby the two executives achieved
what has been variously described as the most radical and successful turnaround
strategies within the luxury brand sector (Heller, 1999; The Economist, 2003). In 1994,
Gucci made losses in excess of US$ 40 million and faced bankruptcy, while a decade
later, the company emerged as the Gucci Group, one of the most important luxury
brand groups, with sales in excess of US$ 2 billion and five-year average annual
operating profits exceeding US$ 200 million (Gucci Group NV Annual Report, 2004).
The transformation of Gucci in the period from 1995 to 2004 was achieved in three
distinct phases, as is shown in Figure 1.
The first phase, from 1995 to 1999, marked a period of brand stabilisation.
International Journal of Retail &
Distribution Management
Management re-established the integrity and luxury equity of Gucci through their
Vol. 33 No. 4, 2005
pursuit of a consistent control and investment strategy. Management developed
pp. 256-270
q Emerald Group Publishing Limited formidable expertise in product development, supply chain control, brand
0959-0552
DOI 10.1108/09590550510593194
communications and luxury fashion retailing ( Jackson and Haid, 2002). These core
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luxury brand management skills made Gucci attractive to other businesses,
particularly their close rivals, LVMH and Prada who acquired, by stealth, sizeable
share holdings. Another interested party, the French brand conglomerate,
Pinault-Printemps Redoute (PPR), formed a strategic alliance with Gucci in March
1999. As part of a standstill agreement, PPR acquired a 42 per cent stake in Gucci for
US$2.9 billion, agreeing not to exceed that level for a period of five years (Gucci Annual
Report, 2000).
It was PPR’s significant investment that facilitated the second stage of Gucci’s
transformation – the multi-brand acquisition phase – which signalled their emergence
as the Gucci Group. From November 1999 to July 2001 the company acquired equal or
majority shareholdings in ten companies to form the Gucci Group NV, the world’s
second largest (as measured by share of the luxury goods market) multi-luxury-brand
conglomerate (Mintel, 2004).
Finally, the period from August 2001 to April 2004 marked the Gucci Group’s
consolidation phase. During this period the company sought to exploit “group
resources – management; production and logistics; distribution – to build these
brands, which over time can contribute meaningfully to Group returns” (Gucci Group
NV Annual Report, 2000, p. 16). With their expertise in luxury fashion brand
management, the Gucci Group’s strategy was to bring the skills and advantages of the
parent company to their subsidiaries.
The emergence of Gucci as a multi-luxury-brand conglomerate is not unique within
the luxury goods sector. The four leading companies are each multi-brand
conglomerates: Louis Vuitton-Moet Hennessey (LVMH); Gucci Group NV; Prada;
and Richemont Group (Mintel, 2004). Various commentators have attributed the
success of these luxury businesses to their multi-brand status, and particular ability to
exploit the expertise, resource and cost synergies of conglomeration (Matlock and
Edmondson, 2002; The Economist, 2003).
Consideration of the nature and characteristics of the luxury goods sector is
sporadic and incomplete (Beverland, 2004; Jackson, 2004). There have been recent
attempt to conceptualise the components of a successful luxury brand (Beverland,
2004; Kapferer, 2001; Vigneron and Johnson, 1999; Quelch, 1987), while other studies
have examined the features of the trading strategies of the luxury retailers, (typically
on a case-study basis) (Quelch, 1987; Dovaz, 1998, Jackson and Haid, 2002; Moore and
Birtwistle, 2004). None have expressly considered the potential for their being unique
characteristics in luxury fashion branding. Furthermore, little, if any consideration has
been given to how luxury brand conglomerates secure what Goold et al. (1994, p. 13)
described as “parenting advantage” – those strategies, structures and processes
whereby the “parent works through its businesses to create value”. Parenting
advantage is concerned with the extent to which a business unit gains a competitive
advantage as a result of its link with a parent corporation and vice versa.
The nature of
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advantage
257
Figure 1.
The three phases in the
development of the Gucci
Group NV
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258
Therefore, given this clear research neglect, the aim of this paper is to draw upon the
insights derived from an extensive review of the formation and development of the
Gucci Group NV to inform understanding of the nature of parenting advantage as well
as the management processes which facilitate its realisation, within the luxury goods
sector.
