By  on April 18, 2007

Guess' 25th anniversary coincides with another corporate milestone — the crossing of the $1 billion mark in annual revenues for 2006.

The company's present robust health can largely be attributed to its retail operations. More than 60 percent of sales in 2006 occurred in its own North American stores. Another 20 percent was gleaned from its international business, made up in large part by fully owned and franchised Guess stores.

The numbers are a testament to the success of the company's transition from a largely wholesale operation into a retail-driven business, a shift that began in the late Nineties after financial declines as dramatic as the company's meteoric rise in the Eighties.

The Guess brand, founded by brothers Paul and Maurice Marciano here, skyrocketed to success in the Eighties with logo-emblazoned denim and sportswear — branded around the world with a series of sexy advertising campaigns starring "Guess Girls" Claudia Schiffer and Drew Barrymore, among others.

By the late Nineties, however, the brand had lost touch with its core consumer and had lost relevance in the fashion world. In 2001, the company's earnings dropped 62 percent while sales fell 13 percent. The following year, the company reported its first loss.

It was then that the Marcianos decided to grow the company's retail business exponentially. "Otherwise, we would have disappeared," said Paul Marciano, chief executive officer and vice president of the board.

Today, the company operates approximately 324 stores in the U.S. and Canada and an additional 450 fully owned units and franchised stores in nearly 60 countries worldwide, encompassing five retail concepts that generated just under $1 billion in revenue in 2006. Wholesale operations brought the total net revenue to $1.19 billion for the year.

Paul Marciano, who oversees Guess' international retail operations, said expansion overseas remains a top priority for the company. Guess reported net revenues of $252 million in Europe and Asia, up roughly $100

million from 2005.

"There's been demand and acceptance of the product across every different category [internationally]," Marciano said. "The footwear is incredible. The jeans business is really strong; the men's is really strong, and the women's is the biggest."In 2006, the company opened some 125 stores outside of the U.S., many in tandem with its licensees and distributors. It plans to launch approximately 108 new stores across the globe this year — 48 in Asia, eight in Central and South America, 41 in Europe and 11 in the Middle East.

Another key to Guess' current success has been the diversification of its retail portfolio.

In the U.S. and Canada, the company operates 182 Guess stores, 26 contemporary-targeted Marciano stores, six G by Guess stores, 102 Factory units, one Guess footwear store and seven Guess Accessories boutiques.

The company will launch 10 new Marciano stores, 28 G by Guess stores, 15 Guess boutiques, one Guess Accessories unit and two Factory stores in the U.S. and Canada this year.

Worldwide merchandise distribution varies according to each location's climate and cultural trends, but the company will soon launch a global core line that will be carried everywhere, said Harriet Sustarsic, senior vice president of North American retail. "It's a focused, engineered product line headed up by [chairman of the board] Maurice Marciano that will supply the world with a common line." The core line will hit stores in spring 2008.

In North America, women's apparel accounts for 56 percent of company sales, with accessories and shoes capturing another 26 percent. Guess' men's business is responsible for the remaining 18 percent.

The company's five top-performing stores, in order, are Guess units at The Forum Shops at Caesars Palace in Las Vegas, in Aventura Mall in Miami, in Fashion Show Mall in Las Vegas, in SoHo in New York and at the La Plaza Mall in McAllen, Tex.

A real estate committee, headed up by Paul Marciano, picks the locations for new stores. "They look at demographics…and how much volume can be done," said Sustarsic. Members of the committee include president and chief operating officer Carlos Alberini; Guess' in-house legal counsel, Deborah Seigel, and director of stores David Chiovetti.

The aesthetics of the company's retail concepts have evolved over the years.

Guess stores "are much more fashion-forward and edgy than they used to be," said Sustarsic. "Denim, accessories and footwear are our core businesses, and the store design has put an emphasis on the denim business. Denim has a fixed destination in the stores that provides an anchor for the brand's core heritage."Guess stores average 5,000 square feet and feature lounge areas with DJ booths. "I think the stores have a softer feeling now and are more upscale," said Sustarsic.

Aj Jemison, general manager of the Beverly Center mall in Los Angeles, home to one of the very first Guess units, said the store "does phenomenal business," and added, "The store recently started playing dance music, and…it appeared to be generating more traffic. The company understands that you have to pull in more senses than vision."

