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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 worlds 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 companys 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 Porters 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. Porters 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 companys historical transactions and strategies to gain a better picture of the companys 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 companys 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 companys 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 Guccis management in defending its independence were actually in the best interests of all the stakeholders To save Gucci from LVMHs 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 timeconsuming 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.