In order to satisfy this aim, the paper adopts the following structure. The literature
relevant to luxury branding is examined, then the “Parenting Advantage Model”
proposed by Goold et al. (1994) is reviewed. Subsequently, the paper considers the core
brand management competences developed by the Gucci Group and reviews the
procedures used by them in order to create parenting value within their subsidiary
brands. A model of the luxury fashion brand is then proposed. The paper concludes by
considering areas for future research.
Definitions of the luxury brand
There are many definitions of luxury which connect it with extravagance, prestige and
elitism (Dubois and Czellar, 2002), but there are few definitions of the luxury brand.
Beverland (2004) argues that most definitions fail to differentiate between a luxury
product/brand and the wider concept of luxury. Jackson and Haid (2002) proposed that
luxury brands have a heightened status that affords an opportunity for their owners to
charge premium prices. These brands possess a desirability that extends beyond their
function and which provide the user with a perceived status through ownership. Their
appeal and desirability is as a result of their constructed scarcity in availability
(usually as a result of enforced restrictions on distribution) and because of their
associations with particular consumer segments (Kapferer, 2001; Vigneron and
Johnson, 1999; Quelch, 1987; Prendergast et al., 2000; Dubois and Czellar, 2002). Phau
and Prendergast (2001) proposed four central features of a luxury brand as perceived
exclusivity; well recognised brand identity; high levels of brand awareness and strong
sales and customer patronage. Similarly, Beverland (2004) provides a model of a luxury
branding which identifies and unites six component dimensions. The model is shown
in Figure 2.
The six components of Beverland’s model drawn from previous studies,
particularly with respect to brand heritage (history – culture); product quality,
Figure 2.
The components of a
luxury brand
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credibility and excellence (product integrity); personality and consumer group support
(endorsements); and brand image investments (marketing) (Dubois and Czellar, 2002;
Vigneron and Johnson, 1999; Quelch, 1987) The value-driven emergence component
identified by Beverland relates to the extent to which the brand actively seeks to have a
luxury positioning and association through its marketing decisions.
As to the transferability of the model to other luxury product categories, and
particularly to luxury fashion, it is clear that the Beverland model has certain
limitations and that additional components must be incorporated.
The dimensions of parenting advantage
The associations that exist between and among a parent and its subsidiaries have been
considered within the business strategy literature (Ghoshal and Nohria, 1993; Weisz
et al., 1984; Gaski, 1984; Frazier and Summers, 1986), with consideration given to how
these relationships are structured, managed and developed. Researchers have been
particularly interested in explaining not only how subsidiary companies benefit from
the interventions and directions of the parent company but also how their value may be
enhanced as a result of that relationship (Ghoshal and Nohria, 1993; Weisz et al., 1984;
Nathans, 1988; Taggart and Harding, 1995; Rodrigues, 1995). Within the context of
thinking of these as “value-creating relationships”, Goold et al. (1994) have provided a
comprehensive account of how parent companies contribute to the achievements of
subsidiary competitive advantage. By conceptualising this as a process of creating
“Parenting Advantage”, Goold et al. (1994, p. 12) proposed that the fundamental role of
the parent is to create value for the subsidiary; “to influence the decisions and
strategies of its business units, while standing between these business and those who
provide capital for their use”.
As a simple mechanism for identifying the value created by the parent, they propose
the “better-off test” which seeks to understand how the subsidiary is “better-off” as a
result of its connection with the parent company. In their view, the business unit
should gain competitive advantage “from its link with the corporation or vice versa.
The combination should result in value creation” (p. 14). The achievement of
“parenting advantage” necessarily depends upon the strategic fit that matches the core
skills, expertise and resources of the parent company with the improvement
requirements of the subsidiary company. This strategic fit is a dynamic connection
that evolves and adapts in response to changes in the competitive environment.
Realisation of “parenting advantage” necessitates a consideration of the skills
available to the parent company that may be of strategic use to the subsidiary, as well
as the mechanisms which facilitate the transfer of these from the parent to subsidiary.
Goold et al. (1994) identified five groups of “parent company characteristics” which
may advance the strategic position of the subsidiary. These are presented in Table I.
