Guess, Inc.: From a Small Jeans Boutique to a Global Lifestyle Brand

Guess, Inc. What started as a small family owned jeans boutique has flourished into a global lifestyle brand. Guess , Inc. currently designs, markets, distributes, and licenses a leading lifestyle collection of contemporary apparel and accessories for men, women, and children that mirror the American lifestyle, while grasping European fashion sensibilities. While the foundation of Guess, Inc. ’s history and massive success can be attributed to their roots in the sale of jeans, Guess, Inc. has now expanded globally, granting licenses for the manufacture and distribution of a full line of product categories. Guess, Inc. perates in 87 countries, with the majority of the stores in the U. S. and Canada. As of 2010, Guess has 1292 stores, 504 in North America, 441 in Europe, and 347 in South East Asia (Breif History of the Company and the Marciano Brothers). The company has agreements with 17 licensees. Throughout the past 30 years, Guess, Inc. has made every effort to maintain their status as a global phenomenon. History CEO and Chairman, Maurice Marciano, and Co-Chairman, Paul Marciano The epitome of a successful family business, Guess, Inc was founded in 1981 by the four Marciano brothers, Georges, Armand, Paul, and Maurice (Guess? Inc. ). They came equipped with experience in the fashion industry, having previously owned and operated a chain of twelve retail stores in France (Guess, Inc. ). The brothers moved to California from Marseilles, France in 1977, where Guess was born, starting as a small jeans company. Georges Marciano was the designer of the jeans, and the brothers gave them the name “Guess” as they believed that word to be easy to pronounce due to their limited English (Guess, Inc. ). The company’s original jeans were innovative for its time, stone-washed, made to fit tightly, and featured zippers at the ankles.

They called this the “Marilyn Jean” (Guess, Inc. ), and the style lived up to its name, with a sexy, unique style and attitude. They had a softer feel and lighter colors than typical denim jeans. They also featured the classic Guess triangle on the back pocket, which would soon become the distinctive Guess trademark. Believing strongly in his family’s jean business, Georges flew to New York, and convinced Bloomingdale’s to display 30 pairs of his European-style jeans on consignment in the Bloomingdale’s flagship New York store (Guess, Inc. ). Within three hours, Bloomingdale’s sold out every pair.

Demand for the jeans soon skyrocketed, and the brothers would find themselves overwhelmed. Though he possessed no previous advertising experience, the brothers appointed Paul Marciano as their advertising director, in hope of expanding their capital. This proved to be wildly successful, as Paul would design an ad campaign that would revolutionize the way jeans and other clothing were sold. Seeking to take a different direction from the typical studio design, Paul brought the models and the jeans outdoors, using grainy black-and-white photography.

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He had the models show off the jeans using provocative poses, which would later be described by Forbes Magazine as “catering to teenage cravings for sex, power, attention, and self-love…electric not only with sexuality, but with an implicit brutality and exhibitionism as well. ” These controversial ads would quickly create a household name for Guess. By the end of 1982, their jeans produced about $12 million in revenue (Guess, Inc. ). Over the next 15 years, Guess would grow from a company of 30 pairs of jeans, to a globally diversified billion-dollar empire.

Legal Battles Overwhelmed by their increasing costs to produce, the Marciano brothers sought a solution to expand their capital and access cheaper foreign labor. In July 1983, they signed an agreement with the Nakash brothers of the company Jordache which would entitle the Nakash brothers to 50% ownership of Guess, Inc. in exchange for $4. 8 million, as well as the use of Jordache’s Hong Kong manufacturing plants (Guess, Inc. ). This deal also licensed Jordache to produce a new line of jeans, entitled Gasoline, using parts of Guess designs in a lower-priced line.

However, Guess made a mistake in putting their trust in the Nakash brothers, and neglecting to provide written assurances in the agreement to protect each company against creating knock-off’s of each other’s designs. This mistake would soon come back to haunt them, in their biggest legal battle to date. The Marcianos sued the Nakash brothers on charges of unfair competition, accusing them of using their position on the Guess board of directors and their access to Guess designs in the Hong King plant to produce clothing in their Jordache line that were clear knockoffs of Guess designs.

