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PPR’s alliance with Gucci Group in the battle with LVMH Moët Hennessy Louis Vuitton — and subsequent $3 billion infusion — allowed Gucci to embark on an aggressive acquisition drive.

YVES SAINT LAURENT: 1999
Can lightning strike twice in luxury goods? That was certainly the thinking when Gucci, one of the biggest success stories of the Nineties, set out to work the same magic on other brands, starting with Yves Saint Laurent, one of the most mythical names in French fashion.

In a complex deal announced in November 1999, Gucci Group NV purchased YSL for $1 billion in a marriage of two of the mightiest names in the industry.

Flush with $3 billion in cash from its new strategic alliance with French retail giant PPR, Gucci set out to build a new luxury conglomerate with YSL its second star player in-the-making.

“We want this company to be as financially successful as Gucci,” Gucci Group chairman and chief executive Domenico De Sole declared at the time.

To that end, Gucci quickly applied some of its best talent to the task. Creative director Tom Ford took up the YSL design reins (in addition to Gucci’s); Mark Lee, Gucci’s worldwide director of merchandising, was named president and managing director; and Chantal Roos was recruited to rejoin YSL Beauté, where she had been responsible for the blockbuster launch of Opium.

That meant the ouster of designers Alber Elbaz and Hedi Slimane, who did women’s wear and men’s wear, respectively, and ushered in a new era at YSL, which had long been run with an iron fist by the couturier’s longtime business partner, Pierre Bergé.

Couture was spun off as a separate company, run by Yves Saint Laurent and Bergé, leaving De Sole and Ford free to assert the direct-control mantra that had worked wonders at Gucci. Among the first orders of business was acquiring the remaining two-thirds of C. Mendes SA, the French manufacturer that produced YSL ready-to-wear and operated 11 YSL stores in Europe.

They also set out to build a leather goods business and to eliminate scores of licensing agreements that had put products like YSL bath mats and plastic-soled footwear on the market. Lee gave himself the nickname “Terminator” as he put an end to some 150 licensing pacts and set out to build a world-class retail network.

This story first appeared in the June 5, 2006 issue of WWD. Subscribe Today.

“We’ve completely transformed the activity of the company,” he said in an interview about a year after the takeover. “We want to restore it to the highest level of luxury and quality in order to be a high-level fashion competitor.”

To be sure, Ford brought many jolts of excitement to the brand, erecting a giant black box in the gardens of the Musée Rodin where he staged electrifying fashion shows that contributed to the rejuvenation of Paris as a fashion capital. While his debut show did not garner raves, he eventually hit his stride with gypsy- and Africa-themed collections, the latter producing YSL’s first blockbuster handbag: the horn-handled Mombasa.

Still, success has been a challenge, especially given the economic gyrations that ensued in the wake of the Sept. 11 terrorist attacks in America. An initial target to break even by the end of 2003 came and went — and eludes the company still. Losses last year totaled 66 million euros ($84.1 million at current exchange). “It was always clear from Day One it was a radical and expensive strategy,” Lee said in 2004. “I think the group perhaps should have characterized what we were doing not so much as a turnaround, but as a start-up.”

When Ford and De Sole exited the group after battling with PPR over strategy, it was time for another phase of development, with Ford’s number two, Stefano Pilati, being handed the design reins. At the time, Lee readily acknowledged missteps: Focusing too much on eveningwear, creating a shop design that was too dark and expanding too quickly.

Pilati’s first collection signaled a more diversified fashion direction, which he saw as pivotal to the brand’s legacy to provide a wardrobe for women while riffing on such YSL staples as safari jackets, tuxedos and peasant blouses. He also proved to be a risk-taker: His tulip skirts and wide belts, initially criticized, proved widely influential. But there were more gyrations to come at the company. Ultimately, Lee was tapped to take over the larger Gucci brand, and Valerie Hermann was poached from Christian Dior to become his successor.

Since arriving in March 2005, Hermann has focused on building sales by broadening the product offering and attracting new customers. Gucci Group has declined to set any new profitability targets for YSL, saying only that it will come when sales approach 300 million to 350 million euros ($382 million to $446 million). In 2005, sales stood at 162 million euros, or $206.5 million.

To be sure, the brand has recently been gaining traction. Sales in the first quarter rose 8.5 percent to 42.4 million euros, or $54 million, with a 15.5 percent sales gain in YSL’s network of 62 boutiques.