With respect to the relationships and mechanisms by which a parent company can
create parenting advantage within subsidiaries, Goold et al. (1994) identified four
approaches to value creation. These are as follows.
(1) Stand-alone influence – the parent company influences the strategies and
performance of each business in the parent’s ownership by viewing each as a
stand-alone profit centre in its own right.
(2) Linkage influence – the parent company seeks to create value by enhancing the
linkages that exist between and among the business units that it owns.
The nature of
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advantage
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Parent company characteristic
Description
The parent’s mental maps
The rules and models that parent management use in order to
interpret and synthesize information. These serve as a
blue-print for management decision-making and explain
patterns of behaviour
These are the mechanisms through which the parent creates
value. These dimensions include budgeting and planning,
capital approval systems and decision-making procedures
The corporate staff departments and central assets that support
subsidiary management in the value creation process
Parents may create competitive advantage as a result of the
expertise and skills of key individuals with vision who serve to
inspire in the organisation
The jurisdiction distinction between the parent and the
subsidiary company in relation to decision-making powers and
budgetary authority
The parenting structures, systems
and processes
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Functions, central services
and resources
People and skills
Table I.
Parent company
characteristics for the
creation of parenting
advantage
Decentralisation contracts
Source: Goold et al. (1994)
(3) Functional and services influence – the parent’s corporate staff functions and
services which create value by providing functional leadership and
cost-efficient services for the businesses.
(4) Corporate development activities – the parent can change the number of
businesses in its portfolio by buying, creating and selling new businesses.
Therefore, the parent can create (and destroy) value for the company through
these activities. Such value is distinct from that which may be subsequently
created through any ongoing parental influence.
While it is beyond the scope of this paper to review the literature that debates the value
or otherwise of Goold et al.’s view of “parenting advantage”, Have et al. (2003) provide a
succinct and inclusive evaluation. The latter propose that the framework of parent
company characteristics and value creation methods requires that management
rethink the appropriateness of those corporate structures that evolved accidentally.
Parental advantage awareness encourages the adoption of structures that encourage
value transfer and encourages an evaluation of the essential purpose and contribution
of the corporate parent. In terms of weaknesses, Have et al. (2003, p. 165) suggested that
the four value creation opportunities can be difficult to utilise in practice due to “their
strong dependence upon situational characteristics”. Furthermore, these activities are
not mutually exclusive, with the potential for overlap in the value that is created.
As has been noted above, there has been little or no consideration of the nature of
“parenting advantage” within the luxury fashion sector, and by implication, the
mechanisms by which parenting advantage is achieved in these conglomerates is
unclear. Consequently, drawing from consecutive Gucci Group NV Annual Reports
from 1998 to 2003, company press releases and market analysts’ commentaries, the
remainder of this paper (through the use of the Gucci Group as a case-study) will seek
to locate the characteristics of “parental advantage” principally in terms of luxury
fashion brand creation and the mechanisms used to facilitate its transfer from parent to
subsidiary firms.
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A brief history of Gucci
Founded in Florence in 1923 as a manufacturer and retailer of fine leather goods, the
first store outside of Italy opened in London in 1967, followed by many others in the
important world centres. With its associations with royalty and film stars, the Gucci
brand had become synonymous with luxury (Forden, 2000). The third generation
decedents proved to be poor custodians of the Gucci brand. Concerned more with
internal family feuds over ownership and rewards, the family managers exploited the
brand with a non-discriminating distribution and product licensing strategy. In 1979
Gucci introduced the Gucci Accessories Collection comprised of 20,000 product lines,
including alcohol, playing cards and toilet paper. With a multitude of licensing
contracts and availability in over 1,000 stores worldwide, the Gucci’s equity as a
luxury brand had become untenable (Kwak, 2000).
By the late 1980s, Gucci was in disarray. New appointments were made, instigated
by Investcorp (a Bahrain-based investment company) which had acquired all the
shares from the Gucci family by 1993. Previously President and Managing Director of
Gucci America, Domenico De Sole was appointed as President and Chief Executive
Officer in 1995 and Tom Ford was promoted from Assistant to Creative Director to
affect a turnaround ( Jackson and Haid, 2002).
