Gucci Porter’s 5 Five Forces: (2022) Detailed Overview

Written by portersfiveforcesteam in Porter's Five Forces Analysis

 

Key Facts

Name Gucci
Industry Fashion , Personal Luxury Goods Market
Founded 1921
Headquarters Florence, Italy
CEO Marco Bizzarri
Revenues US $9.73billion,2021
Brand Value  US $ 33.8 billion ,2021
Competitors Chanel ,Louis Vuitton, Prada, Dior, Hermes

 

Company Overview

Headquartered in Florence, Italy Gucci is a Fashion brand in the Personal Goods Luxury Market for specially leather goods ranging from wallets, handbags, shoes, accessories, clothing and home decoration. It was founded by Guccio Gucci in 1921 and it is 4th largest luxury brand globally. Gucci is having more than 226 stores in all emerging economies including 107 in Western Europe.Its reported revenues are $9.73billion, which is 31% increase as compare of previous year. Its brand value is estimated at $ 33.8 billion in 2021.Forbes ranked Gucci on 31st in the Forbe’s World’s Most Valuable Brands (2020).

 

 

 Porter’s Five Forces Analysis

The five competitive forces defined by Harvard Business School Professor Micheal E. Porter in 1979 for organizations to understand the structure of their industry and better strategies their business for more profits and less exposure to competition.

It is one of the most widely used model for analyzing industry’s structure and competitive environment for the business.

 

Gucci Rivalry among Existing Competitors:

 

  • Rivalry among Existing Competitor’s is the first force of Porter’s model to analyze the competitive positioning of the company with in it’s industry and analyses its strategies for higher sales, better profit margins with early fixed cost recovery.
  • Gucci offers a range of luxury fashion products especially only leather products are generating 55% of the brand’s total sales. Gucciis the largest brand owned by parent company, the Kering Group operating globally having highest market share of 44% from Asia Pacific market. The second largest market for the brand is North America with a share of 27%, Western Europe 17%, Japan 6% and rest of the world remaining 6 %.
  • Gucci’s Competitor’s: Gucci is facing a tough competition from Chanel, Louis Vuitton, Prada, Dior and Hermes. Gucci and Chanel both achieved same score of 97/100 in a most recognizable luxury brands worldwide 2022.While by Louis Vuitton and Parada scored 96 and 95 points.
  • Chanel is giving tough competition to Gucci with a recorded sales of 15.6 billion USD and brand value of 13.2 billion USD in 2021.Chanel experienced a massive growth in recent years especially in 2019 with a record brand value of 11.5 billion USD from 5.9 billion USD which almost 95% reference to previous year. China is the second biggest market after USA. Almost 1/3 of Chanel’s revenues are generated from US, China and France.

So Gucci is facing tough international competition from Chanel in Chinese market.

  • Louis Vuitton is a brand of Moët Hennessy Louis Vuitton which has 75 brands, gave a record sales of 64.2 billion in 2021.Only fashion and leather goods are contribution 44% of the company’s revenue.Louis Vuitton experienced an 8.5% increase in its brand value in 2021 at a record of 14.86 billion USD from 13.58 billion USD in 2019.Louis Vuitton is earning it’s highest revenue from Asia Pacific region. The sales break down by geographic region is as follows :

Asia Pacific 22.36, USA 16.59, Europe 9.86, Others 6.9 and Japan is generating 4.38 million

euros.

So Gucci is facing tough competition from Louis Vuitton in Asia Pacific Market.

  • Solution: Overall the Fashion Industry is experiencing a substantial revenue annual growth rate of 11.51% with a projected reach of US$ 0.88tn in 2022 and US$ 1.52tn by 2027.It is a positive factor and Competitors do not involve in competition in such scenarios.Gucci should diversify itself in international markets with more adaptive approach specially China and Asia Pacific where Louis Vuitton and Channel are giving tough competition.

 

Gucci Threat of New Entrants:

 

  • Basic Idea: This the second force to analyze possibilities of the new entrants in the market as strong barriers and heavy cost structure present in the Industry for the new entrants will neutralize the competition or vice versa
  • Product Differentiation: As Gucci isan established brand in the Fashion Industry so the company holds a strong and unique position due to it’s product differentiation which is a strong factor and demands a high capital investment so the threat of new entrants is weak to moderate.
  • Economies of Scale: Gucci is enjoying economies of scale due to it’s market leadership position so it is also neutralizing the threat of a new entrant .It is very challenging from a new entrant to compete Gucci on it’s cost and pricing structures.
  • High Capital Requirements: Due to the nature of the industry high capital investment is required with a high research development is required to develop the products from the initial phase to the market penetration.
  • Solution: World’s Fashion Industry is experiencing substantial growth user penetration is expected to 31.8% in 2022 and projected to reach 42.5% in 2027.So It will be an attractive sector for global and local new business entrants.

Gucci should focus more on innovation and invest on R&D to hold it’s product differentiation position more strongly. It should increase it marketing budgets for better and strong brand identification to maintain it’s existing customer base.