Hermann cited an acceleration of the trend in April, and double-digit growth across all product categories, from ready-to-wear to shoes. The Muse bag, a stylish tote first delivered last October as part of the cruise collection, is gathering steam. “The trend of selling for the Muse is even stronger than the Mombasa in the beginning,” Hermann said. What’s more, it’s driving more traffic and sales in the accessories department, giving a bump to older styles like the Tangiers and Mombasa, not to mention small leather goods and belts, one of Pilati’s first big fashion statements.

Hermann said she will continue to base the strategy on strong products and communications, coupled with tight cost controls.

She also revealed that YSL is working on a new design concept for its store network, which has been saddled with a decor deemed too somber. “We are thinking long-term,” Hermann said.
Miles Socha

Balenciaga: 2001
Gucci Group landed a legendary brand — and a red hot designer — when it sealed a deal in July 2001 to acquire Balenciaga, giving its creative director, Nicolas Ghesquière, a 9 percent stake in the business. And, while the partners have endured some prickly periods over the years, sparring over strategy, success ultimately saved the day.

Last year, Balenciaga became the first of Gucci Group’s smaller designer brands to reach break-even — two years ahead of schedule. The good news coincides with an event bound to boost the brand’s profile even further: a major Balenciaga retrospective bowing at the Museum of Fashion and Textiles at the Louvre on July 6 for a seven-month run.

Self-trained Ghesquière had a modest start at the Paris fashion house, spending two years designing office uniforms and other licensed products for Japan before taking over the women’s ready-to-wear collection. His first show, in October 1997, when he plunged into experiments with architectural shapes, got the fashion pack buzzing. It wasn’t long before Balenciaga became one of the hottest tickets in Paris, and editors began clamoring for Ghesquière’s sexy pants and slouchy lariat handbags.

Gucci had big ambitions for a brand with about $20 million in sales, and vowed to improve production and build flagships in fashion capitals like London, Tokyo and Milan.

Not all of that came to pass. Tensions flared over production issues, delivery and fit problems hurt the business and Ghesquière was said to have gotten off on the wrong foot with Gucci Group’s new chief executive officer, Robert Polet.

However, Balenciaga gained commercial traction and became one of the group’s fastest-growing brands, boasting triple-digit growth in recent seasons. Market sources estimate its wholesale volume already exceeds $72 million.

“This is a business that has the potential to do above 200 million euros [$257 million at current exchange],” Balenciaga ceo James McArthur said in an interview this year. “Everything seems to be coming together. [The business] is firing on all cylinders and on all fronts.”

Although his silhouettes can be strict — just like the invitation list to his fashion shows — Ghesquière is out to make Balenciaga a big brand. He has expanded accessories and introduced more affordable “greatest hits,” including pants, knitwear, silks and leather. “Now we can feed the market with much more product,” he said.

Company-owned stores in Paris and New York are performing well, but Balenciaga plans to take a measured approach to opening more retail doors. It’s also taking time before bringing the beauty business, still licensed to former house owner Groupe Jacques Bogart, in line with its fashion image.
M.S.

Bottega Veneta: 2001
According to a recent study conducted by the Luxury Institute among wealthy Americans, Bottega Veneta outdistanced Hermès and Armani as the most prestigious luxury fashion brand in 2006.

For a designer who favors craftsmanship over showmanship, understated luxury over flashy logos, it was high praise. “Everyone in the company was so impressed, because we weren’t expecting it,” said Tomas Maier, Bottega’s creative director. “For us, the product is the star — we don’t believe in celebrity endorsement, the ‘It’ bag or end-of-season sales.”

Since joining the brand in 2001, Maier has expanded Bottega from its accessories origins to a complete ready-to-wear house, and has created lifestyle allure via tabletops, furniture, eyewear and fine jewelry.

Along with Patrizio di Marco, Bottega Veneta’s chief executive officer, who joined the same year, the brand has become Gucci Group’s second powerhouse. Sales are poised to hit $238.7 million this year, and it has 84 stores.

Growth at Bottega calls for consolidating existing product categories, plus introducing travel clocks and watches this fall and a fragrance within a few years.

“We have laid the [foundation] and now need to start building, because we want each category to be very special and exclusive,” said Maier.

Gucci Group acquired 66.7 percent of Bottega Veneta in February 2001 from Vittorio and Laura Moltedo, the couple who founded the firm in 1966. The transaction cost Gucci $156.8 million for a company whose 2000 sales stood at $50 million.