Brand stabilisation phase: early 1995-October 1999
A grasp of the activities of De Sole and Ford during this period is critical for
understanding their subsequent activities as the senior executives of the newly formed
Gucci Group NV. During this time the two refined their skills in luxury brand
management and established the internal resources for the exploitation of parenting
advantage whenever the company extended to become a luxury brand group in 1999.
Six key dimensions define their brand stabilization strategy. These are delineated in
the following sections.
Re-established control of Gucci product design and manufacture
The Annual Report for 1999 states that “design and product development are the core
of Gucci’s success, and interact with every other centre of activity . . . . We consistently
strive to maintain a clear brand image”. To maximise product control, Gucci
terminated or bought-back over 100 licenses for ready-to-wear (RTW), shoes and
jewellery items, which reduced the number of products from 22,000 to 7,000.
Production was then concentrated to 45 local manufacturers who were encouraged to
participate in a partnership scheme which assured them of regular orders and payment
and provided Gucci with improved quality and reliable availability (Rice, 1997;
Burrough, 1999).
In November 1997, Gucci acquired its watch licensee of 20 years, the Severin
Montres Group for US$ 170.0 million, renaming the company, Gucci Timepieces. This
licensee-acquisition, motivated to ensure that products lines were “consistent with the
Gucci brand image and quality”, saw the volume of watches reduce from 950,000 to
825,000 in the first year, while business profits increased. This was explained as a
manifestation of “the Company’s strategy to upgrade the distribution network
and product portfolio by reducing significantly the number of points of sale
and introducing new models at higher price points” (Gucci Group NV Annual
Report, 1999, p. 26).
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Re-established control over Gucci product distribution
In the last two decades, the company relied heavily upon franchising for international
distribution. However, in 1996, and in accordance with the overall strategy of maximum
control over every aspect of the brand’s presentation, Gucci commenced a franchisee
buy-back strategy in order to take control over distribution through direct store
ownership. In 1996, of the 180 Gucci stores, 69 were directly-operated. A period of
acquisition followed and franchised stores were bought in Belgium, Italy, Korea, Taiwan
and Spain and majority joint-venture control achieved over store operations in
Singapore, Malaysia and Australia. By November 1999, of the 181 stores, 130 were
directly-operated and by January 2004, 187 were directly-operated and 30 were franchise
stores. In the 2003 Annual Report, the company explained that the 30 remaining
franchise stores “are in markets (such as Moscow, Athens and Dubai), where the
Company believes it does not have sufficient local expertise or where, for legal of other
reasons, it would be impractical to establish directly-operated stores” (p. 24).
Create a balanced product portfolio for a luxury brand
In 1996, the contribution of RTW clothing sales to total sales was 7 per cent, with
leather goods the most significant sales category, accounting for 60 per cent of
turnover. In order to secure full creative control over the RTW range, Gucci
repurchased their former ladies’ RTW licensee, thereby gaining production capability
and distribution rights which would “improve operations and margins”. By the end of
1999 the product portfolio contribution balance had changed markedly, with leather
goods accounting for 40 per cent and RTW contributing 14 per cent of the total sales.
This change was explained by De Sole in the 1999 Annual Report – where he noted
that until the mid-1990s, RTW “was not an integral part of Gucci’s history; however,
under the creative direction of Tom Ford, it has become a significant and profitable
business and the platform for communicating the Gucci image and lifestyle. We now
use fashion as a driver to enhance the excitement and value of the Gucci image and
lifestyle” (p. 14).
Recognising the high levels of recognition of Gucci’s brand devices and iconic products,
such as Gucci Loafers, Tom Ford reintroduced these elements into his collection in order to
generate media interest and prompt consumer expenditure (Forden, 2000).
Establish a luxury marketing communications platform
Management recognised the importance of marketing communications to the
re-establishment of Gucci as a credible luxury brand. Claiming to be effective brand
managers, the senior management defined their communications strategy to be
“coordinated in a highly focused manner, ensuring a single, clear and effective brand
message worldwide, in all areas of communication including: fashion shows and
special events/advertising/public relations, visual display and internet web sites”
(Gucci Group NV Annual Report, 1999, p. 27).
