EXPERIENCING THE GUCCI E-WORLD

PERPETUATING THE PURSUIT OF EXCELLENCE THROUGH CUTTING-EDGE TECHNOLOGIES,

PUSHING CUSTOMER SHOPPING EXPERIENCETO THE LIMITS,

ENTER TO THE GUCCI E-WORLD A REPORT AND E-ANALYSIS BY Devika Gopinath and Nafissatou NIANGMBA SOLVAY 2013

Despite the uncertain economic climate, some industries have revealed themselves as strong ones by, surprisingly, enduring almost no impact from the down turn. That is the case for the Luxury Goods Industry which has shown more strength than ever with a 10% estimated market growth in 2012 according to the Bain & Company annual insight of the Luxury Goods Worldwide Market.

What is interesting to highlight from the study is that E-commerce activities of the Luxury brands have been growing for several years and will continue to grow at a 25% rate per year showing how this emerging channel is key for the industry: not only because it creates a different source to generate additional revenues but also because it is a way to reinforce the customer engagement to the brand.

This statement is even more true considering the fact that there is a shift in the age of luxury goods consumers to younger clients that are in search of a different relationship with the brands, such as a more interactive, entertaining and innovative shopping experience.

The Luxury industry is embracing IT and E-business technologies and incorporating them into their strategy with the ultimate goal of creating new ways of making business. That is why we have chosen in our report to take a closer look into the Italian luxury brand Gucci, which is one of the most engaged luxury brand in implementing e-technologies into its strategy.

One purpose of this paper would be first, to conduct an analysis of Gucci E-business strategy and understand what are the different channels and tools the company is deploying, secondly to focus and analyze furthermore the Gucci Retail e-strategy by explaining how the company is using that to build a stronger competitive advantage; in order to, finally, make our own recommendations on how the brand can go further into its E-business strategy.

MARKET SEGMENTLuxury Goods

The italian brand Gucci has been created in 1921 in the city of Florence by Guccio Gucci. Part of the brand portfolio of the french Luxury Group Kering (ex-PPR), Gucci is recognized as one of the leading luxury fashion brand in the World.

With more than 10,000 employees in the World and 411 boutiques, Gucci designs and manufactures luxury goods including handbags, and luggage, shoes, ready-to-wear, silks, timepieces and fine jewelry and also fragrances and eyewear through licenses.

The brand’s target consumers includes women, men and a dedicated for kids.

A RENOWNED LUXURY BRAND

GUCCI AT A GLANCE

DESIGNERFrida Giannini

FINANCIAL PERFORMANCES

GU

CC

I Annual report 2012

THREAT OF NEW ENTRANTS - LOW

• Existing players are strong and competition is quite high.• They have established their image over decades and control the market. • Huge investment required to create brand image and to maintain it.• The market is highly volatile as consumer behavior is unpredictable and depends on

several factors – economy,trends,welfare etc.

THREAT OF SUBSTITUTES - HIGH

• Fake products or off brands that are easily available at cheaper prices through illegal processes.• Other non-luxury brands gaining more popularity due to e-commerce and acceptable quality.• Other luxury products like cars, travel etc. are taking precedence over luxury fashion labels.

POWER OF CUSTOMERS - LOW

• The “true” luxury labels are not sold by common retailers and have very few, selected shops where they are authorized to be sold.

• Rarity and exclusivity.• The price of the product sets the value for it and does not change with economies of scale or through

other means.• No price competition among the existing players.

POWER OF SUPPLIERS - MEDIUM

• High value for the product in the market.• The suppliers are few and this increases the value potential of the product.• The manufacturers control the price.• The product is considered to be unique and is not mass produced.

INTENSITY OF RIVALRY - HIGH

• Large number of credible competitors and they all compete for a very small exclusive set of buyers.• The market is highly volatile as consumer behavior is unpredictable and depends on several factors

– economy,trends,welfare etc.• Brand loyalty – consumers tend to be loyal to brands and acquiring customers leads to repeat

customers.

