Gucci's High Styleand Growing Revenues

The luxury label has overcome sluggish sales and rebounded, thanks to savvy branding strategies

You don't have to be a fashionista to recognize a classic Gucci bag. The unmistakable G monogram is a globally recognized stand-in for the Italian brand—and for luxury and glamour.

Similar to Louis Vuitton's LV and Chanel's CC, Gucci's double Gs aren't merely the initials of the label's founders; they have become status symbols. This graphic, to-the-point branding strategy is so effective that it's often copied by less-expensive lines such as Coach (COH), which carries a line of letter-emblazoned accessories.

Today the Gucci label is going strong. Its brand identity is clear and consistent even as its current creative director, Frida Giannini, experiments with new design strategies that both defy and reference classic Gucci signature elements.

And on the financial front, the news is also good. In January, Gucci Group's parent company, French luxury conglomerate PPR, announced its fourth-quarter results for 2006. Gucci Group, which includes several other fashion labels, such as Yves St. Laurent, Stella McCartney, and Alexander McQueen, saw sales of $1.34 billion, up 15.3% from the same period in 2005. The core Gucci brand rang up a 12.5% sales increase in the quarter.

But it wasn't always so. The brand has seen its ups and downs since founder Guccio Gucci first designed a luggage line for high-end hotel guests in 1921. The product line eventually grew to a full range of bags, accessories, and clothing, emblazoned with the signature double Gs and iconic design details such as red-and-green racing stripes.

In the 1970s the company attempted to increase sales with numerous mass-market brand extensions ranging from perfume to lighters. But eventually this strategy diluted its cachet among luxury buyers. As Gucci products became widely recognized status symbols, the brand's ubiquity spawned revenue-robbing knockoffs in the 1980s and early 1990s.

Mining the Archives for Inspiration

Gucci's brand was revitalized between the mid-1990s and early 2000s, when edgy designer Tom Ford took over as creative director. Ford remade Gucci as a stylish, sexy, and exclusive fashion label with slick, skin-flaunting designs like open-to-the-navel silk shirts popularized by stars such as Madonna. By 2002, however, in the post-9/11 travel and economic slowdown, Gucci again saw sales plummet, as did other luxury-goods companies (see, 10/14/02, "Maybe Buying Gucci Was Too Much of a Luxury").

Ford left in 2004 to launch his own fashion brand, but his protégé, accessories designer Frida Giannini, who has been at Gucci since 2002 and became sole creative director a year ago, has been able to deploy a design strategy that's keeping Gucci's brand strong.

One of her tricks is to mine the Gucci archives for inspiration, bringing out modern versions of the brand's famous bamboo-handled handbags and putting its iconic horsebit buckle on a four-inch tasseled sandal. Although some fashion critics have characterized her ready-to-wear designs as safe and commercial, analysts applaud Giannini's energetic repositioning of the brand.

"The challenges are, you've got this tremendous history you need to be respectful of, but still be taken seriously as someone who has something fresh and innovative to say," says Jim Hurley, managing director and luxury goods analyst for Telsey Advisory Group. "It's a very hard job, and Giannini's already demonstrated a high level of success. She's much more of a worker bee than a celebrity."

With new life in the brand—in the runup to Milan's Fashion Week in mid-February, at least—Gucci needs to make sure not to repeat the mistakes of its past. To that end, the company is seeking growth by taking its luxury offerings global and moving into emerging markets in Asia. Just this past November the brand opened an eight-story flagship store in Tokyo's Ginza district. But ultimately success—for Gucci and Giannini alike—comes down to the catwalk and the cash register. Here we look at the luxury offerings that the double G depends on.

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