In the suit, the Marcianos sought to null the 1983 agreement that had given Nakashes ownership of half of Guess (Guess, Inc. ). This battle would continue for the next five years, eventually ending with the two sets of brothers settling out of court, and the Marcianos regaining full control of the business. Estimated attorney fees were as high as $10 million per year for each side (Guess, Inc. ). This was an ugly legal battle that cost Guess Inc. an unnecessary amount of funds. 1982 also bought a smaller legal battle with Jeff Hamilton, Inc.

Guess sought to enter the menswear market by obtaining a licensing agreement with this company. Under this agreement, Jeff Hamilton, Inc would market a line of clothing under the Guess name in exchange for a 7% royalty fee (Guess, Inc. ). However, Guess soon decided that Hamilton was targeting the young men’s market too strongly, and did not approve of Hamilton’s “dumping” of Guess merchandise in large discount stores, which was hurting the label’s high-end image. Guess sought to terminate the license agreement, which they eventually succeeded in doing in 1986.

This extensive legal battle resulted in a slow growth for Guess menswear. Marketing & Promotional Strategies Guess is backed by their corporate mission statement; “At Guess, we are committed to being a worldwide leader in the fashion industry. We will deliver products and services of uncompromising quality and integrity consistent with our brand and our image. We are committed to listening and responding to the needs of our customers, associates and business partners, and honor their individual value.

We are dedicated to personal and professional enrichment through an environment of open communication, creativity, teamwork, trust, and respect. We continue to give back to the community, support humanity, and protect the environment as part of our responsibility. We remain committed to an entrepreneurial spirit that fuels the growth of our Company and increased shareholder value. Through principled leadership we will embrace diversity, cultivate strength, pride and passion to align our personal life and our professional life. The target customer for Guess is a young, affluent adult, between the ages of 18 and 32. Guess makes every effort to live by this mission statement every day, and uses a variety of creative marketing and promotional strategies to further entice the target customer to purchase Guess products. The mission statement is executed everyday in Guess, Inc’s corporate strategy, which focuses on the long term. Guess is a global company known for their quality, trend-setting styles, and marketing creativity.

In realizing the importance of diversity, and consumers’ needs to constantly have something new, Guess never fails to bring forward new products and images to keep their name alive. While originally gaining momentum with their jeans, Guess now manufacturers and distributes a wide range of product lines. Once realizing their success, in the 80’s, the Marciano brothers decided to increase their potential, and expand beyond men’s and women’s jeans.

Wishing to continue their expansion, Guess introduced even more products in the late 90’s, including an entire collection of GUESS handbags, active wear, jewelry, swimwear, innerwear, leather, belts, neckwear, and men’s classics (CITE- annual report). Around the millennium, Guess introduced their website, opening the company to a whole other world of potential. Guess operates in 6 different store concepts in an attempt to appeal to a variety of different markets. The original GUESS? retail stores carry a full assortment of full-priced Guess products, including men’s and women’s merchandise, and licensed products.

GUESS? factory outlet stores are primarily located in outlet malls, and sell a select assortment of men’s and women’s apparel and licensed products at lower price points. The Marciano chain offers apparel and accessories that are sexy, yet sophisticated. The target market for these stores is slightly older customers interested in higher-end clothing and accessories such as ritzy evening dresses and fancy jeans.

G by GUESS stores offers Guess products at a lower price point than Guess retail stores, in order to target a wider demographic. These stores carry apparel for men and women, as well as a full line of accessories and footwear. Products in this line provide a more fun, youthful image; fashion-forward, yet not cutting edge fashion.Finally, GUESS also operates in an e-commerce segment, with websites in 6 different languages (Maurice Marciano and Marciano).

Guess is known for their iconic black-and-white print advertisements and logos that have maintained a level of consistency throughout the company’s history. The aim of Guess advertisements is to place more of an emphasis on the brand image than on the actual products (Maurice Marciano and Marciano). All Guess advertisements use similar themes and images, primarily using outdoor images. Guess images have been showcased in international print campaigns in virtually all major magazines, on television, billboards, bus shelters, and advertisements throughout the world.

