When Carlos Alberini joined Guess Inc. in December 2000 as president, chief operating officer and director, he had already accumulated more than a dozen years as a top financial executive at retailers Bon-Ton and Footstar. He had a business degree from the University of Buenos Aires in his native Argentina and had been a chartered accountant at the former Price Waterhouse, and his expertise helped guide the jeans firm in its transition from wholesaler to retailer.
Guess currently operates 323 stores in the U.S. and Canada and 386 stores in 57 foreign countries through international licensees and distributors. It is readying for its next phase of growth: global expansion. Since 2004, its European operations have grown more than fourfold, making up 21 percent of total revenue in 2006. Guess also has 21 domestic and international licensees for eyewear, watches, handbags and fragrance, and runs warehouse and distribution centers in Louisville, Ky., Montreal and Los Angeles. Freshly rejuvenated following an Easter vacation with his family in Beaver Creek, Colo., Alberini, 51, discussed his tenure at Guess and what’s in store.
How did your past experience prepare you for your current job at Guess?
The areas of responsibility at Guess were significant. Besides many operating areas, I had responsibility for sales, the wholesale and retail businesses. And I felt that this was a good fit. I have an extensive financial background. I felt I could bring a lot of those disciplines to this company, [and that] the company could use more structure for forecasting, business strategy planning and so forth. I felt this was an amazing brand with a global reach and a great customer segment. Most importantly, I found instant chemistry with the Marcianos. We got along great from day one. They had so much passion for the business and company. That was one thing I want to share: to be part of an entrepreneurial company.
What was Guess like when you joined in 2000, and how does it look today?
In 2000, the company was very wholesale-centric. Now it’s retail-driven. We went from a single-brand company to a portfolio of brands — Guess by Marciano, Marciano and G by Guess. We were very U.S.-focused in 2000. Things were happening internationally, but they were not the areas that we were focusing our efforts on. Now, we have a very global focus. In 2001, our biggest acquisition was that of our licensee in Canada. That operation went from losing money that year to being one of our most profitable divisions now. That showed looking outside of the U.S. was a great opportunity for us. We had a brand that was recognized, but not all that power was being optimized. We looked at other opportunities, and [made] more acquisitions. Europe was next, and now we’re going into the Asian markets.Why is it important to have a global reach?
The brand has a great position globally, and the penetration in those markets of our brand is not where it could be. So we see a lot of growth opportunity there. The great thing is, many of these markets offer higher operating margins than what we can achieve domestically. Growing there provides better profit opportunity.
Let’s take Europe, for example. Our operating profit in Europe was 25.4 percent of revenue, compared with 14.3 percent in the U.S., in the last fiscal year. You can imagine that every time we can grow the European business with that operating profit, the contribution to the bottom line is pretty remarkable. The business is much more fragmented in Europe, and there is less pressure on margins related to markdown allowances and any other allowance for returns. The brand is positioned at a much higher level. So the customer is much less price-sensitive. We can offer quality and a more significant product offering that is differentiated at higher prices, which can deliver great margins. We see European revenue reaching $600 million to $800 million in the next three to five years. Sales there for the last fiscal year were $252 million. Obviously, there is a big opportunity to grow, coupled with the operating margins. This is a huge, huge priority. We are highly concentrated in Italy, the South of France and Spain. We see big opportunities in other countries and further penetrating the countries where we are doing business.
How important is Asia as a market?
Another big area for us is Asia. We took over the license in South Korea in January. The great thing about that market is that the customer really loves fashion, it’s a great economy and it is very strong. We are also launching the brand to a greater area of China. We are opening a flagship in Shanghai [this month]. We are opening several stores in Hong Kong, Macau and Beijing in the next few months. We see China as another huge growth opportunity. We are relatively prudent with the way we see it because it’s a difficult market and not an easy market to penetrate. We have to walk before we run. We are looking into other areas, for sure. The brand was represented in Japan as a license. We don’t have any licensees in Japan right now. We signed a joint venture in Mexico last year to reintroduce the brand there. Mexican customers love our product. All our border towns do well.As Guess has shifted its focus to retail operations from the wholesale business, how has the company had to change the way it operates?