The Moltedos retained 33.3 percent, and under the deal Vittorio was to stay on as ceo, while Laura would continue as creative director.

The two had, in fact, ignited a new era at the brand, hiring stylist Katie Grand and designer Giles Deacon in the late Nineties to create a rtw collection that would generate media buzz.

But in May 2001, the Moltedos left, having clashed with Gucci, which wanted to end the apparel because of high production costs and meager retail sales.

In a surprise move, Tom Ford named Maier creative director of Bottega. The German was then a relatively unknown design assistant at Hermès who had trained at the Chambre Syndicale de la Haute Couture in Paris.

Based in Miami, Maier also has his own swim­wear line and travels back and forth to Italy. One of the first things he did after his appointment was to drive northeast to Bottega’s factory in Vicenza.

Determined to enhance the brand’s heritage and turn it into Italy’s answer to Hermès, Maier galvanized the artisans and rehashed a Bottega classic — the intreccio, or handwoven bag.

The bags require three days of work, and in the beginning the artisans could turn out only 200 a season in three colors.

Maier’s first accessories collection bowed in October 2001.

In a matter of months, the Cabat, a soft woven-leather basket, became an evergreen style that still generates waiting lists. Maier has used the woven style as a base onto which he applies silver filigree embroidery, Murano crystals and gold coins.

Despite these successes, Maier doesn’t stress over delivering an “It” bag each season.

“That whole marketing process of the must-have bag doesn’t fit my sensibility, because each season is about a mood, not just about one product that everyone has to have,” he said.

“Last season’s bag, for example, can look great with the new platform or coat shape.”

Maier staged his first formal runway show in February 2005 with luxe fabrics and clean shapes to complement the accessories.

“Everything today has such a short life span,” he said. “The poor consumer doesn’t have time to appreciate the work behind a bag, nor the time to look around, compare prices and come back to buy, because very often it’s gone. That [mentality] is very far from mine.”
Alessandra Ilari

Alexander McQueen: 2000
Even when he was the couturier at Givenchy, Alexander McQueen had a penchant for wearing prominent Gucci logos — and posing for photos with his arm slung around Gucci honcho Domenico De Sole.

It was not only a thumb in the eye to Givenchy parent LVMH Moët Hennessy Louis Vuitton. It foreshadowed that McQueen would end up leaving the French conglomerate and selling a 51 percent stake in his company to rival Gucci in 2000.

Never shy about stirring the pot, McQueen has always done things on his own terms, from dropping his pants at the end of his runway shows to taking the British government to task for not supporting its fashion industry — the latter on the day he received a CBE award from Queen Elizabeth II.

But McQueen insists he’s always had his feet on the ground about the fashion industry, keen to build his house on his own terms and with a solid foundation. “I think I’m a very careful businessman,” he said in a recent interview, proud of the fact he’s never gone bankrupt and that his clothes actually sell.

Still, under the Gucci Group umbrella, McQueen had vastly expanded his universe, opening boutiques in New York and Milan, introducing fragrances, men’s wear, leather goods and a diffusion collection, McQ, which debuts at retail this fall. He also designs a collection of footwear for Puma that features an impression of his left foot inside the sole.

Still, McQueen retains the title of Gucci Group’s consummate showman, whose theatrical runway spectacles have featured snarling wolves, rings of fire and, most recently, a haunting holographic image of Kate Moss. “I like a spectacle, and I think people in fashion do, too,” he quipped. And he’s already let it be known to expect another, come October in Paris.
Miles Socha

Sergio Rossi: 2005
Sergio Rossi made the leap from calzaturificio, or shoe factory, to global player in the luxury footwear industry, thanks to Gucci Group.

“Without Gucci Group’s leverage and financial support, Sergio Rossi would still be a family-run company. Today, it is an international brand,” said Isabelle Guichot, chief executive at Rossi, who joined in March 2005 from Richemont SA.

Expanding Sergio Rossi internationally was the meeting point between the Rossi family and Gucci Group in 1999, when the latter acquired the footwear maker known for its top-quality, sexy stilettos.

Seven years later, as Guichot points out, the plan to internationalize Rossi has been carried out.

“Before Gucci Group’s acquisition, Sergio Rossi was nonexistent in Japan. Today, with 19 stores, it’s our second market after Europe and it still offers plenty of potential,” she noted.

