Guccio Gucci, S.p.A.

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Guccio Gucci, S.p.A.

Piazza San Fedele
20100 Milan
Italy
(2) 76013050
Telex: 571468 GUCCIFI
or
Gucci America, Inc.
2 East 54th Street
11th Floor
New York, New York 10022
U.S.A.
(212) 826-2600
Fax: (212)486-4739

Wholly Owned Subsidiary of InvestCorp International
Incorporated: 1923
Employees: 900
Revenues: $450 million
SICs: 5632 Women’s Accessories & Specialty Stores; 5661 Shoe Stores

Gucci designs and clothing have become one of the most recognized labels in the retail industry. Along with Karl Lager-feld, Cartier, Alfred Dunhill, and Ralph Lauren, Gucci offers wealthier clientele from around the world an acknowledged badge, the “GG” on its leather products that symbolizes membership in an elite club. During the late 1920s and throughout the 1930s, Gucci was the first company to establish a label in the retail industry that was regarded by the general public as synonymous with wealth, status, power, and luxury. Recently, however, the company has had major financial difficulties, and the Gucci family has been traumatized by the murder of Maurizio Gucci, the driving force behind the success of the company in the 1980s. Purchased by InvestCorp International in 1992, Gucci is managed by a group of individual investors from Bahrain.

The founder of the famous retail empire was Guccio Gucci. Born in Florence, Italy, in 1881, Gucci was forced to leave the country when his father’s hatmaking company went bankrupt. Driven out of the house by his embittered father, Gucci traveled to London and got a job as a dishwasher at the Savoy Hotel. The Savoy Hotel was quickly becoming one of the most notable gathering places for the American and European upper classes. The reason for its popularity was Cezar Ritz, the most famous chef in the world at the time. Ritz knew how to lure the wealthy elite by appealing to the sensibilities of their taste buds, and Gucci soon learned that the key to attracting moneyed customers was the perception of quality and exclusiveness.

Gucci worked his way up from dishwasher to waiter, all the while observing the lifestyles and habits of the highest levels of international society. One of his most important lessons involved the way the hotel’s affluent guests transported their personal possessions from one grand luxury palace to another. Gucci noticed that all the dwellers in the Savoy Hotel used quality leather luggage, made by craftsmen from all over Europe. Gucci also discovered that it was the notion of “quality” that obsessed people like Lilly Langtry and Sir Henry Irving. Items that were most fashionable and of the best quality had to be possessed, and people with good taste cared little about the cost. For three years, Gucci worked and learned about what was needed to secure the patronage of the gilded class. After saving enough money, Gucci returned home to Florence to begin a new life.

Gucci married a young seamstress, Aida Calvelli, and had four sons and one daughter; he also adopted a boy that Aida bore out of wedlock. He first worked in an antique store and then at a leather firm. With so many mouths to feed, money was always in short supply. When World War I started, Gucci was drafted to fight for the Italian army, and he served as a transport driver. After the war ended, he returned home to a city with an economy that had been destroyed. But Gucci recognized an opportunity to use the experience he had gained in London, and so he started working at a leather firm that specialized in quality leather products. The owner of the firm, a man named Franzi, taught him all the elements of leatherwork, including the selection of hides, the tanning processes, and how to work with different types of leather. An ambitious and able man, Gucci was chosen to open Franzi’s new store in Rome.

By 1922, Guccio Gucci had dreams of opening his own shop, and, encouraged by his wife Aida (who also helped find an investor by the name of Calzoni), a Gucci leather business started operations in Florence one year later. The little store made leather goods for the wealthy tourists who visited Florence in record numbers during the 1920s. Soon he had made enough money to buy out his partner, Calzoni. As the business grew, reputation of Gucci’s sturdy, quality luggage began to spread in European social circles. During this time, he also began a repair operation for luggage. This unexpected source of work helped increase the reputation of Gucci’s store for quick, careful, first-class workmanship. The sense of quality he had learned from his time at the Savoy Hotel, and the perception that expensive products were more valued than inexpensive ones, convinced him to raise his prices. By the end of 1923, the Gucci store had become widely known for its distinctive craftsmanship, and it was frequented not only by wealthy tourists but by the local elite as well.

