Fashion Faux Pas: Gucci and LVMH

Case Study

Executive Summary

Set in 2000, Gucci Group is at a cross road and its strategic decision at this juncture will define the future of the

world’s fourth largest US$1.2 billion luxury group. Gucci is a 77 years old group, established in 1923 in Florence

selling luggage imported from Germany. It has transformed itself over the last 77 years and moved from a family

owned entity to a public listed company. After 77 years of its existence, it now sells a wide range of luxury goods

starting from leather goods, fragrance, cosmetics, shoes, watches, apparel, jewelry, silk ties & scarves etc. More

importantly, what started as a single product, single brand company that was focused on small leather goods has

now transformed itself into a multi-brand, multi-product group with worldwide presence. The case Fashion Faux

Pas: Gucci & LVMH deals with the hostile takeover and the legal battle between the companies in the controlling

ownership of Gucci shortly after its initial public offering. Thus, J4 examined the actions pursued by Gucci as it has

practiced the “poison pill” mechanism. Further, the group identified area of opportunity in which the internal

organization of Gucci can focus on to deliberately align its strategies with its mission and vision. To achieve these

goals, the proponent used several tools in congruence with the identified problems hindering the company’s

endeavor to achieve its goals. The proponent initially looked into the internal structure of Gucci through its company

profile. Acknowledging the significant impact of external environment and the fashion industry in the performance

of the company, the proponent used the PESTL Analysis and Porter’s Five Forces of Competition Analysis. With

the PESTL, it was found that the economic and social aspects of environment have the utmost impact to the

company. Porter’s result on the other hand posted a moderate to high level of competitiveness within the fashion

industry. Furthermore, the proponents included other analysis of general environment to completely realize what

action(s) to undertake to satisfy the goals of Gucci. TOWS Matrix evaluates the company’s historical transactions

and strategies to gain a better picture of the company’s current status and lead the proponent to a realistic action plan

for the future. This tool is an aid to identify strengths and opportunities that can serve as armors in battling the

weaknesses and threats in the organization. With the integration and matching of the results of the tools used, the

strategic action chosen as the grand strategy was determined to be the pursuance of market expansion. This can help

the company proceed to development and growth. This action is appropriate since the company’s status in the

industry has been at par with the superior brands like LVMH, Prada, Hermes, and the like.

Mission: To become a group leader in the luxury market at world-wide level through: putting into effect and

maintaining the company’s objective was to enhance its rapid development and growth plans, as well as to bring

about great flexibility to its production and business processes.

Vision: To become the global multi-brand, well-diversified luxury goods company leader.

Central Problem

The battle between Gucci and LVMH brought the former to spill a “poison pill” (ESOP) into competition with the

latters’ attempt of hostile takeover. Gucci then faced a dilemma on how it will reposition itself in the fashion

industry and how it will find opportunities to enjoy organic growth to pro-actively prevent takeover by a competitor

like LVMH.

Objectives

To resolve the conflict between LVMH and Gucci

To evaluate whether the actions taken by Gucci’s management in defending its independence were actually

in the best interests of all the stakeholders

To save Gucci from LVMH’s unwanted takeover advances in the future

SWOT Analysis

Strengths:

Well-known brand

Aggressive strategy through diversification and communication

Expansive product lines with huge aspirational value

Wide-ranging presence worldwide

Weaknesses:

Company size is small

Prices of product are relatively high

Limited target customers

Opportunities:

Promising wide market potential of luxury markets is growing in Asia

The latest developments in multimedia technology for advertisements and marketing

Expansion of product portfolio

Consolidation of other brands that can provide a competitive advantage

Threats:

Stiffening competition

Presence of substitutes such as medium brand products

Imitation of Gucci products

Alternative courses of action

1. Market Expansion

Advantages:

Growth in terms of market share

Improved market position

Strengthening and adding more value to the company and its brand name

Opportunities for revenue growth through new market openings

Enables manufacturing company to become and remain competitive in order to retain existing jobs and

create new ones.

Increases public and private research and development investment, and improves methods for

transferring and commercializing new discoveries.

Disadvantages:

High investment is required in order to support the market expansion

The company needs to undertake legal proceedings required to enter new markets which may ear

substantial costs

Extensive study of the new marketplace and their long-term objectives will be required which is time-

consuming and capital-intensive

2. Related Diversification

Advantages:

Control markets by guaranteeing sales and distribution

Take advantage of existing expertise, knowledge and other resources in the company

Reduced costs

Disadvantages:

Shared losses and risks

3. Innovation and improvement of current technologies

Advantages:

Distinguish your business from competitors

Get free advertising

Attract top quality employees

Disadvantages:

Investment in research and development is quite high

Costly operating expenses

Additional cost for training and development of human resources

4. Strategic alliance with acquired companies

Advantages:

Focus on core strengths

Opportunity for growth

Shared risks

Disadvantages:

Reduced profit

Cultural differences and difficulties

Recommendation

The Market Expansion step is that period when a company assesses current markets, identifies untapped markets,

and seeks opportunities for revenue growth through new markets. The market expansion plan will result in estimates

for delivering new capabilities to current markets, and potential new markets for existing products.

Gucci has a strong brand image worldwide but it has not expanded yet into other markets mainly it has focused in

major markets in Europe and North America. The company can capitalize on favourable opportunities in the Asian

market. Asia is a fast growing economy with rapid increase in the number of high net worth individuals. Gucci can

also treat Asia as country-by-country region to identify and categorize more potential markets from the less ones. In

that case, it will reduce cost in investments. Japan, China, Hong Kong, Korea, Singapore are top five countries that

are seen by most researchers that can be tapped by Gucci.

Thus, market expansion is the best choice for Gucci to strategically maintain and enhance its position in the industry

as one of the superior branded products worldwide. Increased market share will substantially decrease the advances

of LVMH. With the opening of new distribution networks in the selected areas in Asia, Gucci will now be able to

serve its clients world-over which will further lead to stronger brand equity. It will increase the bottom line and yield

higher value for shareholders.