Free Deluxe: How Luxury Lost Its Luster by Dana Thomas Page A

“Product integrity has to be more important than synergies,” he said. “David Ogilvy [the advertising executive] used to say, ‘The consumer’s not a bloody fool; she’s your wife.’ The consumer wants to know that Piaget watches are made in the Piaget factory. [That’s] what makes it special. Otherwise it’s just another brand.”
    The Ruperts own 9.1 percent of Richemont—the rest is traded on the Swiss exchange—and control the company with 50 percent of the voting rights. As a result, Rupert says he does not feel pressure to deliver substantial profit increases each quarter. “We are not in a hurry,” he has said. Indeed, when analysts said he paid too much for Van Cleef, he shrugged. “In five to ten years’ time, it will turn out to be a good acquisition,” he said shortly after the purchase. He is so cautious that banking analysts have nicknamed him “Rupert the Bear.”
    The strategy has worked well. In 2005 , Richemont did $ 5.25 billion (€ 4.31 billion) in sales. Cartier accounts for about half of Richemont’s revenues, and a staggering 85 percent of its operating profits, according to analysts. About 60 percent of Cartier’s earnings reportedly are from sales of watches.
     
    W ITH ITS BRANDS growing exponentially, and the money rolling in from the sales of perfume and accessories, LVMH was flush and Arnault was feeling omnipotent. In 1998 , he quietly began to buy up large chunks of stock of Gucci, one of the hottest brands at that moment.
    Gucci has had a roller-coaster ride of a history. The company started in 1923 as a small shop in Florence selling imported luggage. As the business grew, owner Guccio Gucci added a workshop to produce his own designs. During supply shortages in the 1930 s, caused by economic sanctions imposed by the League of Nations on Mussolini’s Italy, Gucci started experimenting with new materials like canvas and bamboo, and making smaller items such as belts and wallets. In the 1950 s and 60 s, under the guidance of Guccio’s sons Rodolfo and Aldo, the company flourished; its floral scarves, bamboo-handled handbags, and horse-bit loafers were favored by such icons as Jacqueline Kennedy and Grace Kelly.
    The 1970 s brought family infighting and overlicensing of the brand. By the late 1980 s, more than twenty-two thousand products, from cigarette holders to scotch, carried the Gucci name. “It was pretty much trading on its past reputation,” said Brian Blake, who joined the company in 1987 and a decade later became its president. “A very large proportion of business at that time was driven by the ‘interlocking G’ canvas material, which was very inexpensive to produce and had very low price points. No truly discerning luxury goods client would shop at Gucci.” Famed marketing strategist Faith Popcorn put it more bluntly: “When you see [Gucci’s signature red and green] stripe, you want to throw up.”
    In the 1980 s, Rodolfo’s son Maurizio took over the company, and brought in Domenico De Sole, an Italian-born, Harvard-educated lawyer at a top Washington law firm, as president and managing director of Gucci America to right its course. Over the next few years, De Sole fired 150 of Gucci’s 900 employees, hired managers with serious retail experience, brought distribution in-house, reined in licensing, and bought back franchises—in effect, applying Henry Racamier’s model of vertical integration. In 1989 , Maurizio convinced legendary retailer Dawn Mello to quit her job as president of Bergdorf Goodman in New York and become Gucci’s creative director in Milan. Mello discarded most of the existing products and hired a new design team, including Tom Ford, a twenty-nine-year-old former model/actor who studied interior architecture and had a few years experience in the Seventh Avenue rag trade, to revive and update great old classics as well as create a sleeker image for the house. “The bamboo-handled knapsack was the first thing I did when I came to