THE LUXURY INDUSTRY ANALYSIS

THE COMPANY ANALYSIS

GUCCI’S STRENGTHS

• Established brand image• Controls its distribution channels• Power over the suppliers & retailers• Directly operated stores• IT strategy aligned with the company strategy

GUCCI’S WEAKNESSES

• Instability of the management• Even if Gucci is the pioneer in integrating IT solutions in its business strategy the development is

still slow.

THE MARKET OPPORTUNITIES

• Untapped market potential in the emerging economies – India, Brazil• Luxury spending in USA was back to pre-crisis levels by 2012 and still growing • More demand to expand and create more luxury products.• Advertisements through partnerships (e.g. Big budget movies).• Most of the existing companies are established names and can expand to different sectors• Technology and innovation creating whole new markets

THE MARKET THREATS

• Market highly volatile and consumer behavior unpredictable.• Competition is fierce and is spread across different industries (Cars, jewelry, watches etc.).• Customers are brand loyal and represent a high costs of acquisition• High required investment on the brand image (e.g. advertisements )• Risk of IT reducing the luxury quotient of the brand.

Gucci’s vision and strategy has always been to offer extremely high-end and innovative products as well as a flawless customer experience.It is true that the Luxury industry is performing very well in this slow economy but it does not change the fact that this is a very competitive industry with few but big players who are well established in the market, justifying the need for companies to have more focus on creating new ways to reinforce their customer’s loyalty and increase market share.And this is what Gucci is trying to do by implementing initiatives and new IT oriented projects in order to fully develop its digital offer with new platforms, innovative software and cutting edge customer tools. Gucci Internet based Value Proposition - The overall strategy of Gucci towards its digital based value proposition consists in 3 main points:

A «strategy of complete customer solutions» which allows the brand to offer a full range of products from its catalogue through online platforms such as the Gucci Style Application, a virtual catalogue proposed in 8 languages and available for Ipad, Iphone and Itouch devices. The application makes the whole catalogue available for shopping. Another e -commerce solution that Gucci is offering is its e-shop website gucci.com

which is proposed in 27 countries and translated in 7 languages. And finally a Mobile website launched in december 2012 and accounting already 27% of the Gucci’s.com eshop’s total traffic.

A «strategy of free values» which is based in additional advantages and free values that an online gucci customer could benefit from in comparison to a customer shopping in a brick and mortar gucci store. With the development of an extremely dynamic and interactive social network; including a Facebook page with more than 10 million fans, a Twitter account, a Pinterest, Google+, Youku, Instagram and Sinaweibo page, Gucci created different channels to offer free values to its customers or potential ones with invitation to events, access to private informations about the collections and so forth... A «strategy of unique value» which consists in offering to the customers an unique value based on innovations and with the ultimate goal of differentiating Gucci from its competitors. Indeed, this approach can definitely help in creating new ways of achieving a competitive advantage for Gucci.And this is the strategy that we are going to

analyze with the implementation of the Gucci

Immersive Retail Experience.

GUCCI E-BUSINESS STRATEGY

Gucci is implementing initiatives and new IT oriented projects in order to fully develop its digital offer.

THE GUCCI RETAIL IMMERSIVE EXPERIENCE

The Gucci Retail Immersive Experience is a strategic multi-channel concept developed in partnership with an american high-technology company named OOOII. The idea is to launch an innovative and cutting-edge visual and interactive concept into Gucci’s physical stores around the world with a two years project starting in 2011. With an ultimate goal of fusing the physical stores and online shopping experience into one integrated experience for the Gucci clientele.

What OOOII is hoping to do with this project is to develop technologies that will allow Gucci to offer a brand new and innovative way of shopping in their boutiques and at the same time by keeping the experience very intuitive and in line with the way customers like to shop and interact with Gucci today. Gucci is an established brand and very much a luxury brand; So the objective is not to launch a technology that will replace the one to one contact between the client and the sales staff but to offer to Gucci an innovative way of enhancing that relationship. Because of the specificity of the luxury shopping experience OOOII decided to avoid any individual based concept to keep the interactive shopping experience.

