GUESS BACK ON TRACK WITH AMBITIOUS PLANS FOR GLOBAL EXPANSION
Byline: Michael Marlow
LOS ANGELES — If you think the best days of Guess Inc. are in the past, the owners want you to Guess? again.
The $600 million jeans and sportswear giant here, plagued for the last few years with internal and fraternal conflict, is rolling out a reinvigorated and expanded junior line and also embarking on an aggressive blueprint for international expansion.
Maurice Marciano, chairman and co-founder of Guess, said he feels energy and excitement have returned to the company.
“For a little bit, the evolution had stopped,” Marciano said in an interview. “The evolution in the product had stopped. You need to constantly come up with new things and be ahead of the competition, and this is exactly what we have done in the last year. We have made what we call a mini-revolution, not only within the company, but in the product and in the market.”
These developments come more than a year after Georges Marciano, the former designer and co-founder, departed the company after a stormy disagreement over the future of Guess. His exit caused some industry observers to question whether Guess would sputter without him. Marciano, after all, was the founding designer whose name was used as much as the firm’s in advertising and merchandising.
Georges Marciano left Guess in August 1993, selling his 40 percent stake in the company for $220 million to Maurice, Paul and Armand Marciano, his brothers, who still own and operate the company. The split reportedly was caused by Georges Marciano’s desire to enter the mass market. This fundamental difference in philosophy spilled over into other areas such as design focus and retail direction.
“It was a major problem because we had a difference in strategy,” said Paul Marciano, president and advertising director. “We could not agree on anything, with Georges on the one hand, and Maurice and I on the other.” Maurice Marciano said the differences were irreconcilable.
“The mass market is a great business for other companies, but we’ve never been in that business,” he said. “You cannot wear two hats.”
The clashes at Guess reverberated throughout the market. Some retailers said the problems were reflected in the core junior line, which reported flat sales.
“They had lost focus because of internal battles,” said Michael Steinberg, chairman and chief executive officer of Macy’s West/Bullock’s.
Since leaving Guess, Georges Marciano has launched Go USA Surfwear, a manufacturing company that produces the GM Surf surfwear label and Misfits, a denim-based sportswear collection. He has targeted the better casual sportswear market for these new labels, although he has not ruled out producing a line for the mass market some day. He also has purchased an 80 percent stake in Yes Clothing Co. and has agreed to be a design consultant for the company.
When contacted at his Beverly Hills headquarters, Georges Marciano declined to comment on his departure from Guess. But Paul Marciano said the atmosphere at the company is calmer.
“There is more teamwork now at Guess,” said Paul Marciano. “We’re more focused, unified and have less internal differences. Really, it’s a family we have now.”
One licensee said there is a new “spirit of cooperation” at the company.
“It used to be very difficult [working with Guess] because everyone was taking sides,” said Michel Benasra, the licensee for Baby Guess, Guess children’s apparel and the Home Collection. “The company now is more open and cooperative with its licensees in design and direction. The change has been very positive.”
Maurice Marciano, who after a one-year absence returned to Guess when Georges left, has taken over design direction and worked to shore up the company’s position in the better denim market during the past 18 months.
Paul Marciano said even though the company for 12 years promoted Georges’ name in its ads, he has no qualms about featuring Maurice in the future. In fact, many current Guess ads have the “Guess by Maurice Marciano” logo.
“Georges had been a merchandiser like Maurice and myself, and we love to put together products according to what we feel and what we like,” said Paul Marciano.
The decision about market direction was a critical one during the early Nineties. Sales volume for the once-hot core junior business cooled, and Guess looked for new ways to generate growth. One solution was to expand the label’s distribution from the better sportswear market to more moderate retailers. This move led to overall sales gains, but the expanded distribution challenged the upscale image Guess had cultivated since the early Eighties.
“We were growing, but we were not growing in the way we should,” Maurice Marciano said. “We were opening up distribution to a lot of doors where we should not have been.”
It is unclear exactly how wide the distribution of Guess product became. As reported, in 1990, officials at J.C. Penney Co. said they were selling Guess in some of their stores, but the Marcianos denied supplying Penney’s. Penney’s officials were unsure whether they had purchased the merchandise from Guess or from another source.
At this time, Guess depended upon business from factory outlets to boost volume, a revenue source the company relies on less today. “You don’t have to be a genius to sell $60 jeans in a factory outlet for $35,” said Maurice Marciano.
During the past 18 months, Guess has counted on an invigorated junior line and international distribution to provide growth. And it seems to be working.
Wholesale volume at Guess was about $600 million last year, an 8 percent increase from 1993. This sales figure comes from Guess women’s and men’s apparel and men’s knitwear — three categories manufactured by the company. About 50 percent of this volume is generated from the junior business, which includes jeans. When sales of licensed Guess merchandise are taken into account, Guess’s wholesale volume in 1994 jumped to $1.1 billion, according to Maurice Marciano.
Despite the growth, Maurice Marciano said Guess will continue to evaluate all its products. Last year, for example, Guess upgraded the fabric and the finish on its five-pocket styles and replaced all existing stock with softer, more constructed denim jeans.
