'Power of the Dream'

BOSS TALK

Gucci Chief Peddles 'Power of the Dream'

How Polet Went From Popsicles to Purses

By CHRISTINA PASSARIELLO and STACY MEICHTRY
September 24, 2007; Page B1

When Robert Polet took the reins of Gucci Group in 2004, following the departure of designer-executive team Tom Ford and Domenico De Sole, many in the fashion industry questioned whether the former head of ice cream and frozen food at Unilever was out of his depth.

(out of your depth
1 not having the knowledge, experience, or skills to deal with a particular subject or situation:
I was out of my depth in the advanced class, so I moved to the intermediate class.

2 in water that is so deep that it goes over your head when you are standing:
I'm not a strong swimmer so I prefer not to go out of my depth.)

The Dutch executive unveiled a plan in December 2004 to double sales at the Gucci brand and stem losses elsewhere, notably at the group's French label Yves Saint Laurent. Now, it appears to be paying off. Gucci Group's sales rose 7.7% in the second quarter of this year to €836 million ($1.1 billion), faster growth than at bigger rival LVMH Moët Hennessy Louis Vuitton. In the process, Gucci Group has powered profit increases at its parent company, France's PPR SA, which also owns less glamorous discount-furniture and mail-order clothing businesses.

As Gucci readies for its Milan fashion week show Wednesday, the 52-year-old chief executive must walk a tightrope between boosting sales and keeping his brands exclusive. A few hours before hosting a cocktail party at the Palazzo Grassi in Venice earlier this month, Mr. Polet sat overlooking the Grand Canal and discussed what it takes to juggle some of the world's most exclusive brands.

Excerpts:

WSJ: What's the difference between selling Popsicles and $1,000 handbags?

Mr. Polet: Nobody needs another handbag. And if you need a bag, you can get a cheap bag anywhere for $50. So you have to create what I call the "I need to have it" factor when the customer says, "I need to have that $2,000 bag, and my only worry is that it be in stock. I want it now." This is the emotional desire, which comes from the strength of the brand, the power of the dream. I have it as well sometimes.

I still remember when my father bought an Austin Westminster. It had leather seats, and sitting in the car smelling the leather made a tremendous impact on me. When I get shoes, the first thing I do is smell the leather.

WSJ: How does running a luxury label compare with running a mass-market consumer brand?

Mr. Polet: In the first two months I realized the similarities of what I'm doing here are much bigger than the differences. What I do every day, leading and coaching people, I've done for 25 years. But the way we organize creativity is completely different.

WSJ: When you replaced Mr. Ford, Gucci demonstrated it could survive without a star designer. But now Frida Giannini has become an authority in her own right. How do you strike a balance between the brand and the personality?

Mr. Polet: The brand is always more important than the designer because the brand will stay with us, and with our children and children's children, out into infinity. Gucci brand is the 46th brand in the world in the Interbrand ranking [of best brands in 2007]. It didn't get to that position in just one year with one person doing this or that.

Our creative directors have teams of designers, of course. They don't do it themselves, but they have the end responsibility of saying, "This goes in the collection and that not."

WSJ: Does the business side have any say in the creative process?

Mr. Polet: The business side is intimately linked to the creative. The CEO and the creative director have this particular relationship in actually marrying the creative and the business sides.

WSJ: Gucci Group hasn't made any acquisitions since you arrived. Do you think it is ready to add another brand?

Mr. Polet: Acquisitions could play a logical role in the application of our strategy. The primary focus of our investments will be going to Asia Pacific. Is it wise to keep looking at where we can enhance the assortment, the categories, our presence in certain regions by trying to acquire the right target at the right price? Absolutely, and we're constantly monitoring that.

WSJ: Will you meet your target of making every brand profitable by the end of this year?

Mr. Polet: Yes, we are going to meet our targets, and in certain brands actually we are ahead of our targets. Balenciaga two years ago already attained profitability, and Boucheron last year reached profitability well ahead of the dates we had set.

WSJ: What would be the consequences for brands that don't make the break-even cutoff?

Mr. Polet: What we did say in 2004 is that you'd better make it, because otherwise we'll have to think long and hard about whether it makes sense for a brand to be in Gucci Group.