In 1996 Gucci spent US$ 61 million on advertising, which was 6.9 per cent of net
revenues and by 1999 the budget had increased to US$ 87 million (7.3 per cent of net
revenues). This expenditure reflected “management’s objective to maintain
communications spent between 7.0 and 7.5 per cent of Gucci turnover. . . since this
level of expenditure generates a level of public exposure for Gucci that will support
long-term growth of revenues and profits” (Gucci Group Annual Report, 1999, p. 57).
Commentators have noted the contribution of evocative and often controversial
advertisements to the renaissance of the Gucci’s luxury brand status (Burrough, 1999;
Forden, 2000).
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Create a luxury brand consumption experience
Given the representational significance of the luxury brand, management created a
sophisticated store consumption experience that was “dramatic and highly
recognisable” and “ensured that all products are presented to customers in a way
that capitalises on the exclusivity and ultimate allure of the brand” (Gucci Group NV
Annual Report, 1999, p. 14). A revised store concept was applied worldwide in
flagships and other stores – in order that “at all points of contact with the customer,
the brand speaks with one voice worldwide” (p. 27).
Tom Ford – design direction and control
As Creative Director of Gucci, Tom Ford’s role and involvement extended far beyond
that of designer for the RTW collection. In order to create, maintain and protect a
coherent handwriting, Ford’s design influence extended beyond product to include
creative direction for the Gucci brand in all of its manifestations: store interiors;
product packaging; marketing communications and major wholesale stockist selection.
As a former model and now a successful and confident creative director, it was
inevitable that Ford should become the public face of Gucci: a personification of the
values and attributes of the brand (Forden, 2000).
By late 1999 it was noted that Ford had become as famous as the brand he worked
for and that his reputation as a consummate image maker made him Gucci’s most
significant asset. He inspired customer confidence and was now seen to be
synonymous with the very essence of Gucci ( Jackson and Haid, 2002).
Multi-brand acquisition phase – November 1999-July 2001
The Annual Report for 1999 contained the following statement:
In early March 1999, the Company (Gucci) was approached by Pinault-Printemps-Redoute
(PPR), with an exciting proposition for a strategic alliance to create a multi-brand luxury
goods Group, a concept which has been already considered by the Board and Management, as
we believe there are natural limits to our growth as a single brand Company. The Board
approved the alliance under which PPR contributed US$ 2.9 billion (p. 6).
Based upon the belief that management had the “proven expertise in the luxury brand
business and the capacity to effective lead a multi-brand portfolio”, Gucci engaged in
an luxury brand acquisition strategy that had been unprecedented in terms of its speed
or its scope (Matlock and Edmondson, 2002). The acquisitions which transformed
Gucci from their single brand status to become a multi-brand luxury goods group are
detailed in chronological order in Table II.
With their acquisition strategy largely complete, the company proposed a
tripartite-brand categorisation of acquired brands which identified declining brands –
such as Yves Saint Laurent (which have over-extended and required the rejuvenating
inputs of Gucci management); emerging brands – such as Alexander McQueen and
Stella McCartney (which would provide for future growth and healthy returns); and
complementary brands – such as Boucheron and YSL Beaute (which would afford
synergistic opportunities in manufacturing and distribution) (Guccigroup.com, 2003).
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Brand
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November 1999
November 1999
November 1999
June 2000
December 2000
December 2000
February 2001
March 2001
April 2001
July 2001
Yves saint Laurent
Sanofi Beaute – renamed YSL Beaute
Sergio Rossi
Boucheron
Alexander McQueen
Bedat & Co.
Bottega Veneta
Di Modolo
Stella McCartney
Balenciaga
Table II.
Gucci Group NV
Acquisitions 1999-2001
Gucci holding (per cent)
100
100
70
100
51
85
78.5
100
50
91
Source: Gucci Group NV Annual Report, 2003, p. 10
The group believed that it had the requisite skills to advantage each category of
acquisition and that intra-group synergies would provide positive benefits for the
group as a whole. Each brand was acquired for its potential to “generate outstanding
value for our shareholders through sustainable profit growth, returns in excess of our
cost of capital and minimal short-terms earnings dilution” (Gucci Group NV Annual
report, 1999, p. 19). The Group expected each brand to be accretive by the end of Year
Three (Guccigroup.com, 2003).