The image of the Guess model has become a pop culture icon in the history of fashion advertising. Guess model, Anna Nicole Smith, in the early 1990’s Drew Barrymore Adriana Lima Paris HIlton Guess brought forth the faces of many future supermodels in their sexy promotional campaigns, including names such as Anna Nicole Smith, Claudia, Schiffer, Drew Barrymore, Jessica Miller, Cindy Taylor, Minki Van Der Westhuizen, and Shana Zadrick (Guess? Inc. News- Company Information). Iconic models, actresses and all-round sex-bombs have all pouted and posed for these successful Guess ad campaigns.

It goes without saying that Guess has been such an influential brand in the fashion world. Sales Trends & Financial Data For the first quarter of 2012, Guess, Inc reported net earnings of $42. 7 million. This was a 15. 2% decrease from the first quarter of the fiscal year 2011, in which Guess, Inc. reported net earnings of $50. 3 million (Guess , Inc. Reports First Quarter Results). Balance Sheet from www. FORBES. com For the entire year, ending January 29 ,2011, net earnings for Guess, Inc were reported at $289. 5 million, an increase of 19. %, with gross profit increasing to $1090. 2 million, an increase of 15. 8%. Total net revenue increased to $2,487. 3 million, and gross margin decreased from the previous year to 43. 8% of total revenues (Maurice Marciano and Marciano). The decrease in gross margin was attributed to the negative impact of the stronger U. S. dollar on product purchases, increased occupancy costs due to retail expansion in Europe, lower initial mark-ups in Europe, and higher markdowns in the North American retail segment (Maurice Marciano and Marciano). Earnings from operations were reported at $404. million, a 12. 8% increase from the prior year, and other income, including interest income and expense, totaled $16. 7 million (Maurice Marciano and Marciano). As of January 29, 2011, Guess, Inc. had $442. 1 million in cash and cash equivalents, down $60. 0 million from 2010. In breaking down all of their marketing segments, Guess, Inc found that once again, the largest increase in gross profit came from their European segment. In Europe, revenues increased 23. 2% to $920. 3 million. Revenues produced by other segments were reported as follows: North American Retail- Net Revenue: $1069. 9 million Earnings from Operations: $122. 6 million

• Operation Margin: 11. 5% Asia
• Net Revenue: $53. 6 million
• Earnings from Operation: $28. 6million
• Operating Margin: 14. 3% North American Wholesale
• Net Revenue: $181. 0 million
• Earnings from Operations: $46. 2 million
• Operating Margin: 25. 5% (Maurice Marciano and Marciano)

Despite setbacks from their legal battles (The Marciano brothers believed they would have exceeded $1 billion in sales by their 10th anniversary, had it not been for the court cases) (Guess? Inc. ), Guess sales flourished from the very beginning. 1984 brought sales of $150 million, and in 1987, the company reached profits of $100 million, with sales reaching $350 million (Guess, Inc. ). At that time, Guess retail stores grew to 19 locations, and sales reached $575 million in 1990 (Guess, Inc. ). In 1991, Guess strategically increased their advertising budget to $22 million. This worked in their favor, as the company earned enough profits to add 33 more stores by the end of the year, including the European flagship store in Florence, Italy.

Sales slowed during the recession in the early 1990’s (Guess, Inc. ). However, the men’s collection took an opposite approach, and sales skyrocketed, with a 41% sales growth in 1991 alone (Guess, Inc. ). By the end of the year, menswear sales would account for 40 of total company sales. During this time, Guess also began to see the extensive opportunities available with international sales, as licensing arrangements introduced Guess to over a dozen countries, causing a significant increase in revenues. By 1993, Guess had reached an estimated $700 million in sales (Guess, Inc. . During this time, Georges Marciano decided to step down from his position as CEO, and sell his 40% of the company to his brothers for around $200 million. Maurice was then named CEO, and took over direction of design. Guess then stepped up their promotional campaign, looking to fuel its future growth. Licensing became a vital part of total revenues, with products now including home furnishings, infant wear, and junior knit wear (Guess, Inc. ). Meanwhile, sales continued to grow, now focusing on more accessories as well.

