Gucci Group Strategic Management

Strategic Management

1) Map the competitive positions of the different players in the luxury good business along the “cost leadership” (Y-axis) and “product differentiation” (X-axis) strategy map. Where is Gucci’s position on this map in 1990, 1994, and 2000 respectively?

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Detailed explanation to be stated together with question 2 answers.

2) What were the critical strategic choices made by DeSole in his turnaround strategy (pg. 7 of Gucci N.V. case)? Try to match this to the internal value chain activities of Gucci.

• Gucci in 1990

In 1990, Gucci was in bad shape financially, losing almost $102 million from 1990-1993. Its core consumer was generally a wealthy, conservative, older woman, which severely limited its market base. The economic downturn caused by gulf war, recession, lack of cost control, immoderate spending by Maurizio Gucci, aggressive sudden product cut-off and a blemished brand image due to fake Gucci products all were the reasons of Gucci’s downturn.

• Gucci in 1994

With Maurizio Gucci stepped down from Gucci, DeSole took over as COO and Ford was appointed as Creative Director. Their aggressive approach in advertising, product remake from classic to trendy, repricing the product prices, stores interior transformation, improvement in production and distribution network, setting quality targets and many more helped Gucci to get back on track. According to Exhibit 1, there was a 30% growth in revenue, SG&A reduced to 52% with 1,096 employees, gross profit increased to 64%. In 1994, Gucci finally made a double digit operating margin of 12% after several years. To elaborate further, the below is the summary of Gucci’s turnaround strategies related to primary activities along the internal value chain.

• Inbound Logistics

During this period, Gucci tried to build excellent relationship with suppliers. It provided technical and financial support to suppliers.

• Operations

Gucci sent inspectors to check quality control during manufacturing and when products are completed. It has allowed Gucci to produce efficiently, resulting in a production volume to increase by 277% from 1994 to 1998. In addition, the average time for a handbag to be arrived in Gucci’s warehouse decreased from 104 to 68 days.

• Outbound Logistics

It shipped 12,000-15,000 pieces a day which dropped by Switzerland to be consolidated with other ready to wear items and silks. Directly operated stores eased distribution allowing Gucci to have complete control over crucial factors including presentation, service, pricing, and the range of products displayed in the stores.