GUCCI Marketing Analysis - Essay Example

INTRODUCTION GUCCI (House of Gucci) is an Italian haute couture company. It was originally established by Guccio Gucci who lived in Florence in1921. The high fashion(Griffiths, 2000) company, Gucci, started as a family owned saddlery and leather goods store in Florence in 1921. He incorporated the Italian and London atmosphere in his fashion designs. Current marketing team. The present Gucci setup uses three fashion designers in its flagship label to fill the fashion outfit and accessories buyers of Europe, the United States and others (Molloy & Molloy, 1996) they are Alesandra Facchinetti, Frida Giannini and John Ray. Exhibit A and Exhibit E show in the new 2006 Ready to Wear advertisement that GUCCI Blouses are far advanced in terms of trends and fashion design as compared to many of its blouse competitors like DKNY, D & G, BCBG, Burberry, Diesel, and others. The financial statement of DKNY shows that the net profit is only a low 8% of the net sales. (www.edgar-on-line.com) The key functions of buying and merchandising and other liaison with retail and marketing include ranging, pricing, promotions and space allocation. Buyers also identify market opportunities to meet changing consumer needs The market opportunity, based on the trend forecast, shows that GUCCI blouses are one of the top fashion statements that many of the "rich" clients love to keep as display items both on their person and at home. In accounting, the projected Income statement is estimated by first projecting the future sales. In this case the blouse sales have been estimated to be 2.5% higher than its previous 7% per year. To get the sales for three months, the annual sales of 7% of 210 million pounds is multiplied 3 months and divided by 12 months. The months are July, August and September. Therefore the estimated sales are 4.99 million pounds for the three month period. Based on the financial statements of Gucci, the cost of goods ratio is 26.5% of the selling price per website (http://www.hoovers.com/gucci/--ID__46896,period__A--/free-co-fin-income.xhtml). The projected sales as stated in the problem is 210 million and blouses took 7% of the sales. This year you are looking for a 2.5% increase and you are expected to operate on 8 weeks cover. This will translate to ([210 million x (.07+.025) ] x (3/12) = $1.322 million for the 3 month period. Therefore the buying department will have to spend 1.322 million pounds for the entire three month blouse purchases. Exhibit C shows the balance sheet for 2002 to 2004. The blouses will then be presented to the brand director for approval. After approval from the brand director, the blouses will be presented to the retailers for display in its regularly assigned store shelves and show rooms. Exhibit D shows the WSSI estimates. The retail stores prefer companies, like GUCCI, that have fast moving items since most retail stores base their commissions on total sales. If the sales are slow, then the retail outlets will have lower commissions. GUCCI, also, has its own fashion galleries and stores plus its many catwalk presentations that will increase sales. Buying price ranges for each Gucci blouse (Eicher, 2003) is 30 pounds, 40 pounds, 50 pounds, 60 pounds, 70 pounds and 80 pounds. These will be respectively sold at 113 pounds, 150 pounds, 188 pounds, 226 pounds, 264 pounds and 300 pounds respectively. Gucci products are being sold in over fifty countries. This includes United States, Europe, Asia, Canada and others. Regarding the retail marketing it does against competitors etc, "Companies like Gucci and Max Mara, with their own stores and no-frills management style, may be better fixed than others. And as Mr. Maramotti said after the Max Mara show, with its romantic peasant blouses, sashed dresses in men's-wear fabrics and crisp Sergeant Pepper jackets, 'we make nice clothes for real people.' '' (http://query.nytimes.com/gst/fullpage.htmlres=9501E1DA123DF931A35753C1A9679C8B63&pagewanted=print) Gucci product ranges include fashion jewelry, accessories like belts, perfumes, bags, blouses and apparel plus other accessory items. A good business advice is that scarce money resources should be distributed to many business opportunities or lines. Then it is an advantage indeed for investing all your money in several