In 1994, sales of Guess watches exceeded $100 million and footwear more than $60 million. Guess became a publicly traded company in 1996 (Guess, Inc. ). Hoping to continue their uninterrupted success, Guess was disappointed when 1997 sales began to drop. To compensate, Guess created a new line of high-end jeans called Premium Denim for men and women. However, this proved to be another disappointment, and the market share was lost due to competitive pressures and a terrible retail environment. In 1999, Guess decided to start their first e-commerce store (www. guess. om), which gave their sales a much-needed boost. Even in critical times, Guess was able to open 56 new stores in 2000. Annual sales would increase by 32% with the introduction of G Brand, a new complete line of high quality unisexual jeans wear that used Italian denim and European designs. At the end of 2000, Guess had 212 stores in the U. S. and Canada. In 2001, Guess implemented a new marketing strategy in order to keep their profits rising. With these new strong marketing methods, Guess was able to increase their sales, and open 24 new stores in the U. S. and Canada, a total of 249 stores.

Guess continues their success over the next several years. As of 2010, Guess has 1292 stores, 504 in North America, 441 in Europe, and 347 in South East Asia (Breif History of the Company and the Marciano Brothers). Looking towards the year ending January 28, 2012, Guess, Inc. expects new revenues to range from $2. 74 billion to $2. 80 billion (Guess, Inc. Reports First Quarter Results). Operating margins are expected to be between $16. 5%, while diluted earnings per share are expected to be in the range of $3. 30 to $3. 50 (Guess, Inc. Reports First Quarter Results).

SWOT Analysis

Like any business, Guess must analyze each of their strengths, weaknesses, opportunities, and threats, and implement a strategy of using each of these aspects to their advantage. Strengths A quick overview of the strengths of Guess, Inc. include maintaining a strong and diversified brand portfolio, a global full lifestyle brand, an effective management team, and solid capital structure. Guess produces a brand that portrays a fun, fashionable, and sexy image, which is developed and maintained worldwide. Guess maintain a massive level of global success, with stores in 85 countries besides the U.S. and Canada.

Because of this global diversification, the company is still able to grow, even in tough economic times. International growth remains one of Guess, Inc’s top strengths. Another major advantage Guess has is their use of multiple distribution channels. Not a company to focus solely on one channel, Guess Inc uses retail, wholesale, e-commerce, as well as licensing distribution to sell their products. This proves as a preventative benefit, as their operating results are not relying solely on the performance on one single channel.

This also allows Guess, Inc to quickly adapt to ay changes in the distribution or retail environment of any one particular region. Adding to their diversity, Guess also relies on multiple store concepts, including flagship GUESS? full-priced retail stores, GUESS factory outlet stores, GUESS by MARCIANO stores, G by GUESS stores, GUESS Accessories stores, and GUESS kids stores (Maurice Marciano and Marciano). This allows Guess to target multiple demographics in different regions. Weaknesses Like any company, Guess, Inc must also identify their weaknesses.

A quick overview of the weaknesses of Guess, Inc. include maintaining a business in a highly promotional environment, the highly competitive nature of the apparel industry, discretionary spending being dictated by the situation in the global economy, and the narrow focus on women’s apparel. While Guess has very diversified products, and targets women, men, as well as children, their heavy focus on women’s apparel could be seen as a big weakness. Only 10% of Guess consumers are men, boys, or babies (Maurice Marciano and Marciano), which may indicate a lack of balance of promotional activities.

Guess should assign more of their promotional budget to focusing on these areas, rather than attempting to portray an image of solely a women’s retailer. This also creates an opportunity for competitors to gain control over these sectors. While Guess stores may be growing rapidly in other countries, they must continue to be careful not to saturate the market. Opportunities A quick overview of the opportunities for Guess, Inc. include growing demand in foreign countries, such as China, under-penetrated markets in Europe, growth in the U. S. , and alliances by leasing.