During the 1920s, Benito Mussolini rose to power as Italy’s dictator, and many nations imposed harsh sanctions on the country. As a result, Gucci was no longer able to purchase all the leather needed for his shop. This apparent misfortune, however, turned to Gucci’s favor. Without the needed leather, Gucci was forced to design and make handbags and luggage of both canvas and leather. Leather was employed only on the most-used parts of the luggage, such as corners, clasps, and straps. In addition, new items including belts, wallets, and various ornamental designs were becoming more fashionable, and Gucci capitalized on their popularity. By the end of the decade, the Gucci store had become one of the most important shopping places for wealthy customers from Italy and abroad. Flocking to his business in order to buy beautiful and highly innovative leather creations, people were willing to pay premium prices for quality goods made by expert craftsmen. The Gucci mystique had been born. Some of these early Gucci creations are displayed at the Museum of Modern Art in New York City.

The war clouds that grew over Europe during the 1930s did not affect the Gucci store. Tourists from around the world, especially the United States, traveled to Florence not only to view famous works of art such as Michelangelo’s David but to purchase a piece of Gucci luggage. Business boomed and the family grew in wealth and prominence. With the onset of World War II in 1939, however, life changed suddenly for everyone in Italy, including the Gucci family. The war between Gucci’s customers—British, German, French, American, Italian—almost destroyed the company. Sales dropped precipitously, and plans for expanding into other major Italian cities were indefinitely delayed. The family shop that already had been opened in Rome kept the family in business since the ancient metropolis had been declared an “open city” by the Allies and was not bombed during the early part of the war.

Unfortunately, by the end of the war Italy was in ruins as a result of the fighting between German and Allied forces, and the tumult and chaos left behind did not contribute to the sale of Gucci’s premium-priced leather goods. Almost every person in Italy suffered from deprivation and impoverishment, and the Gucci family was not immune from the postwar hardships. Yet Gucci was able to arrange loan money from a number of Italian banks, and immediately he began to revitalize his shops in Florence and Rome. Guccio Gucci’s son, Aldo, was in charge of the shop in Rome and achieved new heights of success during the occupation by Allied soldiers. American soldiers thronged the shop and purchased anything that Gucci had made to send to mothers, wives, and girlfriends back home. Within one year after the end of the war, both Gucci shops in Florence and Rome had achieved sales figures near prewar levels.

During the postwar period, Guccio Gucci and oldest son Aldo began to create a myth to surround the company’s products. An exclusive design—back-to-back linked stirrups in the founder’s initials “GG”—was printed on all the firm’s luggage and handbags, and hunting and stableyard colors were used to give the Gucci shops an aristocratic air. The legend that the Gucci family had been saddlemakers to the great Florentine families also started at this time. All of this history was contrived, of course, but it helped place the Gucci family on a level more equal to the people who bought their wares.

The early 1950s brought many celebrities to Gucci’s store in Florence, including Princess Elizabeth of England, Eleanor Roosevelt, Elizabeth Taylor, and Grace Kelly. Grace Kelly once appeared at the store in a panic, explaining that she was in desperate need of a gift for a friend’s wedding. When she asked if the store had a floral scarf, Gucci replied that he did not but that he would be happy to make her one. This incident gave rise to the Gucci floral scarf that soon thereafter became world famous. In spite of the worldwide interest in the purchase of his products, Guccio Gucci was reluctant to expand his operations. However, when Guccio died in the summer of 1953, son Aldo immediately arranged for a Gucci company to open stores in the United States.

After the death of the founder, three of Guccio Gucci’s sons, Rodolfo, Vasco, and Aldo, became equal shareholders in the company. Rodolfo acted as the general manager, Vasco as the supervisor of operations at the manufacturing plant in Florence, and Aldo as the director of foreign operations. Under Aldo’s direction, new Gucci stores were opened in Philadelphia, San Francisco, Beverly Hills, Palm Beach, and Chicago. The factory in Florence located on the via Caldaie was expanded, and land was purchased in the Sandicci area outside the city for a new production plant. Demand for luxury items was growing by leaps and bounds in the late 1950s, and Gucci was at the forefront of companies that were frequented by the rich and famous.

The Gucci stores were most successful during the 1960s. Anyone who had the money sought the Gucci name on shoes, luggage, handbags, and scarfs. The Gucci moccasin was worn by John Wayne and Jerry Lewis. Princess Margaret of England, Audrey Hepburn, and Imelda Marcos purchased Gucci shoes— lots of them. Revenues were at an all-time high, and profits were pouring in. Although there were minor disagreements, the Gucci brothers and indeed the entire family lived and worked in peace and harmony.