Gucci group consolidation phase – August 2001-April 2004
Delineating their strategy for the newly formed Group, Gucci stated that their “success
will depend on our ability to manage effectively a portfolio of brands which will each
be unique in its brand image and values, while leveraging the skills and infrastructure
of the enlarged Group” (Gucci Group Annual Report, 1999, p. 14). In addition, the
Group acknowledged that the successful brand management processes that will be
“implemented by the newly acquired group brands were developed and tested over
time within the Gucci Division” (p. 23).
Rather than providing duplicate accounts of the actions undertaken by the Gucci
Group in their pursuit of parenting advantage with respect to each of their acquired
brands, the following section considers their rejuvenation strategy for arguably the
most important of its acquisitions, the Yves Saint Laurent brand. In addition, it
examines the synergies fostered by the Group between, and among, its respective
businesses. This sharing of group resources is a secondary but nevertheless essential
element of “parenting advantage” within the Gucci Group.
The following statement by the Group’s CEO provides an overview of the Group’s
strategy for Yves Saint Laurent:
We see in Yves Saint Laurent the opportunity to implement the same strategy that we applied
to rejuvenate Gucci. Over the years Yves Saint Laurent became overly dependent on royalties
from licenses. We plan to develop a different business model, with the emphasis on a
directly-operated store network as the principal sales vehicle. We will move decisively to
terminate most Yves Saint Laurent licences upon expiration if not earlier. We will invest in
communication to relaunch the worldwide image of Yves Saint Laurent (Gucci Group NV
Annual Report, 1999, p. 15).
Utilising the framework for the rejuvenation at Gucci, it is possible to delineate its
application to the Yves Saint Laurent brand. This is presented in Table III.
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Rejuvenation dimension
Action at Yves Saint Laurent
Re-established control over
product design and manufacture
First step – regain control of the production of all core product
categories from licenses – women’s RTW; watches and jewellery;
women’s shoes;
In 2000 “We enhanced control of distribution by cutting license
contracts by more than 100 and buying back strategically significant
licenses – women’s RTW, shoes, watches and jewellery”
“Management transformed Yves Saint Laurent from a disparate
collection of 167 licenses into a business built on directly produced
high quality product distributed through stores owned and operated
by the company” (Gucci Group NV Annual Report, 2000, p. 64)
January 2000 – acquisition of C. Mendes S.A. to “regain worldwide
control of the key women’s RTW category and the Rive Gauche
trademark”. Three factories acquired as a result, consolidated into
one factory within one year
Repurchased the license for watches and jewellery from Cartier
Number of licensees reduced to six by 2003
Launch of flagship chain in key world centres
Directly-owned stores increased from 15 in January 2000 to 58 by
January 2004
Directly-owned stores contributed 32 per cent of total sales in 2000,
increasing to 61.3 per cent in 2003
Elimination of all diffusion lines, including the variation line –
incompatible with a luxury brand
Introduction of Yves Saint Laurent branded leather accessories,
shoes, watches, jewellery and licensed eyewear via group and
associate company agreements
In 2001, accessories contributed 10 per cent of total Yves Saint
Laurent sales, increasing to 32 per cent in 2003
2002 launch of the Mombassa-design handbag – media support
makes this an iconic product within one season
Significant communications investment to improve and to relaunch
the worldwide image of Yves Saint Laurent
2001 – spent US$ 8.8 million in second half in order to support
women’s RTW A/W collection – first to be designed by Tom Ford
2002 – Yves Saint Laurent features on the front cover of more than
100 leading fashion and lifestyle magazines
2002 – US$ 34.6 million communication spent
Renovation of Paris Rue Foubourg St Honore flagship store
From 2001 – new store concept to forge Yves Saint Laurent’s new
identity developed by Tom Ford and the Architect William Sofield
“Colour palette of black and white, rich materials such as brushed
steel to create a modern environment and makes reference to art deco
and thereby serves as the architectural compliment to the products”
(Gucci Group NV Annual Report, 2001, p. 26)
Expenditure of US$148 million on store openings, expansions and
refurbishments from 2001 to 2003
January 2000 – Tom Ford appointed as Creative Director for Yves
Saint Laurent – all product categories and communication activities
2001 – CFDA Award to Tom Ford as Designer of the Year for work
at Yves Saint Laurent
2002 – CFDA Award to Tom Ford as Accessories Designer of the
Year for work at Yves Saint Laurent
Re-established control over
product distribution
Create a balanced product
portfolio for a luxury brand
Establish a luxury marketing
communications platform
Create a luxury brand
consumption experience
Tom Ford – design
direction and control
The nature of
parenting
advantage
265
Table III.