The G by Guess concept, which launched earlier this month with units in California, Texas, Ohio and Pennsylvania, targets the moderate-price market, and is meant to compete with retailers such as Hollister and American Eagle. Denim is priced at $44.50 to $59.50, and dresses ring in at $49.50 to $59.50. "It has the same sensibility as Guess, but it's more key-item driven — like with Bermudas and tank tops," said Wendy Klarik, senior vice president of merchandising for G by Guess and Factory stores. "It's more attainable fashion, while Guess is more aspirational fashion."

The decor of G by Guess stores, which are typically around 4,500 square feet, reflects the company's West Coast origins. "We wanted it to be a retro L.A. concept," said Klarik. "The stores are darker than Guess stores. The walls are all murals of palm trees, like on old Sunset Boulevard." As with Guess stores, the focus in G by Guess is on shoes, accessories and denim.

"G by Guess hits that midtier price, which is sort of the sweet spot of America right now," said Sustarsic, who added, "It's not at all meant to compete with fast fashion."

The company plans to grow the concept in midtier and hybrid malls. "What we want to avoid is direct contact with Guess," said Klarik, who added that although "everyone has a number in their head" of how big the concept could grow, "no one's willing to say anything until we see it's successful. It's a baby concept….it has tremendous potential, but we need to get it right."

Paul Marciano is remaining philosophical about the success of G. "If we do it right, it'll be big. If we do it wrong, at least we tried. The customers will tell us if they like it."The Marciano retail concept, which bowed in 2004, is another business the company is committed to growing. The contemporary concept targets a slightly older customer than Guess, which the company considers a young contemporary brand. "It's a budding business with tremendous potential," said Maurice Marciano. "There's a great opportunity there."

"Marciano has grown from virtually nothing into $100 million annual sales," said Sustarsic, who credits its success to the concept's over-the-top sexy advertising campaigns (initially featuring Paris Hilton), and a trend-right product assortment that's in sync with its customer base. The Marciano line is also carried in 50 top-volume Guess locations. "Marciano clearly speaks to a different customer than Guess," said Sustarsic. "The Guess brand is more casual, while Marciano is more sexy, dressy, going-out items. But there is still suiting and [more conservative] pieces."

"We're big fans of the concept," said Todd Russell, senior vice president of leasing for Caruso Affiliated, owner of The Grove shopping center in Los Angeles, where Guess launched the first Marciano boutique. "It clearly relates to that body-conscious consumer and it continues to be a major success." Russell added that Guess will open a Marciano store in Caruso's forthcoming mall, Americana at Brand, in Glendale, Calif., when it launches in spring 2008. "They were one of the first companies we approached," he said. "[The store] will have a very prominent location there."

The flow of merchandise in the Marciano stores is specific to the concept. "We're focusing on a boutique merchandising strategy with Marciano," said Sustarsic. "We have a floor set, then we flow product in once a month. That product is either replenishments, or sometimes it's new product that they've been holding back. We have multiple sections in a store, and it's never mass-merchandised. Everything is an outfit, and that creates a lifestyle environment." Marciano stores average 2,500 square feet.

The company's outlet concept, Guess Factory, is less concerned with ambience, but "they're clean and simple and easy to shop," said Klarik. Typically 6,000 square feet, the stores carry a mix of low-priced merchandise created for the concept and merchandise that's trickled down from full-priced locations. "I think anyone that's successful in factory — like Polo and Coach — does a combination of new and [second] merchandise in the stores," said Klarik. "And when there are products that we need to liquidate, certainly it's much better to do it in our stores."The concept is one of the company's most lucrative, according to Paul Marciano. Klarik added, "We've been very successful at producing product that has allowed the company to be very profitable in those pure outlet malls and hybrid malls."

Despite its high volume, Klarik said the concept may be close to saturation in North America. "We're in the A-plus factory malls, so it's a matter of finding new locations that are appropriate for the brand," she said. "We have to work with the landlords and their new projects. There are only so many outlet malls."

Guess Accessory stores bowed in 2004, and are typically around 1,000 square feet, carrying the full collection of Guess accessories and shoes. As the company expands its footwear collections, new stores will gain square footage, said Sustarsic.

The next big development for Guess is a chain of Guess Footwear stores, said Paul Marciano. The company will launch 15 to 20 Guess Footwear stores over the next 12 months, in tandem with its footwear licensee, Marc Fisher. There is currently one store in Paris and one in Orlando, Fla. "Paul has stated that footwear is the major initiative for the company this year," said Sustarsic, adding that many Guess stores will be revamped to include a more prominent shoe and accessories section.

"We're doing well with shoes in our stores," said Maurice Marciano, "[but] our organization doesn't specialize in selling shoes. We have a great line, but we're not maximizing it right now."

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