When Vasco Gucci died in 1975, everything at the company began to change. Over 9,000 customers per day were buying products from the Gucci stores in America, over 600 employees were on payroll, and the business had increased 25 times over the previous decade. Gucci shoes were “the” item to buy and wear, along with Gucci belts, luggage, and accessories. Gucci products had achieved world status. Yet employees in the New York store, as well as in the other U.S. stores, developed a reputation for rude behavior toward customers. Discourteous treatment, icy stares, and put-downs were widely known to occur at Gucci, and rumor had it that Aldo did nothing to discourage the way his employees treated customers. Although this report was tolerated by Rodolfo, a more important problem had arisen. In 1978, Gucci Shops Incorporated, Aldo’s U.S. branch of the family firm, had recorded revenues of over $48 million—but no profits. According to Aldo, the costs of opening up new stores across the United States had soaked up the firm’s hefty profit margin.

As the company grew during the early 1980s, family feuds and disgruntled employees marred the aristocratic image the Guccis had carefully nurtured since the 1920s. Paolo, the son of Aldo, was bitter since he had been left out of the major decisions made during the board of directors meetings. He began to inquire into his father’s record-keeping procedures and informed the Internal Revenue Service about certain discrepancies. Rodolfo died in May 1983, and his son, Maurizio, also began to take a keener interest in the company since he was now one of the major shareholders. A consummate businessman with a charming personality and ruthless disposition, Maurizio arranged for his cousin Paolo to sign over his shares in the company and forced his uncle Aldo to relinquish the position of president.

By 1985, despite what the world press had termed the “Gucci Wars,” the company itself was still growing. The family squabbles and power plays had hurt the firm’s reputation, but its long history and its pervasive trademark contributed to Gucci’s continuing financial success. In the United States, Gucci Shops Incorporated reported profits of over $5 million on revenues of $62 million. In Italy, company shops reported revenues of over $200 million and profits approximating 8 percent of the total. The Gucci operation in London made over £10 million, with profits running at 10 percent. By 1986, 153 Gucci stores around the globe were selling over $500 million worth of merchandise.

The late 1980s were terrible times for the Gucci family and their luxury retail empire. In the United States, Aldo Gucci was charged with tax evasion and misappropriate use of company funds. Over $7 million worth of taxes had been evaded while Aldo was head of Gucci’s U.S. operation, with approximately $11 million spirited out of the country. Aldo was sentenced to a year and a day in jail and was fined $30,000. He had already paid back over $ 1 million to the U.S. Treasury. At the age of 81, Aldo began serving his prison time in the “country club,” the Eglin Penitentiary in Florida, where many of the convicted Watergate defendants had been incarcerated.

The conviction of Aldo was just the tip of the iceberg; by the early 1990s the Gucci operation was in disarray. Sales dropped precipitously, and debts began to accumulate. Now in complete control of the organization, Maurizio brought in an outside investor group from Bahrain, InvestCorp International, to help revive the firm. Yet even the influx of cash from InvestCorp did not help. In 1992, the renamed Gucci America Inc. had lost over $30 million, not counting past debts of over $100 million. As a result, InvestCorp brought suit against Maurizio for withholding information about the state of Gucci’s U.S. operation. In attempting to force Maurizio to sell his remaining 50 percent ownership to InvestCorp, the Bahrain group said that additional money would be forthcoming only if Maurizio left the company. Maurizio fought back with countersuits, but finally he gave in and sold his remaining interest to InvestCorp in September of 1993. This transaction marked the first time that control of the firm was not in family hands.

During the mid-1990s, InvestCorp appointed its own management team and began the arduous task of rebuilding the company. Sales increased dramatically in both Europe and the United States during 1994, and figures for early 1995 were very promising. As the fortunes for Guccio Gucci S.p.A. and the firm’s U.S. operation improved, the Gucci family was still reeling from the chaos it had created. An unknown assassin shot Maurizio Gucci on a street in Milan on March 27, 1995; Maurizio was dead at the age of 46. Italian investigators speculated that he had been killed because of personal debts that remained unpaid.

InvestCorp International, in firm control of the Gucci operation, lost no time in revitalizing the company. Sales continued to increase, and the atmosphere in Gucci shops grew more relaxed and comfortable as management encouraged employees to treat customers respectfully. As long as the Gucci symbol retained its appeal (and there can be no doubt that it shall) there will always be a clientele to purchase some of the most recognizable merchandise in the world.