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266
These initiatives increased revenue for Yves Saint Laurent by 35 per cent in the period
from 2001 to 2003. However, due to the significant expenditure for product
development, new store openings, and communications, the operating loss for 2003
increased from US$ 40 million in 2001 to US$ 96.4 million in 2003.
Gucci group synergies
From its inception, the achievement of intra-brand synergies and the retention of brand
image distinctiveness was a strategic objective for the Gucci group:
The Group’s success is centred on the independently managed core brands – each distinct in
its image and brand values – enhanced by the skills and strengths of the overall Group. A
careful distinction is made between operational aspects where the individual brands need to
have autonomy such as sales and merchandising, and those areas where the brands would
benefit from guidance at the Group level – such as Communications, Image and Finance
(Gucci Group NV Annual Report, 1999, p. 58).
Based upon Goold et al.’s (1994) framework for the creation of value between parent
and subsidiary companies, Table IV details the nature of advantage transfer and the
mechanisms by which this was achieved.
As Goold et al. (1994) acknowledge, the measurement of parenting advantage is not
straightforward. For Gucci, it is clear that each of the acquired businesses benefited
from the strategic direction and business resources provided by the parent as
evidenced by the significant improvement in income enjoyed by each, the increased
number of customer transactions and the improved media recognition (Gucci Group
NV Annual Report, 2001). Yet, while all of the businesses enjoyed an increase in
revenue in the period 2001-2003, none, other than Gucci Fashion and Gucci Timepieces,
secured an operating profit. Given that all were still subject to substantial capital
investment to support their launch, reconfiguration and/or development, the group
maintained in its Annual Report for 2003 that a critical objective in the short-to
medium-term would be to reduce and eliminate losses and have these generate positive
earnings and cash flow.
Developing a luxury fashion brand framework
The parenting advantage provided by the Gucci Group to its subsidiary companies is
inextricably linked to their core competency in luxury fashion brand building and the
availability of corporate resources. The over-arching luxury brand strategy has been to
“control product design and quality, global distribution and communications and so
consistently maintain the image of the brand. . . to maximise the long terms growth
and profitability” (Gucci Group NV Annual Report, 2000, p. 14). Consequently, for each
of the subsidiaries, the Group has implemented, to varying degrees, a luxury brand
formula comprised of identifiable dimensions. The Group’s platform for the
achievement of “parenting advantage” is their transfer of luxury branding expertise
to each subsidiary. In each case, the subsidiary has implemented a radical
transformation of its branding strategy to match the Group brand model.
By virtue of their pre-eminent position and successes within the luxury fashion
sector, it is credible to utilise their luxury brand formula as the basis for developing a
model of luxury fashion branding.