The Guess e-commerce environment improves customer relations, and creates an alternative shopping environment. In realizing this, Guess has the opportunity to increase their profits significantly by continuing to offer a wide range of products and keep up with an ever-changing economy. Technology proves to be a great opportunity for Guess, as they can benefit from consumer’s need for convenience. Guess men’s clothing category also has the biggest potential and room for growth. If Guess takes advantage of that, they will allow themselves the potential for a tremendous increase in profits.

Guess should also take advantage of the new business casual trend, whereas smart casual clothing is becoming more and more acceptable in professional offices, and more people are looking for an acceptable replacement for their suits, ties, and other “formal” business attire. Threats A quick overview of the threats against Guess, Inc. include continued weakness in global consumer spending, low entry cost for competitors in the apparel market, changes to import tariffs, quotas, and taxes, and increases in energy and raw materials prices.

Competitors are always considered one of a business’s greatest threats. The apparel industry is highly competitive, which may cause difficulties for Guess in the future. During a recession or uncertain economic conditions, consumers may be faced with reduced confidence and spending habits, resulting in a slow-down in sales and profits. While relationships with international markets and suppliers prove to be a steady strength for Guess, there are also threats involved.

Since Guess does not own or operate any production facilities of their own (CITE- annual report), they depend heavily on foreign suppliers and manufacturers to produce products of top quality, and exactly to their specifications. Since Guess is a global business, there revenues could inadvertently be affected by factors beyond their control, such as recessions in foreign countries, political instability which may interrupt trade with foreign vendors, reduced global demand, significant fluxations in the value of the dollar against foreign currencies, or local business practices that do not conform to legal or ethical guidelines.

Furthermore, Maurice and Paul Marciano currently hold 33% ownership of Guess shares, which is a very significant percentage. Their interests may differ from those of other stockholders, which could present a potential threat to the nature of the business. Competition One of Guess, Inc’s top competitors is Abercrombie and Fitch. Similar to Guess, Abercrombie's positioning strategy involves the use of sexually overt advertising positioned to appeal to young adult markets.

Unlike Guess, Abercrombie and Fitch advertisements often depict nudity, alcohol consumption and assorted sexual behaviors. Guess chooses to take a less scandalous approach, and maintain a softer, more classical image. Abercrombie ; Fitch does not have a mass market approach to its advertising. It places print ads in 4 magazines: Vanity Fair, Interview, Out, and Rolling Stone. Abercrombie ; Fitch is well positioned for the future, however it is necessary for them to continue to move forward in their efforts to maintain a new, trendy image.

In the face of a falling economy, Abercrombie's advertising stands out to an audience that has been exposed to a lot of noisy ads. In comparison to Guess, Abercrombie has the advantage of selling products under four different concepts, Abercrombie & Fitch, Abercrombie, Hollister, and RUEHL. This provides the added benefit of appealing to different markets and demographics under completely different names, whereas Guess will only sell products with the Guess name , allowing Guess limited access to the market.

Immediate strategies to make Guess bigger and better would be to focus more of their advertising and promotional capabilities to their menswear collection. In the near future, I would recommend opening individual Guess for Men stores, which would open the door to an entire new demographic, increasing the potential for an immeasurable amount of profits. Focusing on new markets in Europe should also prove to be beneficial for the company. Currently, this market is under-penetrated, but has great potential for expansion in the future.

As for a long term growth strategy, Guess needs to continue increasing their retail presence and expanding internationally. Guess has an excellent retail strategy which needs to be executed in each region of the world. Looking towards the long term, Guess should consider forming an alliance with a major competitor in the market, such as BEBE or Levi’s. Both of these companies have showed evidence of trying to come up with new styles in an attempt to keep up with Guess (Guess? , Inc. ), and are equally dominating the market for jeans and/or casual wear.

Merging with either of these companies would prove to be tremendously profitable for Guess, as it would eliminate much of the competition, as well as allow them to dominate more of the market. Celebrating their 30th anniversary this year, Guess, Inc. is now bigger and better than ever, and growth shows no signs of slowing down. As long as they continue to leverage their presence globally and execute their mission statement and creative promotional strategies, Guess will continue to stay on top of the fashion world.

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