The reasons behind the major shake up at GUCCI GROUP (updated)

Francois Pinault (Senior) and Francois Henri Pinault with wife Salma Hayek

International media as well as major luxury players have been taken by surprise this week by several major changes within PPR / GUCCI GROUP and it seems this is just the beginning. First, there was the resignation of Valerie Hermann, CEO of troubled French maison Yves Saint Laurent and second, the ”exit” of Robert Polet, Gucci Group CEO since 2006.

Since taking over from his father in 2005, Francois Henri Pinault has radically changed management within the PPR Holding company, with a much more active, creative and visionary approach, responding fast to market conditions. One of the first major decisions he was actively involved was the sale of Printemps department store in Paris in 2006 and YSL Beaute in 2008 to focus on the development of Gucci Group.

He then made his mark with the way he managed to weather, first, the departure of duo Domenico de Sole (CEO) and Creative Director, Tom Ford, then the replacement of Mark Lee (CEO of Gucci) and the accommodation within the company of Robert Polet, a non luxury experienced executive, formerly a FMCG executive to run the Gucci Group. In a recent interview to Italian media, he motivated the decision to terminate the agreement with De Sole and Ford with the poor financial results of Gucci and Yves Saint Laurent at the time, the duo being mostly focused on these two brands. He also praises Polet’s work from the point of view of successfully restructuring the company both financially and operationally, bringing it to a high level of corporate tenure.

Then there was Pinault’s skillful manner of handling the international crisis, managing to restructure the company and improve efficiency, at least for some of the brands, namely Gucci and Bottega Veneta which have both registered double digit growth during the crisis.

Mr Pinault’s decision to separate and sell some of the mass market divisions of PPR was also a very sensible one, providing the basis for future development of the premium and mass market brands. PUMA’s exceptional come back and turnaround has been mostly due to the World Cup sponsorships as well as the focus on more casual wear. The Black Label of the brand has created a very profitable differenciation for PUMA in the world sportswear market dominated by Adidas and Nike. The major next steps he took at PPR were to sell the African distribution business Cfao in 2009 and the sale of Conforama in 2010.

Within the Gucci Group itself, Pinault made the strategic decision to sell Swiss watchmaker Bedat and expand French jeweller Boucheron;s business with online sales, thus becoming the first major jewellery maison to sell online. At the center of many disputes and disagreements over strategy, there were clashes between Pinault, Polet and the CEO’s of each brand. Within two weeks from taking over as CEO of Gucci Group he personally visited the operations of the Italian companies of his group: Sergio Rossi, Bottega Veneta and Gucci, making a hands on evaluation of the situation of each company.

While developing an excellent relationship, entrusting and granting creative indepedence to Frida Giannini at Gucci and Tomas Maier at Bottega Veneta, not the same can be said about Stefano Pilati at Yves Saint Laurent, which was also evident in the poor business performance of the latter. As for Alexander Mc Queen and Stella Mc Cartney, the two brands have remained profitable, yet on a smaller scale and size than Gucci and Bottega Veneta.

The death of founder and designer Alexander Mc Queen will undoubtedly have a negative impact on the brand in the long term, as the bran had not managed to gain enough strength and separation from its flamboyant image maker and creative genious who was the designer himself. I found it suprising for brands such as Stella Mc Cartney to associate on so many occasions with mass market brands such as H&M and Adidas. While the projects might have ensured a timely financial security, they must have had a negative long  term impact on the percception and awareness of the brand.

Although ”politically correct” and ”in line” with the brand heritage, Frida Gianini’s work at Gucci has failed to produce the financial boom which would bring Gucci closer to its direct rival Vuitton. Except for the store concepts which indeed managed to make a statement, giving Gucci a competitive advantage, the product lines and ranges have remained rather dull, lacking the ”je ne sais quoi” brought by Tomas Maier at Bottega Veneta. The advertising campaigns and the online presence of the brand is also way behind its competitors such as Burberry or Hermes, many campaigns and projects being far too predictable from season to season and seemingly following and not leading. The ”haute couture attempts” which materialized in some dresses especially created for and worn by Mr Pinault’s wife Salma Hayek at major events as well as thehaute  jewellery line have almost gone unseen, without any strategic future development and therefore continuity. This is also reflected in the rather modest and lackluster PR campaign which marks the 90th anniversary of Gucci this year, the mere highlights being a co-branded Fiat 500 car, the Gucci museum in Florence and the organization to support young talents.

One of Mr Pinault’s important tasks is to maximize the potential of e-commerce. Competing luxury group Richemont made a strategic move in 2010 by acquiring NET-A-PORTER, leading UK luxury online sales. Gucci Group brands have been available on Net a Porter for a while, yet the need for a much broader presence on other leading e-commerce portal is a must, such as Italian YOOX, especially since Yoox launched its Chinese version of e-commerce site as well as VentePrivee which dominates the French market and which has made significant advances in other European countries.

Therefore the task facing Mr Pinault is more than challenging, not only a complicated business manoeuvre but also the need to reposition and strengthen the creative direction of most of its brands. The online presence of most of the brands, including Gucci, both from a commercial point of view as well as strategic marketing positioning needs to be improved. Also, Gucci will need to adopt a more hands on retail expansion strategy and take more responsibility with direct operations which would replace some of the many ”friendship” franchises in some countries around the world, which have been maintained to the detriment of the brand in the long term. One important commercial strategy that should be tackled is in regards to outlet sales, where the group has not had a coherent unified approach till now.

Pinault invested over 10 billion euros in Gucci Group and Puma in the past decade, therefore the obvious question remains when he will be ready to invest further and possibly expand the group with strategic acquisitions. The answer may lie in the 2,5 billion euros which he will cash by the end of this year, from the sale of Conforama. Will Gucci Group be ready to bid for Burberry or Jimmy Choo this year (both companies are for sale)? It remains to be seen how Pinault evaluates the potential of such new acqusitions while still working on restructuring and optmizing the performance of the exisiting brands.

Oliver Petcu