Returning to Beverland’s (2004) luxury model, while its component dimensions
have application to luxury fashion, these require to be supplemented with additional
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Relationship type
Gucci group activity
Stand-alone influence
The Group has a clearly defined strategy with respect to the
management of a luxury goods brand “it entails distinct high quality
merchandise, controlled distribution – often through directly operated
stores – systematic communication and solid execution” (Gucci Group
NV Annual Report, 2003, p. 13)
Given the importance of creative control to luxury brand success,
Gucci states that it “maintains in-house the design responsibilities of
all its brands”, achieved through Tom Ford, Creative Director of the
Gucci Group
In fiscal terms, the direct influence of the Group is explicit – “The
Group therefore strives to maximise after tax return on invested
capital (ROIC), an objective it aims to accomplish through: long-term
revenue growth; strict cost control; an optimal fiscal structure and
modest invested capital” (Gucci Group NV Annual Report, 1999, p. 58)
In the 2003 Annual Report, the Group’s corporate objective for each
business was clearly defined
As each brand has been acquired, the Group has encouraged synergies
in terms of intra-group supply and resource utilisation
Examples include:-Sergio Rossi supplies shoes to Yves Saint Laurent;
Gucci supplies leather goods to Yves Saint Laurent; Gucci Group
Watches supply to Yves Saint Laurent; Bedat and Co. and Boucheron;
Yves Saint Laurent Beaute supplies to Boucheron, Stella McCartney,
Alexander McQueen
As identified above, the Group provides central support to each brand
with respect to communications, image and finance
Additional support is also given:
Group real estate experts provide store development activity – such as
Yves Siant Laurent in the USA and Japan, Bottega Veneta flagships in
Milan, Paris and London
Administration and information systems centrally controlled
Management personnel – “In addition to transferring several highly
qualified and experienced operating and financial managers from
Gucci, we have enjoyed outstanding success in recruiting some of the
finest talent in the luxury goods industry” (Gucci Group NV Annual
Report, 2000, p. 16)
Group resources in product development, production and logistics
support the Stella McCartney, Alexander McQueen and Balenciaga
brands
YSL Beaute utilises Gucci Group warehousing in the USA
Safolia, Group eyewear partner, supply Gucci, Yves Saint Laurent and
Stella McCartney
Raw materials and media procurement for all brands is a centralised
function
The Group has engaged heavily in corporate development through the
acquisition of other businesses. To date, none have been sold on by the
Gucci Group
Linkage influence
Functional and service
influence
Central group services
Corporate development
activities
Source: Gucci Group Annual Reports 1999 – 2003
The nature of
parenting
advantage
267
Table IV.
Gucci group synergies
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268
Figure 3.
A model for luxury
fashion branding
dimensions. For example, flagship stores, situated in the premier shopping districts of
the leading world centres, have previously been identified as a crucial dimension of
luxury fashion brand positioning (Hollander, 1970; Alexander, 1997; Moore et al., 2000).
The development of a network of “experience-branded” flagship stores, in tandem with
controlled retail and wholesale brand distribution, are discriminating elements of the
luxury fashion brand.
Similarly, in recognition of the huge significance of distinctive brand identifiers,
(such as the Gucci double G emblem or the inter-locking C’s for Channel); iconic products
and recognisable symbols, to the activity of luxury fashion marketing, it is vital that
these be recognised. Indeed, for many firms, such as Gucci, these iconic products and
brand symbols provide a vital income source, while the designers who create them, such
as Tom Ford, become inextricably linked to the brands they represent.
While marketing activity is recognised in Beverland’s model, there are certain
marketing activities that are distinctly critical to the luxury fashion brand. These
include twice-yearly fashion shows; store window displays; distinctive carrier bags, as
well the feting of fashion magazine editors to assure front page brand coverage,
product placement and editorial endorsement. At Gucci, these activities clearly served
to reinforce the allure and stature of the brand.
Finally, premium pricing is a defining and non-negotiable dimension of luxury
fashion brand positioning. For example, the Gucci Group’s Bottega Veneta brand,
commands “super-premium” prices that outstrip its competitors. This is largely due to
its reputation for superior quality, design innovation, superstar endorsements, near
non-availability and extensive marketing support which promotes its place within the
“prestige segment of the luxury goods market” (Gucci Group Annual Report, 2002, p. 39).
Derived from the findings of the Gucci Group case-study, Figure 3 shows a
proposed model for the luxury fashion brand.
In conclusion, a summation of the role of brand management in the creation of parental
advantage within the luxury fashion conglomerate is provided by Domenico De Sole
who stated:
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At Gucci, we are managers and business builders. We play close attention to the acquisition
process, and we believe that we have demonstrated our ability to identify and complete
investments on terms commensurate with the value of the acquired company. Any brand we
acquire must achieve excellence in brand perception and financial results (Gucci Group
Annual Report, 2000, p. 15).
Areas for future research
This paper has proposed that brand development is the principal parenting advantage
activity of the holding company in a luxury fashion conglomerate. There is an
opportunity for other researchers to extend the application of parenting advantage to
other luxury fashion conglomerates and to explore the mechanisms by which parent
advantage transfer is achieved. The area of group synergy management is worthy of
further exploration. Furthermore, there is also the opportunity for researchers to test
the extent to which the proposed model for luxury fashion brands has
cross-conglomerate, cross-sectoral application.
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