IILM Institute for Higher Education

School of Business
PGP (2008-10)
End-Term Examination, Trimester- VI, October, 2009
Course Code:
Course Title: SALES & DISTRIBUTION MANAGEMENT

Case Study : GUCCI-Fashioning India (to be sent to students 3 days before)

To a fashion connoisseur, Gucci is no stranger. From handbags to watches to haute couture, it is a
brand that spells exclusivity, and style. Founded in Florence in 1921, it has come to be known as one
of the world’s leading luxury brands. The brand value has been built upon years of unequalled
craftsmanship, outstanding quality and “made in Italy” (with one exception of watches, which are
produced in Switzerland) tag.

The brand has its own designing, manufacturing and distribution chain of highly desirable leather
goods comprising handbags, small leather goods, and luggage, shoes, ready-to-wear, silks, watches,
jewellery, eye wear and fragrances. Gucci’s portfolio includes the premier flagship brands: Gucci,
Bottega Veneta, and Yves Saint Laurent. The brand’s unique positioning is built on three key
principals: creativity, exclusivity and the culture of Italian craftsmanship. Constant creativity and
innovation are its key drivers. Its growth strategy is based on three areas: distribution, product
offering and brand positioning.

The company distributes its products through a network of carefully selected and directly operated
stores, and this is how it has created an aura of exclusivity for its brand. A controlled network is the
best way to offer the Gucci products and convey the brand philosophy. The other distribution channels
are franchisees, duty free shops or specialist boutiques and department stores and in the United States,
E-commerce has also become a valuable complimentary channel. Through rigorous management of
image, a tight communications policy, outstanding product quality and a carefully controlled
distribution network, Gucci Group has maintained the exclusivity of its brands and enhanced their
positioning over the next few years.

The breakdown of 2008 revenue by brand (%) are:

Gucci generated US$2.4 billion revenue worldwide in 2008 according to Business Week magazine
and climbed to 45th position in the magazine's annual "Top 100 Brands" chart created by Interbrand.
It is also the biggest-selling Italian brand in the world though Europe accounts for 35% of its annual
revenue of €2,206 million. North America and Japan contribute 20% and 15% respectively to its kitty
and 70% of its sales revenue comes from 258 company owned stores all over the world. The
breakdown of 2008 revenue in different product categories is:

Ready 14.3%
to wear:
 Leather 55.3%
goods:

Shoes: 15%

Watche 5.1%
s:

Jewelle 3.7%
ry:

Other: 6.6%

Total €2,206mn

The international price of a Gucci product is upwards of USD $150

However, Gucci’s Indian story has not been as smooth. It had entered Indian market three years ago
but has parted ways with its Indian franchisee Vijay Murjani of The Murjani group since then. The
group that started as an apparel maker and grew up to launch several brands in India and abroad
retailing premium brands is also the distributors of Calvin Klein, Tommy Hilfiger and French
Connection U K brands in India. Gucci, in its new makeover now has an agreement with investment
banker Ashok Wadhwa’s Luxury Goods Retail, set up by I- Bank Ambit Corp and is in the process of
converting it into a 51: 49 joint venture.

This new venture has bought over three Gucci operation stores in Delhi and Mumbai from the
Murjani Group as well. In forming the JV, Gucci will follow many other international brands such as
Marks & Spencer and Mothercare brands offering exclusive stores for better control over operations
and the flexibility to chart an independent course in the market.

Most international brands look to set up their 100% owned stores in order to ensure that they can stay
in complete control and drive brand reputation. But Indian rule allows only 51% foreign investment in
single brand retail and none in multi brand retail.

A spurt in fashion trends in India has revolutionized the merchandising system in retail industry.
Brands in apparel, textiles, jewellery, accessories, footwear, cosmetics and salon business have raised
the market more than Rs 40,000 crore. There is more scope for expansion since there is an increasing
desire in people to experience newer international brand. The organized retailing is developing at
breakneck speed and fashion brands form a major part of both the retail industry as well as in the
product range. Fashion has led the retail industry boom and it has sustained its dominance in every
malls, markets and stores.

