GUCCI ON WALL STREET: LAUNCHING PAD FOR WORLDWIDE GROWTH
Byline: Sara Gay Forden
MILAN — “It was the most exciting thing that ever happened to me in my working life,” said Domenico De Sole about the moment Gucci started trading on the New York Stock Exchange last week.
“There was an Italian flag at the entrance to the stock exchange, a huge Gucci banner and a flashing sign that said, ‘Hot Stock to Watch: Gucci,”‘ said a tired but happy De Sole, back in Italy after a grueling five-week international road show that culminated in the listing of the Florence-based luxury goods house on Wall Street Oct. 24.
As reported, the placement was an immediate success, with the share price bid up 22.2 percent on the first day of trading, opening at 22, climbing as high as 27 1/2 and closing at 26 7/8. On Wednesday, the stock closed at 30 3/8, up 3/8, a new high.
“There was pandemonium at the booth, and the noise on the floor was incredible,” De Sole told WWD in his first interview since the luxury house went public. “The stock didn’t even start trading until 10:05 a.m. instead of 9:30 [the normal starting time] because of all the orders, and the opening price jumped immediately to $26 from the set price of $22,” De Sole said.
From the trading floor, as the stock was being bid up, De Sole called Gucci headquarters in Florence, where the entire staff had assembled in the cafeteria for the occasion. He announced a 1 million lire ($630) bonus for every Gucci employee around the world, excluding top management, something that went down even better than the pasta.
“I really thought they deserved it, and they were ecstatic,” he said.
The next day, De Sole flew to Amsterdam, where Gucci was also listed on Tuesday, before returning to Italy to take up the reins of the company again. The offer raised $540 million, before underwriting costs, which was used to pay off Gucci’s debts to its controlling shareholder, Investcorp.
Then, on Thursday, Oct. 26, two days after Gucci went public, De Sole became ceo of the entire Gucci group, capping his 14-year career with the company.
The Roman-born De Sole, who has a law degree from the University of Rome and did graduate work at Harvard University, joined Gucci in 1984 as president and ceo of Gucci America. At the time, he was a partner in the prestigious Washington, D.C., law firm of Patton Boggs and had been a Gucci director since 1981.
Last July, De Sole was appointed president and managing director of the holding company, Gucci Group NV; last week, he also became president and managing director of the Italian operating company, Guccio Gucci SpA.
Gucci chairman William Flanz, who was brought in by Investcorp to turn Gucci around after it acquired complete control of the company in late 1993, will retain the chairman’s title, although he has already stepped back from the day-to-day operations.
Looking ahead, De Sole said Gucci is determined to continue the high-quality course that was instituted by the late Maurizio Gucci and carried out by Flanz and himself under Investcorp.
“Our strategy is very well set,” said De Sole. “We have to continue what we’re doing with the product.”
De Sole said he feels the house has hit a good mix between fashion-forward and classic items, thanks to the work of creative director Tom Ford and his team of designers, which will be expanded as needed over the upcoming months.
“The key for us is to absolutely maintain control over distribution, and that means making sure there is total alignment between headquarters and the stores. Everything has to be perfect, and we aren’t going to be shy about enforcing it,” De Sole said, adding that he isn’t afraid to close doors if the relationship isn’t working out. Gucci also wants to open new stores, as reported. There is a program to open 16 directly owned stores over the next three years, including seven in Japan.
There are also plans to open on Paris’s Left Bank in the middle of next year, and Gucci’s first German boutique has been slated for Hamburg next spring. Other locations are being scouted in Milan and Rome, while cities such as Berlin, Frankfurt and Vienna are also being considered for new shops, De Sole said. Gucci is also planning 15 new franchise stores by the first half of 1997 in places such as Tel Aviv and Russia, among other uncharted markets.
“These are examples of areas where we have no choice but to have a franchise,” De Sole said.
The key challenge Gucci will face over the next year is how to respond to the pressures for growth — both from the financial market and the trade — without compromising the commitment it has made to quality. Net revenues surged 87 percent in the first half of the year to $206.2 million; analysts expect the growth rate to stabilize at around 20 percent annually.
De Sole, who ran Gucci’s U.S. operations for 10 years before returning to Italy to oversee its turnaround last year, said he has no doubts about keeping Gucci positioned at the high end of the market.
“We want to satisfy our consumers, but we don’t want to compromise the quality,” said De Sole, noting that other than the stated new store openings, no expansion of doors is contemplated.
Gucci is also doing a growing business in duty free shops and has started to expand its wholesale business with selected retailers with whom the company is negotiating agreements for in-store boutiques.
In the U.S., for example, Gucci is talking with Saks Fifth Avenue and Neiman Marcus about in-store shops. It already has a boutique with Bergdorf Goodman.
De Sole acknowledged that the company has had some trouble keeping its hottest-selling items in stock and said Gucci has been working to streamline its production systems and expand its network of artisans in and around Florence.
He noted, however, that the fall merchandise was ordered in February, when Gucci was still gearing back up (in the first six months, store-per-store sales shot up 109 percent) and predicted that stores will be better supplied next season. Nonetheless, he added, he is happy to keep “demand a little bit ahead of production.”
Gucci is also cranking up its advertising expenditures, which are expected to total $26 million this year, more than double what it spent in 1994. This week, the house is starting to shoot its spring-summer ’96 campaign, with photographer Mario Testino, in Paris and New York.
De Sole said he was glad to see that despite all the travails Gucci has been through over the years, from being enmeshed in family battles to the conflicts between Maurizio Gucci and Investcorp, the Gucci name has emerged untarnished.
“This is the first company that really introduced the world of Italian design to the world, and although the name was besieged a lot, it has always been one of the most prominent brands in the world,” De Sole said. “Now, for the first time [since Guccio Gucci founded the company in 1923], the ownership of the company is back under one roof.”