 

Gucci Bargaining Power of Suppliers:

 

  • Basic Idea: The next element in Porter’s model to analyze the Supplier’s bargain power which is a constitution of number of Supplier’s available in the market and the number of key inputs required to make the final product or deliver the service.
  • Number of Suppliers is Various: As number of suppliers in the market is in higher number so they cannot influence the pricing or other decisions of Gucci.
  • Number of Supplies (Raw Materia Input) –Various: Gucci is offering a wide portfolio of different products so there is a more wider purchasing pool which further neutralizes the bargaining power of suppliers.
  • Established Brand –Brand Power: Gucci Being a strong and established brand suppliers are attracted to attach with such companies as customer.
  • E-Commerce Sales: Gucci launched it’s e-commerce store in 2002 which received a 100 million visitors in 2015.While the Kering’s group (Parent Company of Gucci) earned it 7% of it’s overall revenue online which accounted to 19.3 billion USD in 2015.
  • Digital Strategy: Gucci reported 15.7% of total interest search for luxury goods in 2022 while Dior and Chanel fall behind as capturing a 11.8 % and 10.8% online search interest rate.
  • Solution: Gucci should keep analyzing it’s buying patterns, reviewing a mix of raw material with a greater product portfolio, supplier’s switching or other cost controlling alternatives, efficient supply chain for managing various geographical locations and develop close relations with it’s suppliers as a valued and important customer.

 

 

Gucci Bargaining Power of Buyers:

 

  • Basic Idea: The next force is bargaining power of buyers which is deciding by the present number of buyers and substantial purchase by one buyer, also switching cost or finding a new buyer is worth considering.
  • Elite Customers: The customer base comprises of elite ones spread worldwide, other brands of same level are available but as the prices structures are quite fixed so buyers have less choices and less bargain power.
  • Animal Lover Generation: As the young generation is great animal lover and environment friendly so any customers may switch to any new trends.
  • Solution: Gucci should focus more on brand loyalty, economies of scale to attract low-income buyers and maintain it’s cost efficiency.

 

Gucci threat of Substitute Products or Services:

 

  • Basic Idea: The last contributing factoris threat from the substitute products or services which can affect the Company’s bargaining position, price strategy and other terms.
  • Few & Expensive Substitutes: Due to the nature of Luxury goods with respect to Fashion Industry there are very few and expensive substitutes. So threat of substation is low to moderate in Gucci’s case.
  • Originality: As people buy Gucci being it’s original ones so substitution seems difficult.
  • Consumption Patters – Shifts: In case of any crises after COVID-19 and current Russia-Ukraine war the consumption patterns will shift from luxury to consumer goods. As reported March 2020 the Fashion and Luxury brands experienced a 40% dropped in sales.
  • Solution: Gucci should allocate more resources and more in depth research to understand the changing customer requirements and follow more localized adaptive approach to avoid substitution or replacement.

 

References:

  1. Statista (May,25,2022).Gucci Statistics and Facts  | Statista. [online] Statista.Available at:https://www.statista.com/topics/5132/gucci/#topicHeader__wrapper 
  2. Statista (February,22,2022).Global revenue of the Kering Group from 2012 to 2021,by brand| Statista. [online] Statista.Available at:https://www.statista.com/statistics/267476/global-revenue-of-the-kering-group-by-brand/ 
  3. Global Cosmetic News (February,18,2022)Kering Reports Stellar 2021;Gucci Revenue up 31 percentAvailable at:https://www.globalcosmeticsnews.com/kering-reports-stellar-2021-gucci-revenue-up-31-percent/
  4. Statista (August,19,2022).Luxury brands with the highest level of awareness among luxury consumers worldwide as of May 2022 | Statista. [online] Statista. Available at:https://www.statista.com/statistics/1325810/luxury-brands-awareness/ 
  5. Statista (February,18,2022).Global Revenue Share of Gucci in 2021 ,by region | Statista. [online] Statista.Availablehttps://www.statista.com/statistics/267733/global-revenue-share-of-gucci-by-region/ 
  6. Statista (August,16,2022).Revenue of Chanel worldwide from 2016 to 2021| Statista. [online] Statista.Available https://www.statista.com/statistics/1196501/revenue-of-chanel/ 
  7. Statista (March,1,2022).Brand value of Chanel world wide from 2017 to 2021 | Statista. [online] Statista. Available https://www.statista.com/statistics/1010860/chanel-brand-value-worldwide/ 
  8. Forbes  Chanel(November , 2022 ) https://www.forbes.com/companies/chanel/?sh=55ab96fa1ca2  
  9. Statista (October,13,2022).Total revenue of the LVMH Group worldwide from 2008 to 2021| Statista. [online] Statista. Available https://www.statista.com/statistics/245852/total-revenue-of-the-lvmh-group-worldwide/ 
  10. Fashion – World (November,2022) | Statista. [online] Statista. Available https://www.statista.com/outlook/dmo/ecommerce/fashion/worldwide 
  11. Luxe Digital , (July 19,2022) New Luxe Digital Study Finds Gucci Remains Most Popular Luxury Brand Online in 2022 https://www.globenewswire.com/en/news-release/2022/07/19/2481983/0/en/New-Luxe-Digital-Study-Finds-Gucci-Remains-Most-Popular-Luxury-Brand-Online-in-2022.html 
  12. Reuters Events, Sustainable Business, (June, 2, 2020) ,We went too far , says Gucci as pandemic forces fashion industry to take stock  https://www.reutersevents.com/sustainability/we-went-way-too-far-says-gucci-pandemic-forces-fashion-industry-take-stock

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