WSJ: Several years ago LVMH, Gucci Group and Prada Group spent billions to amass brands. But recently Prada has sold off unprofitable brands such as Jil Sander and Helmut Lang to focus on its main label. Does size no longer matter?

Mr. Polet: I think we have proven it's very wise to have a portfolio. One example: Providing a career path between the brands. If you're a mono-brand, you're restricted. Here we can actually move people around. When we recently asked Sergio Rossi CEO Isabelle Guichot to head up Balenciaga, the supply-chain director of Bottega Veneta [Didier Bonnin] became the new CEO of Sergio Rossi.

WSJ: Is the multibrand strategy a commercial success?

Mr. Polet: Let me give you an example. [Second-quarter sales at constant currency rates at] Gucci Group as a total grew 12.3% in Japan. The Gucci brand only grew 4%, but other brands in our portfolio grew faster. Bottega Veneta had growth of 70% and Boucheron had growth of more than 30%. And it is here I think you see the beauty of having a portfolio of brands as a luxury group.

WSJ: But if the smaller brands are growing so quickly, aren't you worried they will cannibalize the Gucci brand's sales?

Mr. Polet: Customers appreciate and acquire the brands for different types of reasons. Bottega Veneta is timeless quality for very sophisticated clients who don't appreciate logos on the outside of their bag. Gucci customers love it when there's a logo on the bag, on the shoe, or visible on the ready-to-wear. These are different segments of consumers. There is almost no overlap.

WSJ: You said you wanted to double Gucci's sales to €3 billion by 2011. At what point is a brand so big that it's more mass-market than luxury?

Mr. Polet: It's a differentiation that we never make. We have 227 [directly owned] stores. So, it's not widely available; it's very concentrated. I don't have this fear at all.

WSJ: Accessible luxury brands like Coach have had staggering success in introducing increasingly expensive products. How do you defend Gucci's territory?

Mr. Polet: We never actually think about defending anything. The strategy of all of our brands is to make sure that we go up-market as much as possible. You have more people who aspire to be part of the brand. That allows you to sell products at an entry price-point by buying, for example, perfume and sunglasses, then shoes or ready-to-wear, then jewelry.

WSJ: But doesn't selling perfume at a low price cheapen the brand?

Mr. Polet: I believe in the legitimacy of having price points that allow customers to enter the brand without buying a $5,000 ring or a $2,500 Indy handbag. A big brand like Gucci caters to many, many different strata of customers. Right up there at the highest level is the $38,300 crocodile Indy bag, but at the entry price a normal canvas Indy bag costs $1,690.

WSJ: After years of deepening losses, it seems Yves Saint Laurent is finally on an upward trend. What steps have you taken to improve it?

Mr. Polet: It's one thing to get Yves Saint Laurent to break even, but the real opportunity lies in the fact that we're going to make it a highly profitable brand. We now have five successful families of handbags [at Yves Saint Laurent]: the Muse, Uptown, Downtown, the Tribute and the Double. I wouldn't say these are hit bags, but they are continuously successful around the world and in a sustainable way.

WSJ: How do you keep tabs on the positioning of your brands?

Mr. Polet: We get real data -- market surveys from the Luxury Institute in the U.S., for example -- and continue to monitor the health of all of our brands.

WSJ: What challenges will you address in your next three-year plan?

Mr. Polet: We need to think through how we operate in Japan. Take the [weaker] Japanese yen for example. Not only did we have to raise prices to protect gross margin of the business in Japan, but also Japanese tourist flows started reducing dramatically in the last two years.

We are upgrading our image in Japan. In Ginza last year, we opened a new flagship that is leading the way for us in store design. And you will see as well in the coming weeks and months, from a product point of view, we will innovate specifically for the Japanese market.

In Gucci's high-end jewelry, the majority of sales were in Japan. There's been a quite dramatic upgrading of the assortment, going more to precious stones and gold jewelry, away from what used to be an assortment based on silver.

Write to Christina Passariello at christina.passariello@wsj.com and Stacy Meichtry at stacy.meichtry@wsj.com