“Every season we put everything back on the table,” Maurice Marciano said. “We analyze ourselves and question everything. We really try to improve all the time.”
The junior line is more kicky and fashionable than it has been in recent years and has an intense in-store promotional schedule, to which retailers have responded enthusiastically.
At Bloomingdale’s, sales of Guess junior women’s apparel jumped 49 percent last year from 1993. Sales of Guess men’s apparel at Bloomingdale’s increased 18 percent in the same period.
“With us, the Guess business is just terrific,” said Michael Gould, Bloomingdale’s chairman and chief executive officer. “We are selling the fashion portion very well and are going forward very aggressively.”
At Macy’s West/Bullock’s, the Guess lines are posting “solid gains,” according to Steinberg. While he declined to discuss specific volume figures, he attributed the label’s junior resurgence at retail to its repositioning.
“They’ve focused on the business, focused on the correct washing, pricing and all the essential basic things you have to do to get something repositioned,” Steinberg said. “It’s got a franchise, and I think they’re exploiting that.”
Guess is still struggling with its better-price sportswear collection. The concept began as the Georges Marciano signature bridge line, but was transformed into the Guess Collection once Georges Marciano left the firm.
The line is sold only in the 43 domestic Guess stores, where it accounts for about 25 percent of volume. The Guess Collection includes wool crepe and other soft suits, gabardine separates and sweaters and cotton and Lycra spandex bodysuits. Maurice Marciano said he is “fine-tuning” the line and expects to offer it to other retailers in spring 1996.
Guess was founded in December 1981 by Georges and Maurice Marciano, who were later joined by Paul and Armand Marciano. The Marcianos decided to produce some of their own products for their stores, and Guess — a name chosen because it was easy for these recent French immigrants to pronounce — was born.
Guess rode the crest of the designer jeans wave during the early Eighties, but after the market shrank, the company managed to keep its place in better stores by diversifying. Unlike other brands, such as Gloria Vanderbilt, Sasson and Jordache, Guess did not ultimately become a mass or moderate name.
It didn’t hurt that Guess has traditionally been one of the biggest ad spenders in the sportswear category, opting to blitz all the upscale fashion and lifestyle magazines with its trademark steamy black-and-white ads. Created by Paul Marciano, the ads have cemented Guess’s identity and launched the careers of such models as Claudia Schiffer, Eva Herzigova and Anna Nicole Smith.
In 1993, the company spent $28 million on advertising its products. However, that figure slipped to $24.5 million from January 1994 through November 1994, according to Leading National Advertisers.
International and licensing, also handled by Paul Marciano, have been among the areas of fastest growth. Maurice Marciano predicted international could account for as much as 25 percent of Guess business by the end of this year. It currently accounts for 5 to 10 percent of sales.
Rather than use its own employees overseas, as do Levi’s and VF Corp., Guess operates its wholesale business and retail boutiques mostly through deals with independent distributors and licensees.
Guess already has licensed freestanding stores in Colombia, Brazil Argentina, Monaco, Canada, Italy, Saudi Arabia, Lebanon, Kuwait, Australia, Panama, Venezuela, Guatemala and Costa Rica.
Guess has 32 stores in Mexico, plans four more stores in Australia this year and will open stores in Madrid and Barcelona April 6.
The company has targeted Asia, Latin America, the Middle East and Europe for aggressive retail expansion this year.
The Marciano brothers opened a company-owned, 6,000-square-foot store in Florence that they consider their European flagship. That store carries regular Guess products as well as the Italy Collection, a sportswear line designed specifically for the Italian market. The Italy Collection is also sold in Guess stores in Hong Kong, Singapore, Malaysia, Indonesia and the U.S. Guess has opened a design studio in Florence, where a staff of about 100 create and oversee the Italy Collection and European operations.
“Right now, before expanding into the rest of the European market, we just want to establish ourselves as a high-end name in the Italian market,” said Nello Rochetti, managing director for Guess Italy, who added that the company plans a store in Milan.
Guess jeans are slightly more expensive in Italy because of import taxes. There the jeans range from $70 to $80 (110,000 lire to 120,000 lire), and the bestseller is stretch polyester pants cut like Guess classic five-pocket jeans.
Guess also opened a Baby Guess store in Milan in September. All stores except the unit in Florence are owned by independent distributors and licensees.
In 1990, Guess hooked up with Revlon in a cosmetics and fragrance license and launched a women’s scent. A men’s scent followed a year later. The fragrances were launched in fashion department stores, but the distribution was subsequently broadened to include J.C. Penney and mass market outlets. Industry experts have estimated the U.S. volume as totaling $7 million to $17 million with a global total of more than $20 million.
Revlon, which once pushed the fragrances with TV campaigns, now is relying on in-store activities and gift-with-purchase promotions.
A rapidly developing licensed area at Guess is watches, licensed to the Callanen Group, South Norwalk, Conn. Guess watches reached $102 million in wholesale sales last year. Guess footwear, licensed to Charles David, New York, did $60 million in sales. There is also a junior knitwear agreement with Sweatshirt Apparel USA Inc. in New York.
“With the addition of these new licensees, we feel we have the right image for growth as we look toward the end of the century,” said Paul Marciano.