Gucci became so desirable that big companies competed for it, with Louis Vuitton Moet Hennessy giving up in 2001 in favor of Pinault-Printemps-Redoute (PPR), owner of such luxury brands as Yves St. Laurent, Sergio Rossi, and Stella McCarthy as well as other retail, credit card, and business-to-business operations. PPR now owns 68% of Gucci and in March 2004 must offer a guaranteed price of $85.52 for each remaining share.
Chief Designer Ford benefited Gucci by emphasizing marketing and interpersonal skills, while CEO De Sol managed the business to investor profits, which, despite a flat-looking chart and drop from early 2000 highs, has handily outperformed the S&P 500 over the last five years (Don't be fooled by the chart's late September cliff fall -- the company paid a $15.88 special dividend per ADR on Sept. 26).
Despite the importance that the media attaches to name-brand fashion designers, the truth is that high-profile fashion houses built around an Yves-Saint Laurent, for example, do not make money selling haute couture to moneyed mavens. Publicly held corporations use a brand's cache to license and sell clothing, accessories, and perfume to where the money is -- the larger consumer market. (Jeff Hwang yesterday examined valuations of two other design houses more clearly built around a personality -- Tommy Hilfiger
That's why Gucci is more than Tom Ford, and great managers like De Sol, while not a euro a dozen, can be replaced. Certainly if PPR thought both managers were sine qua non to the future of Gucci, it would have nailed down some understandings before buying 68% of the business and committing to bid for the rest next year. The market agrees, cutting the shares only a buck and change this week on the news.