Everything we do has to have the brand at the center of the decision-making process. That is an obsession for us: to make sure we kept the brand at the right levels and distribution channels. There is a coordinated effort to make sure the brand is represented with high integrity.
Did you tweak the support systems for the wholesale and retail businesses?
We used to keep the same inventory in the two models. That posed some challenges. There was some excess inventory. We decided to split that inventory and keep inventory for whoever bought it and whoever managed it. That helped create synergy and helped margins. You can perceive that shared inventory would drive efficiency, but it really was making the accountability more challenging. In a fashion business like ours, not having good accountability on inventory or margins can be pretty detrimental.
The other big thing with respect to that change is building a retail team that can manage that business with the complexity of merchandising, better coordination with the designers, better allocation of products. When you are geared toward wholesale, you don’t have these functions. We had to hire great talent. It took some time. When I joined, we had three buyers, one each for men’s, women’s and accessories. It was a very simple way to run a retail team. Now we have dozens of buyers. That has given us tremendous staff in the merchandising area.
How have you had to change your management style as the company evolved from being a wholesaler to a retailer?
For me, I always gravitated toward retail. I enjoy that tremendously. I have a lot of experience in logistics and real estate work and systems. The challenge was to keep everything in balance. Again, the brand was at the center of everything we did. It was more about prioritizing and keeping so many initiatives in check and trying to pay attention to the most critical ones involved in this change. The other thing that helped me was, we did hire a lot of great people that brought a lot of retail expertise with them.How did the global business strategy affect sourcing?
There are big opportunities to develop product and do it faster. The faster you do it, the more risk you eliminate because you can design closer to the market. You are right with the trends. Being fast is key to being successful. We are trying to reduce costs and control markets where the quality is best at the lowest cost. We opened a sourcing office in Hong Kong two years ago and source directly there. We have two groups of designers. One, here in L.A., designs for North America, for women and men. Another group, in Florence, designs the European line. There is very little interaction between the two groups. Now we are going through an initiative to combine sourcing for what is common between the two lines throughout the world. Once we achieve that, we can source that product from one place and have greater purchasing power.
How has Guess dealt with retail consolidation? Are you opening more freestanding stores or in-store shops in department stores?
This is the great vision that our chairman, Maurice Marciano, had years ago. The market was consolidating. We initiated this change to go more into retail. We think this is the way we can control our destiny over the long term, having access to the ultimate customer in a vertically integrated retail model. We don’t expect that to change significantly in the future. We will continue to open stores. [See retail story, beginning on page 34.] We’re also changing the closing date of our fiscal year: Starting this year, our fiscal year will end in late January rather than late December. We started fiscal 2008 on Feb. 4, 2007.
What has been your biggest challenge as president and chief operating officer?
The biggest challenge is the fact that this is a complex business, so I have to learn a lot and try to really make the changes that we talked about over time. We have so many opportunities. Even when the company is a reasonable size, we have a lot of opportunities to grow and the challenge is to prioritize and stay focused. There is always the temptation to chase the next opportunity or to spend more time on that other opportunity.What do you think has been your biggest accomplishment at Guess?
When I came here, we went through a challenging time. We lost all of our revenue base in the wholesale business. To build the retail base took some time. That change had a major impact on the bottom line. We lost money in 2002. To change that business model and execute on that vision required a lot of work, and coordinated work with the whole team. I also contributed a lot of financial discipline.
Everything we do has to have a return for shareholders. I take a lot of pride in saying that’s how the company operates today. We built a business model that is much more predictable and much more diversified. A fashion business that has a lot of diversified models has flexibility.
I take pride in building a culture that rewards a team. We have enhanced our pay-for-performance programs. We define goals, objectives and financial targets, and a big part of the pay for the key management team is derived as a variable, meaning that it rises with the performance of the company, including equity that key management can earn.
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