Over the years, Gucci Group supported the brand by securing top store locations, arranging for product shipment and managing the stores’ merchandising. Store count leaped to 42 from 13.

At the same time, Gucci Group has safeguarded the brand’s family roots and artisanal flair instilled by founder Sergio Rossi.

Rossi started the company in the Fifties and was known to throw out wooden shapes he had personally hand-chiseled because the heel was one millimeter off.

Gucci Group acquired 70 percent of Sergio Rossi in 1999 for a reported $96 million. The other 30 percent remained in the family’s hands until 2004.

At the time, Gianvito Rossi, Sergio’s son and marketing manager, said there were various offers, but what prompted the family to go with Gucci was the group’s “firm desire to invest in our label at production and distribution levels.”

In the past, Sergio Rossi made shoes for Gianni Versace, Dolce & Gabbana and Azzedine Alaïa. The firm also built a $10 million state-of-the-art factory in San Mauro Pascoli, on the Adriatic coast, that today also produces for Gucci Group siblings Yves Saint Laurent and Alexander McQueen. It opened in spring 2004.

“[The factory] is a major asset because we can fully master the production, from the sketch to the shoe in box,” said Guichot.

That same year, Edmundo Castillo joined the design team. Castillo slid into the driver’s seat in November when the Rossis — Sergio, Gianvito and Franco — left after Gucci took full control. Their exit was part of the agreement.

Describing the Rossis’ departure as “smooth,” Guichot noted, “When a brand like Sergio Rossi becomes part of a big group, it’s difficult for the family to work with an international management.”

“The end of our collaboration was a natural evolution,” said Gianvito Rossi at the time. “We were prepared.”
A.I.

Boucheron: 2000
Boucheron has been around the block and back again since Gucci Group acquired the Paris jewelry house in 2000.

At that time, the brand took a first step at reinvention, hiring Solage Azagury-Partridge to hold the creative tiller. The London-based designer immediately reacquainted Boucheron with its “haute” heritage — which stretches back to 1858, when Frédéric Boucheron founded it — with a debut collection dripping with emeralds, rubies and diamonds.

Meanwhile, she slowly beefed up more accessible lines, including the launch of watches and sunglasses.

Equally important, Azagury-Partridge created buzz, especially with a series of memorable parties during the Paris couture to launch new products.

But just as she seemed on her way to putting the house on the right track, Azagury-Partridge left, becoming one of Gucci Group’s high-profile creative and managerial departures after the firm’s new owner, PPR, took over.

Behind the glitz, though, the house was suffering. Driven by Gucci’s high-flying ways, losses had swelled to around $30 million. Rumors — endlessly denied — swirled that the house was up for sale.

Enter Jean-Christophe Bedos, a former Cartier executive, who was given the unglamorous task of lifting Boucheron into the black by 2007.

“When I arrived, we were faced with a contradictory situation,” explained Bedos. “On one hand, Tom Ford had started to wake up what was a real sleeping beauty. He brought a real boost of adrenaline to the brand.”

“But on the other hand,” he added, “there were some errors in the business model, and the house was suffering from that.”

Bedos’ strategy was twofold: cut costs, and ramp up creativity by taking Boucheron even more upscale.

“I saw a weak spot in our high-end offering,” said Bedos, who doubles as the house’s creative gatekeeper. “I started to buy more important gems. I wanted to give the house a dose of hyper-luxury.”

Last year, Bedos unveiled his first volley with the ultra-luxurious “Trouble Desir” high jewelry line. Four pieces priced over $1 million — including one in excess of $5 million — were sold within months.

In January, the line was replenished with more spectacular gems, and in July, additional high-jewelry pieces will be introduced.

Bedos is also ramping up the house’s more accessible products, with a raft of new watches as well as mid-priced jewelry lines. Important watch and jewelry collections are being prepared to launch this July, Bedos said.

Meanwhile, the brand is developing its retail web. Six to eight new shops, including a unit in Hong Kong’s Mandarin Oriental hotel, are set to bow by yearend, mostly in the Middle East and Asia. At present, Boucheron operates 24 boutiques.

“We’re ahead of schedule on our plan to break even,” said Bedos. “I want Boucheron to be the go-to name in ultimate luxury. People won’t come to Boucheron for safe, traditional jewels. We are about out-of-the-ordinary pieces. We are moving toward hyper-luxury.”
Robert Murphy

Stella McCartney: 2001
Gucci Group, proving flexible during its acquisition spree and not taking only majority stakes, announced a 50-50 joint venture with Stella McCartney in April 2001 — and ambitions to build her famous name into a global luxury brand.