A PARTNER OF CHOICE

From the gesture based interactive windscreens in “Mission Impossible: Ghost protocol” to the enterprise view screens in “Star trek” were created by OOOii (pronounced as “ooh-wee”). It is interesting to note that a lot of graphics and VFX thought to be done during post production were actually played onset. OOOii has been specializing in future technology design and information visualization for the Hollywood feature film industry since the start of this millennium. The company; formerly called Black

box digital, was founded by Kent Demaine and is located in the heart of Hollywood. The company has recently partnered with the luxury brand Gucci in order to launch the “Gucci Immersive Retail Experience”. The phase I of the project, which went live on Sept 21 2012, has OOOii Real Time servers driving ultra-thin, Matrix LCD video wall displays and are designed to be massively scalable for immersive experiences. The second phase will allow the customers and staff to interact with the displays in intuitive ways.

THE TECHNOLOGYOOOii is specialized in creating visual effects sequences from data. And often use real-time installations utilizing a hybrid framework, which is a mashup of VFX, VR, interactive and gaming technologies. Using a combination of Adobe Illustrator, Photoshop, After effects and Maya for 3D elements, designers from OOOii create animated User interfaces and graphics which are primarily played live on set. Although they were initially doing most of the graphics during post production, now they have started creating more live graphics which are played on set .Flash or director is then used to create cued animations that could be timed to the actors' movements and

also helps in interaction between the computers on set.OOOii is currently working on bringing cinematic information visualization out of the theatre and into the world of retail and branding using special augmented reality techniques for deploying in-situ information and branding.

They believe that multi-faceted, touch-point-driven technology is the new frontier of marketing and would provide a more experiential brand/consumer relationship.

The LIVE ENVIRONMENT concept was set up by the company to explore

these new areas of development in advertising. This reengineering towards natural experience in an immersive venue is aimed at transforming the industry of visual communication.Drawing on the tools, techniques and experience developed while designing the immersive visual effects sequences for Hollywood feature films, the developers at OOOii have implemented the open interface framework in order to bring these technologies to the live environment.The landscape of Live environment can be divided into three core technologies depending on the level of audience engagement.

1. An immersive environment deploys a visual spectacle as the primary means of engaging its participants.•Multi-screen Projections•Holographic Content•Non Uniform Surface Projection Interactive floors / ceilings / domes

2. A responsive environment utilizes the passive and/or active engagement of its participants to deliver its message.•Face Tracking•Reactive Content•Physics-based Content

3. An intelligent environment relies on developing an active and/or passive relationship with its participants, controlled by an open interface engine, in order to deliver its message / experience.•Multi-touch Surfaces•Gesture-based Interaction•Device Recognition / Communication

What is unique about OOOII technology is a real time engine that can drive a full length content and display it in its native resolution to a 45’’ and 50’’ Clarity Matrix LCD wall display developed by Planar Systems and implemented in Gucci’s flagships. This is the most advanced display technology available in retail today. The technology has been implemented following these different phases:

Phase 1: Advertising imagery and fashion shows

OOOII created a real time engine that allows to drive a 4 K high resolution life size content on a super high resolution display which makes it extremely life like. And that high resolution imagery works really well with Gucci because it shows every detail about the products: the fabrics, the leather, the trim and so forth... where no detail would be lost in translation even if it is on display as opposed to in person. This first phase represents more of a passive experience for the customer who can enter the store, watch the fashion show in a full length high resolution with different screens all synchronized and working together, creating a truly immersive environment.That is key in 3-4 floor large flag ship like the Milan Monte Napoleone ones where the implementation of this technology offered an unique opportunity to unify the flagship in one theme and one campaign.

Phase 2: allowing the customer to interact with the technology

As mentioned earlier, it is key not to lose the shopping experience and personal interaction between the sales person and the client which is very much part of the luxury shopping experience. The ultimate goal of OOOII instead was really to enhance that particular relationship by giving to Gucci staff the tool they needed to really elevate the in store experience. To achieve that, OOOII installed two ways that the customers could interact with the technology:

The Gesture technology - The customer can now stand in front of the displays and literally wave with their hands the images to go through the collection. The technology will recognize the gesture and move through the fashion show. The gesture is not something that customers expect the first time, so here again, the sales person has to show them first and as soon as they will see how it works they are very responsive to it as it’s very easy to use.