business basket line of business. Studies have shown that the bag and belt, as well as the men's wear, women's wear, perfumes, footwear, watch plus other accessory lines of business of GUCCI have been doing fine and could stand on their own feet. Space allocation today does not only include the display shelves in the many GUCCI outlets in many countries but it now includes the GUCCI websites where you can order only. The process of planning and research and their application to range and control in general, ensures that all objectives fall within the business' strategic aims. Plans identify measurable objectives that can be attained. (Irwin, 2000) Research helps the company, in this case GUCCI, determine what the discriminating fashion customers want. By looking at the trends, we can either go ahead or join the group by coming up with fashions that the present customers want. This will ensure higher sales than when there had been no research on the fashion trends. Another interpretation the company, like GUCCI, can do when being presented with a historical trends, is to blaze thru new territory by creating a new fashion statement that violates or rebels against the present fashion trends. This usually appeals to the young generation who want to experiment and try out their independence or "rebellious" attitude. GUCCI will implement the following researches into its fashion lines starting 2006: COLOUR: the colour is cool for the spring /summer collection. The colours are white and grey. BLOUSES: The blouse is described as 1) clean & sculpturally simple and 2) sensual fabrications with feminine detailing. The traditional blouses are making a come back by replacing the cotton blouse variations with silks, satins and laces toughened plus the additional military detailing. The necklines are now plunging and diaphanous fabrics. Lastly, the embellishment such as pin tucking, and stitching lace inserts and mini ruffle provide surface interest to simple silhouettes. There has been a rapid change from the bright colours to more sophisticated colour blends such as not matching the other apparel parts. Bold combinations are now the in fashion statements. This will continue for a long time. Therefore creativity and unusual fashion combinations are the things to wait for. Silhouette is also now the trend to dive into. The new look emphasizes proportion with pleated, rolled, puffed and bagged designs. The present soft and flattering looks are now focused more by addition of the new volume look. Regarding the fabrics used, textiles that entice an emotional and sensory response are now increasingly in demand. The added human touch is now enhancing the fashion wear which concentrates on focusing on the awakening the senses and eliciting joy from the tactile surfaces due to the exquisite details. The incoming women's wear fashion is now focusing on exquisite detail such as the rethought tapes, trims and decorative stitching plus thru the inspiration of the manly dress uniform which could be classified as jeans outfits. (http://www.wgsn-edu.com/edu/edu-members/) Statistics and analysis of fashion and trading data in creating range control documents can help much in forecasting blouses to be bought. Since the cost of sales ratio is 26.5% of total sales, then this is the control that we have to implement. The budget for the blouses for the three month period August to October is 26.5%. Therefore the maximum blouse purchases for the three month period must not exceed 1.322 million pounds. The cases indicate that blouse sales will increase by 2.5%. Therefore the blouse sales for the following year are 4.99m pounds. (http://www.hoovers.com/gucci/--ID__46896, period__A--/free-co-fin-income.xhtml). Again, the buying price ranges for each Gucci blouse is 30 pounds, 40 pounds, 50 pounds, 60 pounds, 70 pounds and 80 pounds. These blouses will be respectively sold at 113 pounds, 150 pounds, 188 pounds, 226 pounds, 264 pounds and 300 pounds respectively. TRENDS: The trend and historic data can be used to formulate recommendations for future action. Online spending in the United States alone will increase from $ 81 billion or $95 billion in 2006 according to Jupiter research analyst Patti Freeman Evans. The fearless forecast is for the online spending to reach $144 billion in 2010. This is because