Stella McCartney, the daughter of music legend Paul McCartney, had gained a reputation for her hip and cheeky approach to fashion during her four-year stint at Chloé. She’s kept the lighthearted spirit — sending out a flashing rubber ducky along with her latest show invitation — while gradually upping the sophistication level of her clothes. Her polished fall collection included draped cardigans, denim riding pants and bell-shape coats.

The company recently confirmed it’s on target to turn a profit by 2007, and said its products generate about 120 million euros ($154 million) at retail.

McCartney already has a signature perfume and an eyewear collection, and the longtime animal-rights supporter is now making a push with bags and shoes made of nylon, vinyl and techno canvas. The colorful line includes luggage, belts and jewelry.

“I’m not trying to take over the world, but I do want to show that accessories can be made from a more ethical viewpoint — and be sexy and cool,” McCartney said in a recent interview. “The myth of leather — that every bag and shoe needs to be made from it — needs to be broken down.”

While McCartney regularly hangs with such famous folk as Gwyneth Paltrow and Madonna, she’s gained broader renown for her fashion brand by hooking up with such industry giants as Adidas and H&M.

Adidas recently extended its contract with the designer to 2010, having enjoyed strong sales of co-branded styles like tennis dresses with ruffle details and off-the-shoulder sweatshirts. And H&M, the Swedish fast-fashion giant, witnessed instant sellouts in many locations last November when a one-time Stella collection hit the rails.
Miles Socha

Bedat: 2000
Bedat & Co. may be one of the smallest brands in Gucci Group’s star-studded stable, but its role has grown in importance and vitality in recent years, driven by charismatic and energetic founder and designer Christian Bedat.

Bedat, the Geneva watchmaker whose business was acquired in 2000 at the height of Gucci Group’s empire-building years, has evolved from making high-end niche products for aficionados to a position of broader influence in the group.

Last year, the designer, known for his elegant, unostentatious dress watches, added the role of creative consultant to Gucci timepieces to his busy schedule.

(Bedat is a passionate sportsman — devoted to skiing, karate and running — and runs a sports equipment and apparel store in Villars-Sur-Ollon, Switzerland, parallel to his watch business. He plans to open a second shop in Villars in November, and he is scouting for a third location, in Geneva.)

Bedat said Gucci should become “a major player in the watch category. The name is powerful. If we have the right products, we should be able to gain market share.”

So far, his efforts have borne fruit. His first watches, with bamboo-style bracelets, were commercial hits. And Bedat said his latest effort — called Twirl, with a stainless steel cuff bracelet and a rotating and pivoting dial — is a big seller. “There hasn’t been such a successful Gucci watch in a decade.”

Bedat said he likes to keep consumers on their toes. “You’ve got to surprise them,” he said, adding that Gucci has “a lot of new, surprising models this fall.”

Bedat, who briefly consulted with the Boucheron brand last year as it moved to reposition its watch category, said the secret for energizing Gucci’s watches is “creating strong credibility.”

“The brand needs to have legitimacy and to produce watchmaker’s watches,” he said. “Above all, it has to make sense with the values that the brand name carries. There needs to be an element of truth in the products.”

Bedat should know. At 42, he is a respected industry veteran. His mother, Simone, with whom he founded Bedat & Co. in 1994, was involved in the founding of the successful Raymond Weil brand.

And though he takes his responsibilities at Gucci seriously, it’s his own brand — each of his watches is known by a number — that remains closest to his heart.

“It’s my priority,” he said. “I want Mr. Pinault to be proud of what we’re doing,” referring to PPR chief François-Henri Pinault.

Already, Bedat’s business has broken even for the last two years, boosted by his signature 1, 3, 7 and 8 watch lines, which retail at around 5,700 euros ($7,200) on average.

“We’ve established our basic styles, and now we need to stick to them and develop them,” he said. “Rolex is definitely an inspiration — not creatively, but strategically and mentally. They have one of the most recognizable products on the market, and they’ve stuck with it and developed over the years. Too much creativity can kill [in watches].”

Bedat said he has “major” expansion plans in the works, and will craft a higher public profile and broaden communication efforts. “We are working on the next five to 10 years for the brand so we can take it to the next level,” he said.
R.M.

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