THE PROJECT IMPLEMENTATION

Creation of the Virtual catalogue - The concept here is to allow the sales person to use their Ipad to show the collection and present a personalized fashion show based on the customer preferences. For example if the customer wants a black evening gown, the sales person can drill down through the catalogue and show on the monitors Gucci models wearing black evening gowns in high resolution. The application developed for the Ipad is not intended to be customer facing so this is something the store staff work with the customer to have that experience. Interaction with store staff still remains crucial for both of the technologies.

Development of an Interactive shopping applicationThis is something Gucci really wanted as the brand have an incredible history of products in particularly in luggages and hand bags and it is practically impossible to show everything on the store room floor. The idea was to create an app so that the customer could go through the entire collection virtually and select a product which can be projected on the display.

Another concept developed is for the Gucci kids line:OOOII created a virtual game through a magic mirror with a bear allowing children visiting the store to play games with the bear.

In order to guarantee the success of this project OOOII in collaboration with Gucci has to train the sales staff as well as customers in a new way of interacting with the store and the technology. Indeed, OOOII goal was to make available a very intuitive technology easy to navigate with. And as it is a new way of experience shopping, the company had to make that both customers and staff were comfortable with the technology and will be able to embrace the immersive environment in the store.

The biggest challenge for the project was in building the actual content creation for these very high resolution and high performing displays. As a visual company OOOII understand that this kind of production does require a very specific production with visual effects shoot. And they had to count on the help of Gucci innovation manager to make it happen and make sure that they produce the proper content to fit with the displays and Gucci’s image.

FUTURE DEVELOPMENT OF THE PROJECTThe phase one of the project has been implemented in 4 Gucci flagships in Milan Monte Napoleone, Hong kong, St Tropez and New York in Macy’s. The next step would be to extend the implementation of phase two in all flagships, as Milan is the only one offering that full experience for now, and starting with the Hong Kong flagship which market will probably respond very favorably to this interactive exper ience as people there are very technologically oriented.

Real time broadcasting of Gucci’s life eventsDeveloping ways to broadcast the Gucci Fashion shows in the flagship stores would be another concept OOOII would like to work on.

Develop the customer backendThe idea would be to use the customer data gathered through the technology and utilize it even more to guide market data in order to enhance customer experience that way. OOOii has been offered to manage the backend data of the Gucci website in order to provide a customized experience to its online clients. They believe that the information about the daily visitors of the website and the flagships would allow them to enhance the experience further by providing intelligent and dynamic information to the visiting customers.

OUR ASSESSMENTThe key elements of the projects were:•to keep the one to one relationship between the client and the sales staff •to develop the appropriate content to fit with a resolution display•to select the appropriate technology that would be adaptable to a physical store by any constraint of spaces•and finally, to create a scalable technology allowing the concept to be upgrade and evolve.

Identified gaps- Too much focus on keeping the interaction between the staff and the customers create a loss in the opportunity to directly offer the application technology to the customer.- Implementing the project in several phases makes it long and offers the opportunity for the competitors to catch up the brand.

THE CHALLENGES

Traditionally, strategies employed by luxury companies have been different from those followed by mainstream companies/industries. And this, in fact creates a rather sticky situation for the luxury industry while adopting solutions which work for others in the market.

Luxury companies have been slow in adapting to the internet boom. The dichotomy between the exclusive nature of luxury brands and the mass accessibility of internet has been the major reason for this delay. But it has been proved in recent years that avoiding technology and IT in name of exclusivity could have harsh implications on the clientele.

Due to the following reasons, it is becoming increasingly difficult for these companies to separate IT and technology from their business strategy .

1. Affluent customers use the web as their number one source of information on luxury products.

2. Potential customers have access to third party sources that provide information about the company. E.g. Blogs and articles on the products.

3. Usability and reachability of internet and technology has been steadily improving.

4. Customers remain loyal to a website or a technology due the learning effects and hence it is important to be a first mover in applying a new technology.

The positioning and branding of Luxury goods fa l l in the spectrum ranging between accessibility and exclusivity. Although we believe that luxury brands should maintain their exclusivity stature, the value of their products and services should still be desired and wanted by the potential customers of the future.