of the free shipping and bigger discounts offered for the year 2006 and onwards. This is a good indicator for retailers to offer more of their products online. (http://www.retailbulletin.com/) Based on the above then demand for Gucci blouses will increase when Gucci will open a website where its products can be ordered online. Based on the financial statements in exhibit B, there is a continuous trend of increasing sales for Gucci products. Gucci buying department the sales has increased to USD $3,227M in 2004 from only USD $2,285M in 2002. The cost of goods sold has also increased from USD $905.8M in 2004 from only USD $ 606.6M in 2002. The target market for the 3 month period has been given by the problem at The gross profit shows that the gross profit in 2004 of USD $2321.2 that has increased from USD $1678.40 in 2002. The gross margin percentage in 2004 is 71.90%; the gross margin ratio has decreased to 73% in 2003 from the higher 73.5% in 2002. The net profit in 2004 is USD $217.3M representing only 6.7% of the sales. In 2003, the net profit is higher at USD $244M representing 8.9% ratio to sales. In 2002, the net profit margin is the highest of the three years at USD $278.4M representing 12.2% of the sales. Selling and administration expenses for 2004 was the highest of the three years at USD $1824.7. In 2003, the selling and administration expense was at USD $1545.90 with the lowest amount occurring in 2002 at USD $1,241.00 Fashion magazines are in demand because, according to maslow, one of the needs of man is food, CLOTHING and shelter. This analysis alone encourages use to study fashion for it is one of the ways to make people happy and proud of the signature collections of the fashion designers. Names such as Giordano, GUCCI, among others show that with the name comes the quality and pride of wearing a high priced blouse. This fulfils one of Mallow's hierarchies of needs, self esteem. (Rubin & McNeil, 1979) SUMMARY: The trend and historical analysis shows that there is an increasing demand for GUCCI products. The cost of goods sold is only 26.5 percent of the selling price. Therefore the projected sales for 2006 onwards are increase in sales. The different lines of business of GUCCI like belts, perfumes, watches, accessories and others can stand their own ground and can contribute to the entire GUCCI income statement. Its catwalk presentations plus advertisements in vogue and other fashion magazines have helped much in its many years as a model fashion statement company. Since accounting is the language of business, the income statement from 2002 to 2004 in appendix B can tell much about the trend and history of GUCCI sales, expenses and projections. Exhibit A shows that new 2006 Ready to wear advertisement that GUCCI is embarking to increase its present sales by 2.5%, which is achievable. Maslow states that clothing is one of the basic needs of man therefore there is a strong market to fill up. The market segment that fashion industry caters to are the "moneyed" class. Since the blouses are offered in all stores of GUCCI, then the target market is the female population of each location who can afford to buy these high priced GUCCI items. Since the trend usually changes, the people with the extra money love to continue buying dresses to keep up with the times, as observed by the hierarchy of needs author Maslow. The sales in the WSSI in exhibit D bellow, has an average sales forecast for the entire three month period due to GUCCI's seventy percent repeat customers and thirty percent new clients. The WSSI shows that the sales indicated therein has an amount equal to the cost of the blouses to be bought for the entire three month period. MATRIX is shown by Exhibit A and Exhibit E below. The WSSI Exhibit below is also based on the Matrix of blouse sales during the preceding year. BIBLIGRAPHY Griffiths, The Fashion Business: Theory, Practice, Image, Berg, Oxford, 2000 Eicher, J., Fashion Foundations: Early Writings on Fashion and Dress, Berg, Oxford, 2003 Irwin, D, Page 16, On Target Achieving Best Business Performance, Thompson learning, London 2000 Rubin & McNeil, Page 394-396, Psychology of Being Human, Harper & Rowe, London, 1979 Molloy & Molloy, Page 71-80, The Buck Starts Here, Profit Based Sales & Marketing, Ohio, USA, 1996 WGSN- EDU.COM (http://www.wgsn-edu.com/edu/edu-members/, Feb 13, 2006) Gucci.com (http://www.guccigroup.com/grpProfile/default.asp, Feb 13, 2006) Hoovers.com (http://www.hoovers.com/gucci/--ID__46896,period__A--/free-co-fin-income.xhtml, Feb 13 2005) RetailBullentin.com (www.retailbulletin.com, Feb 13, 2006) WWD,Com, (www.wwd.com, Feb 13, 2006) BIR,CO, (www.bir.co.uk,Feb 13, 2006) Just-Style.com (www.just-style.com, Feb 13, 2006) Vogue,(www.vogue.com, Feb 13,2006) http://sec.edgar-online.com/2004/11/10/0000352363-04-000327/section8.asp Exihibit A Gucci RTW for 2006 Annual Income Statement ( EXHIBIT B) All amounts in millions of except per share amounts. View: Annual Jan04 Jan03 Jan02 Revenue 3,227.00 2,738.20 2,285.00 Cost of Goods Sold 905.8 738.2 606.6 Gross Profit 2,321.20 2,000.00 1,678.40 Gross Profit Margin 71.90% 73.00% 73.50% SG&A Expense 1,824.70 1,545.90 1,241.00 Depreciation & Amortization 313.4 261 198.4 Operating Income 183.1 193.1 239 Operating Margin 5.70% 7.10% 10.50% Nonoperating Income 31.9 66.2 87.9 Nonoperating Expenses 0 0 0 Income Before Taxes 181.3 259.3 327.6 Income Taxes -27.6 20.8 52.3 Net Income After Taxes 208.9 238.5 275.3 Continuing Operations 217.3 244 278.4 Discontinued Operations 0 0 0 Total Operations 217.3 244 278.4 Total Net Income 217.3 244 278.4 Net Profit Margin 6.70% 8.90% 12.20% Diluted EPS from Continuing Operations ($) 2.16 2.38 2.74 Diluted EPS from Discontinued Operations ($) 0 0 0 Diluted EPS from Total Operations ($) 2.16 2.38 2.74 Diluted EPS from Total Net Income ($) 2.16 2.38 2.74 Dividends per Share 15.88 0.5 7.5 Data Definitions (http://www.hoovers.com/gucci/--ID__46896,period__A--/free-co-fin-income.xhtml) GUCCI EXHIBIT C Annual Balance sheet except per share amounts. millions of pounds Bottom of Form View: Annual Jan04 Jan03 Jan02 Assets Current Assets Cash 872.3 1,909.10 1,810.00 Net Receivables 242 215.9 200.7 Inventories 340.3 307.1 274.7 Other Current Assets 499.3 408.5 277.2 Total Current Assets 1,953.90 2,840.60 2,562.60 Net Fixed Assets 646.2 593.6 422.4 Other Noncurrent Assets 1,639.80 1,627.60 1,564.90 Total Assets 4,239.70 5,061.80 4,549.70 Current Liabilities Accounts Payable 324.8 311.3 285.2 Short-Term Debt 290.8 410.2 467.1 Other Current Liabilities 127.6 176.3 190.1 Total Current Liabilities 743.3 897.8 942.4 Long-Term Debt 905 782.2 503.2 Other Noncurrent Liabilities 55.2 57.9 49.5 Total Liabilities 1,964.80 2,022.70 1,767.10 Shareholders' Equity Preferred Stock Equity 0 0 0 Common Stock Equity 2,274.90 3,039.10 2,782.70 Total Equity 2,274.90 3,039.10 2,782.70 Shares Outstanding (mil.) 101.1 100.2 100.1 Data Definitions (http://www.hoovers.com/gucci/--ID__46896,period__A--/freeuk-co-fin-balance.xhtml) EXHIBIT D WSSI In millions of pounds WSSI Act/for Act/ For Act / For Act / For Act / For Plan Plan planned Acct/ for weekly mark ups mark weekly closing weekly closing forward stock opening intake down sales stock sales stock cover comment Week stock + + - - - (cost) (cost) 1 0.10 0.06 - - 0.15 0.02 0.16 0.02 7.00 ok 2 0.02 0.12 - - 0.13 0.01 0.14 0.01 7.00 ok 3 0.01 0.19 - - 0.15 0.05 0.16 0.04 7.00 ok 4 0.05 0.10 - - 0.12 0.03 0.14 0.02 7.00 ok 1 0.03 0.14 - - 0.13 0.04 0.14 0.03 7.00 ok 2 0.04 0.07 - - 0.09 0.02 0.11 0.03 7.00 ok 3 0.02 0.12 - - 0.12 0.02 0.14 0.01 7.00 ok 4 0.02 0.09 - - 0.08 0.03 0.10 0.02 7.00 ok 1 0.03 0.11 - - 0.12 0.02 15.00 0.01 7.00 ok 2 0.02 0.06 - - 0.07 0.01 0.10 0.01 7.00 ok 3 0.01 0.10 - - 0.09 0.02 0.11 0.02 7.00 ok 4 0.02 0.08 - - 0.07 0.03 0.10 0.01 7.00 ok Total cost of sales 1.32 Cost of sales 1.321688 EXHIBIT E (Blouse, etc. range, Style, colours, silhouette) MATRIX WOMAN - GUCCI - DRESSES - 3/ ... $418.00 $832.00(50% Off) YOOX Rated: WOMAN - GUCCI - SHIRTS - Blo ... $474.00 YOOX Rated: WOMAN - GUCCI - SHIRTS - Blo ... $505.00 YOOX Rated: WOMAN - GUCCI - DRESSES - 3/ ... $578.00 YOOX Rated: WOMAN - GUCCI - DRESSES - 3/ ... $840.00 YOOX Rated: WOMAN - GUCCI - SHIRTS - Blo ... $868.00 YOOX Rated: WOMAN - GUCCI - SHIRTS - Blo ... $1078.00 YOOX Rated: Gucci Womens Clothing - Silk ... $1439.20 $1520.00(5% Off) Raffaello Ties Rated: (http://www.designerapparel.com/search.phpkeywords=gucci+blouse&sort=a) Shop by Price Any Price Under $100 $100 - $200 $200 - $300 $300 - $400 $400 - $500 $500 - $1000 Sky's the Limit On Sale Specials 10% to 25% Off 25% to 50% Off More Than 50% Off Read More