Case Study Kering Pestle PDF

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This case study is taken from the Companion Website for Varley, R. et al. (2019). Fashion management: a strategic approach. London: Red Globe Press. Chapter 2 Longer version of Case Study Kering: Leveraging centralized resources to support diverse directional growth Author: Natascha Radclyffe-Thomas Introduction The original interests of the business that was to become the Kering group were not in fashion but in construction materials, however since the 1990s when Pinault Printemps Redoute (PPR) ventured into retail the business was on a trajectory to become one of the key international luxury groups. Kering’s current Chairman and CEO François-Henri Pinault followed his father into the business at a time when its key market was Western Europe and has managed the group’s subsequent expansion into the luxury fashion, jewellery and sportswear markets supporting its expansion strategy with a global portfolio of brands. The recent slowdown in luxury sales in China illustrates the challenges of managing and maintaining growth in the luxury segment, this growth strategy has relied on mergers and acquisitions of complementary brands in order to spread the risk of overreliance on single brands or market segments to generate income. Kering is an example of an international fashion business that has successfully grown across markets and products by leveraging the advantages of a strong centralized management structure balanced with differentiated brand strategies. Identifying growth opportunities Writing in the Harvard Business Review in 2014 Kering’s Chairman and CEO François-Henri Pinault described how moving away from their previous core business had seen total sales fall by more than half from 2003 levels (from €24.4 billion to €9.7 billion), but at the same time had seen profits increase by around 40%. Additionally, he revealed how internationalizing the business meant that since 2007 the group’s income source has become much more global and the reliance on France for their income generation has fallen from 41% to 4% thus minimizing risk of overdependence on one market by expanding and diversifying their income sources. The move into the luxury segment was based on strong predictions for long term growth in apparel and accessories which Kering appears to be taking advantage of with its 2016 Annual Report recording revenues of €11.6bn. In 2017 the Kering luxury group comprised the following brands: in the soft luxury category- Gucci, Bottega Veneta, Saint Laurent, Balenciaga, Alexander McQueen, Stella McCartney, Christopher Kane, and Brioni. In hard luxury (jewellery and watches) Boucheron, Pomellato, Dodo, Qeelin, Girard-Perregaux and Ulysse Nardin. In sport and lifestyle Puma and Volcom. Kering employs over 40,000 people and operates in over 120 countries. Central management and resources support

In January 2016 Kering’s Chief Operating Officer took charge of a new division that includes the Group’s Supply Chain and Industrial Operations. Having group level roles and functions means Kering takes advantage of specialist knowledge and acquired experience as well as the economies of scale afforded to larger organisations. The benefits of a centralized management structure headquartered in Paris are realized through backend functions and services such as compliance, human resources, property, strategic marketing, product development, sourcing, logistics, IT and invoicing systems and retail strategy and management. For example, in 2014 Kering launched its in-house executive education programme for 27 of its ‘high-potential managers’ operating in Greater China in collaboration with Tsinghua University in Beijing, China and HEC Paris, France thus directly supporting its continued growth in the region. Although the various brands in the Kering portfolio have differing requirements for fabrics and materials, the ability to coordinate sourcing means each brand benefits from knowledge about the others. Kering’s two product development centers, one for ready-to-wear (near Milan) and one for leather goods (near Florence) give access to specialist support prototyping meaning efficiencies in ‘concept to product’ for all the brands. Finding retail premises in the right locations and at a reasonable cost is a challenge for independent brands. Furthermore, different fashion cities attract different customers and as such brands need to design unique retail experiences in each location. As an experienced luxury group Kering uses their expertise in retail real estate to locate and negotiate on the best store locations and terms ensuring each of their brands has a presence in the appropriate retail districts and malls worldwide. Kering acquired the Italian luxury leather goods maker Bottega Veneta in 2001 which enabled its exponential sales growth. By 2014 Bottega Veneta controlled more than 80% of its distribution through its nearly 200 stores; in 2015 its operating income was €333 million. Centralised management also helps optimize product assortment for differing retail formats as well as supporting recruitment for retail and store managers who will be the public face of the brand. Another strand of group management strategy is the ability to pair each of the brands’ independent designers or creative directors with strong business executives aiming for a perfect blend of design creativity with financial sustainability. Gucci’s current success is attributed to its clarity of creative vision guided by its Creative Director Alessandro Michele and its strong communication strategy. Although each brand has its distinctive brand identity and customer, lessons learned by one brand can benefit other Kering brands, for example, Gucci’s digital innovation ranked number one in the L2 Fashion Digital IQ Index in 2016. In January 2016 Kering was recognized by the Corporate Knight’s Global 100 index as being one of the 100 most sustainable corporations in the world. Kering’s sustainability strategy is another example of a specialism primarily developed under one brand, Stella McCartney, which has enabled the whole group to differentiate itself through the development of