OUR RECOMMENDATIONS

Information technology has helped Gucci, to bring in more customers through its e-store and also to spread information about the company through its online presence. Through our recommendations, we would like to bring technology and IT to a more competitive position within Gucci so that it can enhance its existing services without losing the exclusivity factor.

Recommendation for Gucci – Retail immersive experienceThe recommendations below are in line with the “Retail immersive experience” launched by Gucci in their flagship stores. The key factors of the project which make it different from other web based strategies are:

• the importance of interaction between the store staff and clients

• the combination of cutt ing edge techno log ies (both so f tware and hardware)

• A mash up between the physical world(stores) and the virtual world

By keeping in mind the above key elements we wou ld l i ke to p ropose the fo l low ing recommendations which would further enhance the experience in Gucci stores and in turn improve the experience for existing and potential customers of the company.

1. Create a customer profile recognition technology

In order to go furthermore in its immersive retail experience we would recommend Gucci to use a technology to mix its different channels in order to integrate the virtual and physical shopping experience. The idea would be to create a specific technology that will allow to share any data from the customers that are using the phone e-commerce application with their profile information, preferences, buying habits and make it interact with the display installation in store.Once a customer walk next to a equipped flagship or enter the Gucci physical store, the technology will connect to its phone device to access the e-shop profile information and with the data collected it will instantly show in the screen display a personalized and adapted fashion show or the customer favorite look or products that would match its preferences the most. And the same experience could be offered at home as well or anywhere else.

2. Launch a virtual fitting room

As luxury companies; including Gucci, are very sensitive about the product quality, it is important to find a solution where the customers can decide on the fit and style of the designs without actually having to physically try out the products. This would be a revolutionary concept in the retail segment; especially for luxury brands; where they want to give the opportunity to the customer to be flexible enough to try out maximum products without compromising the quality for the rest of the potential customers.

The concept of virtual fitting room would involve:a. 360 degree body scanner with inbuilt software.

Companies like styku have already been developing and upgrading body scanner softwares. The technology uses a kinect based body scanner which can produce a 3D image of your body shape and store it digitally. The digital output can be fed into a mirror display.

b. A high resolution display in the fitting room which would allow the staff/customer to select the clothes from the virtual catalogue and test it on the avatar on screen. Cisco StyleMeTM has been a concept developed by the Cisco IBSG team by which the customer can flip through the selections on a life-sized mirror using hand gestures and try on the different options in real time.

c. A repository or database of the measurements created via the body scanner software. These measurements can be saved on the customer’s Gucci personal profile which he/she can access

while at home or while doing e-shopping through the website.

d. The products selected via the virtual rooms could be directly integrated with the customer’s Gucci personal account where it can be added to the wishlist or can be used by the staff to send reminder to the client

Expected benefitsBy investing in a partnership with a reputed technology company like Cisco which is capable of creating a virtual fitting room, Gucci could gain a competitive advantage in terms of bringing cutting edge technology to the retail shops. The project could act as an extension of the Retail immersive experience could attract the young, tech savvy crowds who are essentially the target group for the brand. The virtual fitting room need not be limited to clothing line but could also be extended to accessories, handbags, watches and other products which are very much part of the Gucci brand. The fitting room experience could also bring an element of gamification for the customer which in turn adds to the immersive experience.

OUR REFERENCES

Interview with Jennifer Sims, OOOii producer and Gucci immersive retail experience project managerhttp://www.cisco.com/web/about/ac79/docs/retail/StyleMeEngagementOverview_120611FINAL.pdfhttp://www.oooii.us/applications.htmlhttp://www.jonathanbroquist.com/blog/2009/05/oooii-interview-on-flash-air-in-hollywood/http://www.brandchannel.com/features_webwatch.asp?ww_id=507

Kering annual reportwww.Kering.comwww.Gucci.com

Videos:http://www.youtube.com/watch?v=jDi0FNcaockhttp://www.youtube.com/watch?v=wVZVnX9IrI0 /http://www.youtube.com/watch?v=1JqdbcH0saU