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Gucci's Difficulties in Building Competitive Advantage in the Global Luxury Goods Industry

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2014: Gucci's Difficulties in Building Competitive Advantage in the Global Luxury Goods Industry

This case was prepared by Richard Frost, from published and internet sources.

No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the producer.

Case study for STR6008, International Business Strategy,

Tutor Richard Frost:

2014: Gucci's Difficulties in Building Competitive Advantage in the Global Luxury Goods Industry

1.0 Brawls, intrigues, and Murder - the turbulent life of the Guccis

If you saw it written in a novel or watched it as a movie, you simply would not believe the goings-on in the Gucci family. The firm was founded by one Guccio Gucci, in Florence, in 1923, as a manufacturer and retailer of travel luggage, in high quality leather. Guccio had been a humble dish washer by trade, but he had worked in some of the best hotels in London and Paris, and was inspired to return to Florence, a city renowned for the quality of its artisans and its fine quality of work, to begin the manufacture of high quality luggage.

Guccio Gucci - library photo, PPR website

Gucci expanded into the large towns and cities of first Italy, then Europe and later the rest of the world, and along the way it also expanded its range of goods. Still using mostly leather, but with some other materials and fabrics, such as bamboo and silk, Gucci branched out into belts, wallets, shoes, handbags - and latterly, cases for mobile phones, i-Pads, and so on.

The family controlled the business until comparatively recently, but it was a history of family intrigues and boardroom tussles dating back over many decades, before it became part of the luxury goods conglomerate, Pinault/ Printemps/ Redoute (PPR), where the scandal comes in.

Guccio had six children, but only sons Vasco, Aldo, Ugo, and Rodolfo were directly involved in the business. After Guccio's death in 1953, Aldo led the company to a position of international prominence, opening the company's first shops in London, Paris, and New York, but even in Gucci's years of early international growth, the family became notorious for its ferocious infighting. Aldo and his three sons fought with Aldo's remaining brother, Rodolfo, about share ownership and who should get most of the firm's profits, so when Aldo decided to open a perfume arm of the business, although still using the Gucci name, he registered it as a separate company, and tried to keep all profits in his part of the family.

Then Aldo's son, Paolo, tried to use the family name to start up his own leather goods business, and Aldo and the remaining family members had to take legal action to stop him. In revenge, Paolo went to the US tax authorities and ratted on his father (a long-term US resident) about tax evasion, a crime so serious that the Americans pursued and convicted him. He was fined €35,000; had to repay €8 million in evaded taxes and then serve a year and a day in jail (about five months, in reality), at the tender age of 81.

Board meetings were often acrimonious, resulting in several of Guccio's grandchildren not speaking to each other for over a decade; many times expensive leather handbags were thrown at various family members along with teacups and any other objects that came to hand. Several times, one or more members of the family came out of one of these meetings with a blackened eye, or bruised or bleeding faces.

During the 1980s and into the 1990s the firm began to struggle financially, but eventually, using Machiavellian methods, grandson Maurizio united the various factions of the business, hired outside designers to revamp the Gucci range, and set about turning around the business's fortunes. However, long-running disputes regarding inheritance, shareholdings, and everyday business operations still divided the family and led to shifting alliances.

The biggest scandal of all, though, came in 1995. Maurizio, despite becoming the head of a more-or-less unified family firm, was not cut out to be a major business leader - he was really a playboy and hated the internal politics and humdrum 07.30 - 20.00 office hours. It was said he was pressurised into the job by his scheming and calculating wife, Patrizia Reggiani. Maurizio proved his lack of corporate sense by making some seriously bad decisions, and eventually, amidst mounting debts, writs and law suits, and much acrimony, he sold his shares in the business to Investcorp, a Bahraini investment group, for US$170 million, in 1993. This did not go down well in the family! Maurizio did not care - he divorced his wife and began living that playboy lifestyle. But on March 27th, 1995, as he was entering the offices of his private investment company, a hit man shot and killed Maurizio.

Maurizio and his wife, in happier times

Having made enemies of almost all of his family members during the power struggle to gain control of the business, all of them became suspects in the case. However, the hit man had been sloppy in his execution, and the police soon picked up him and several accomplices - and sensationally - Maurizio's ex-wife, Patrizia, who was said to have ordered the execution.

She was eventually convicted and sentenced to 29 years in jail for the crime, and maybe the Fates had finally decided that the Gucci business had suffered enough, for since that time, it has not only survived, but prospered!

Patrizia's police mugshot after her arrest for Maurizio's murder.

Gucci Group History, Organization and Business Activities

Groupa Gucci developed a truly international business based on high quality and luxury. From leather goods such as belts, bags, and shoes; ready-to-wear clothes, accessories such as scarves, watches, purses, hats, fashion and fine jewellery, and fragrances; even pet accessories, it aimed at the wealthy and discerning buyer, who wished to buy premium products for a premium, exclusive price in the luxury goods market.

Its success with these products led the firm to expand rapidly outside of Italy, firstly across Europe but then in Japan and the US and today in China. Gucci is considered one of the most famous,

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