Household incomes in India are accelerating and income pyramid is ever changing with higher salary
structures. The share of incomes of the middle class and the higher income group will rise from less
than 30% of that of the total population today to more than 80% by 2025. According to estimates by
McKinsey Indian consumption will quadruple in the next 20 years. In the light of this background
huge growth in the fashion product categories can be expected from the middle class and those in the
higher income bracket in the coming years.

Fashion trends in India are being increasingly adopted from the Western styles of clothing and other
fashion accessories. Ramp shows and various Fashion Weeks further promote Indian haute couture
and aspiration levels of the Indian population. Typically, the Indian luxury consumer can be classified
as:
• Urbane

• High disposable income

• Well qualified

• Knowledgeable and aware of luxury market

• Well travelled.

The core audience for fashion products is the 27-35 year age group and is predominantly female -- a
number of men too buy branded luxury products for themselves as well as to gift to their friend and
relatives -- and is affluent.

The success of brand clothing stores such as Pantaloon, Westside and Shopper’s Stop has made
erstwhile textile manufacturers turn to apparel marketing. In the near future, large textile chains –
Vimal from Reliance Industries, Siyarams and S Kumar for example are expected to become strong
apparel brands. There is a greater awareness of foreign brands as a result of exposure to the Western
media. As disposal income rises, Indians increasingly spend on international lifestyle symbols. Gap,
Benetton, Adidas and Reebok are some of the international brands that can be very commonly seen on
the Indian high streets. Reebok leads the sports footwear market in India, outdoing Nike and Adidas.

The table below gives an indication of consumer expenditure on clothing and footwear from 1995-
2007. Clothing includes: clothing material, garments, non-stitched and knitted wear etc.

Rs. Billions 1995 2000 2002 2004 2006 2007

Clothing 765.6 951.6 897.0 983.3 1,080.1 1,143.2

Footwear 89.2 122.5 101.1 113.6 128.6 134.1

TOTAL 854.7 1.074.1 998.1 1,096.8 1,208.7 1,277.2

Indian luxury market statistics: 2006 (US $)

− Luxury Products: $ 500 million

− Luxury Services: $ 953 million

− Luxury Assets: $ 2.9 billion

− Total Luxury market Size: $ 4.3 billion

Out of the above the Luxury Product Market is:

2006 2010 2015 CAGR

 $ 500 million $ 1220 million $ 2550 million 20%

(Rs.2,500 cr) (Rs.6,100 cr) (Rs.12,750 cr)

Even as there is a sense of heightened optimism about the luxury brands market in India, the fact
remains that the country represents a very small percentage of the entire global market for luxury
brands. The global market stood at US $ 220 billion in 2007. Foreign luxury brands have realized that
India is a nascent luxury market and there are still many challenges to overcome. However, they also
realise the potential and are setting up shops in India. If one looks at the growth projections, one can
expect a huge upsurge of luxury brands creating a presence in India in the near future.

Gucci’s new joint venture with Luxury Goods Retail will initially market the following luxury items
in India. The prevailing price range of similar fashion products available in India is mentioned along
with. The starting market price of Gucci products is expected to be 50% higher:

Women’s
Price range
(INR)
Men’s
Price Range
(INR)

Women's Ready To Wear 3800 +

Men's Shoes 3000 +

Handbags 2300 +
Small Accessories 1100 +
Women's Shoes 2600 +

Wallets 1700 - 2500

Fragrance 2600 +
Belts 1300 +
Sunglasses 5500 - 25000
Ties 1700 +
Others

Fine Jewellery 7000 +

Silver Jewellery 12500 +
Watches 7000 – 1,00,000
Scarves 1500 +
Hats 1500- 2500
The Gucci joint venture will source their products from the overseas as well as procure from local
vendors under stringent quality standards specified by Gucci.

Understandably, having failed to make any significant presence in the Indian market after tying up
with the Murjani group, brand Gucci’s renewed foray is determined to make a different story this
time. Whether the new agreement with Luxury Goods Retail will be successful or not only time will
tell.

(Source: Economic Times, www.gucci.com, National statistical offices, OECD, Eurometer

International)

End of case