its innovative Environmental Profit and Loss (EP&L) accounting system. In addition to adopting group sustainability targets across its supply chains in 2012, the EP&L management tool makes it possible to measure and manage the environmental impact of its operations. In January 2017 Kering published its 2025 sustainability strategy, outlining its new and targets introducing three pillars: Care (environment), Collaborate (social) and Create (innovation). Brand portfolio diversification Interbrand 2016 rated Gucci the most valuable Italian luxury brand for the 17th consecutive year in its annual global rankings. According to 2017 figures Gucci accounts for more than a third of Kering’s revenue and is positioned as their flagship luxury brand. As we have seen elsewhere, fashion companies often seek to leverage such brand strength by introducing a range of diffusion lines as a way to target a wider range of customers in terms of style and price. An alternative strategy adopted by Kering has been to develop a multi-brand model in order to move into new segments through brand acquisitions which means they have expanded business without compromising the brand DNA of their flagship brand Gucci or their pillar brands Bottega Veneta, YSL and Balenciaga. By building a brand portfolio to include established brands with diverse aesthetics such as Alexander McQueen and Stella McCartney, Kering is able to support their distinct creative visions and gain new customer bases for the group. Newer brands such as London designer label Christopher Kane may prove to be harder for Kering to establish as an international brand.

Kering Brand Architecture Soft Luxury Hard Luxury Sport & Lifestyle Flagship Gucci Jewellery Boucheron Generalist Puma brand Pomellato Dodo Qeelin Pillar BV brands YSL Balenciag a

Emerging brands

AMQ SMC Brioni CK

Watches

Ulysse Specialist Volcom Nardin GirardPerregaux Adapted from Kering Investor Presentation, 2016.

The popularity of sports lifestyle brands has seen strong growth in that sector of the fashion industry and Kering acquired a controlling interest in the German athletic brand Puma in 2007 in order to establish itself in that market. Although this strategy is not guaranteed to be successful (operating profits fell sharply in 2015 although sales figures grew), by acquiring an already existing brand Kering takes advantage of the established brand equity but has been able to support new product and marketing innovation in this ‘generalist’ brand targeting the fashion conscious athleisure consumer e.g. through the 2016 ‘Do you’ campaign and through collaborations with Rihanna who was made a Puma creative director in 2015.

Sources: http://www.kering.com/sites/default/files/document/investor_presentation_ fev2016.pdf.pdf https://hbr.org/2014/03/kerings-ceo-on-finding-the-elusive-formula-forgrowing-acquired-brands https://digiday.com/marketing/digital-strategy-driving-guccis-growth/ http://www.kering.com/en/sustainability/epl This case study, based on secondary sources, was authored by Natascha Radclyffe Thomas

Case Study Questions (Use chapters 2 and 3 of Varley et al. (2019) to help you) 1. Using the PESTEL framework, analyse the external (macro) business environment in which Kering operate, evaluating relevant factors as: H M L

High impact – need to respond fast now Medium impact – to consider now with a view to implementing a response at an appropriate time Low impact – ignore or wait and see, with no response currently necessary

(You could choose a particular regional market, or take a global perspective for this challenge) (Chapter 2) 2. Undertake an internal analysis of the Kering Group, identifying resources, competences and capabilities that contribute to the company’s strategic success. (Chapter 2) 3. Using the concept of the micro-environment (focusing on customers and competitors) provide a broad overview of Kering’s marketing strategy, indicating relevant customer groups, product markets and geographical markets that have been pursued in recent years. (Chapters 2 and 3). 4. Summarise your answers to questions 1-3 in a SWOT analysis for Kering. Share your SWOT analysis on the discussion board....