The House of Gucci

by Sara G Forden

  “By then, we saw Domenico’s role in the turnaround,” said Kirdar, “his determination, his capability, his relationship with Tom Ford. He was absolutely the right person.”

  In July 1995, Investcorp made Domenico De Sole CEO of Gucci—finally crowning his eleven-year Gucci career with the title he had earned. It wasn’t long before Gucci’s top businessman and Gucci’s chief designer tested each other.

  One day shortly after his promotion, De Sole dropped in on a design meeting in Scandicci where Ford and his assistants were developing a new line of handbags.

  “Can you please leave us alone?” Ford said as De Sole looked at him, stunned. “We are working and I can’t concentrate if you are here. I will speak to you later.”

  De Sole turned on his heel and left. When Ford came out of the meeting, a fuming De Sole called him upstairs to his office.

  “How dare you throw me out of a meeting!” he shouted at the young Texan. “I am the CEO of this company! You cannot do that!”

  “That’s great that you are the CEO!” Ford fired back. “But by coming into that meeting you are undermining my authority with those people, and if you want me to design the collection, then do NOT get involved with the product!” Ford seethed.

  The fight continued out into the parking lot as they left for the day.

  “Fuck you!”

  “No, fuck YOU!”

  “FUCK you.”

  “FUCK YOU!”

  Now Ford laughs about those early clashes and De Sole brushes them off, but those fights clarified their turf and laid the foundation for an airtight, trusting relationship unprecedented in the industry between a designer and an executive who hadn’t started in business together or didn’t have a previous personal relationship.

  “After that, Domenico really respected me in terms of design,” Ford commented. “He knew that I had a conviction about what I was doing and he could see that that conviction was paying off. He trusted me and I sensed that trust from him and in turn completely trusted him.”

  De Sole said he wasn’t jealous of Ford’s design territory. “I told Tom, ‘Look, I am not going to design the collection; I am a manager, not a designer!’”

  “The other reason that we make such a good team is that we are both obsessed,” added Ford. “He cares about building the business, about making it solid. We are driven, driven, driven,” said Ford, snapping off the words. “We are going to be successful and that’s that! And we are not going to be second best. This is the other reason that I totally trust Domenico; I would rest my entire future with Domenico because I know that Domenico is not going to lose. In a business environment he is going to win.”

  Many observers criticized De Sole for giving so much power to Tom Ford, saying the designer risked overpowering the Gucci name and holding the company hostage to whatever decisions he might make about staying or leaving. But events would have an uncanny way of swinging the pendulum back and forth between De Sole’s managerial power and Ford’s creative power within the business. One story that kept the rumor mill busy for months was the costly renovation of Gucci’s London flagship on Sloane Street with the new store concept developed by Tom Ford. Ford tolerated no interference in the project—but afterward the entire space had to be redone at well over the initial costs in order to comply with fire regulations, making Maurizio’s once-criticized extravagances shrink in comparison.

  By the summer of 1995, as Ford’s blockbuster collection moved into stores, preparations for a fall stock market listing moved into high gear. Investcorp had picked two top merchant banks to lead the listing, Morgan Stanley and Crédit Suisse First Boston. Swanson oversaw the preparations, plowing through historical and financial information, and profiling the new management team.

  Sales chugged ahead, jumping 87.1 percent in the first half of 1995 compared to the first half of 1994, higher than anybody’s wildest expectations. By year-end, they would exceed $500 million, far exceeding the projections made to LVMH and Vendôme the year before.

  “I remember Maurizio used to say to us, ‘Just wait and see! Sales will explode!’ and everybody used to laugh internally and say, ‘Sales don’t explode, businesses don’t work that way,’” recalled Swanson. “Well, sales did just that: explode!”

  In August, with the planned initial public offering (IPO) set for fall, Vendôme, one of the earlier low bidders, came back to Investcorp at the last minute and offered $850 million for Gucci, more than twice its initial bid a year before. Now Investcorp had a new dilemma: should it take the cash or go forward with the IPO?

  Investcorp checked the offer with its advisors, who valued the company at more than $1 billion. “You can do better,” they said.

  A senior Investcorp executive leading the IPO process called Kirdar, who was vacationing on his yacht in the South of France. Kirdar listened, gazing out at the blue waters of the Côte d’Azur as the executive recapped the story. Although there were a lot of people within Investcorp who would have opted to sell to Vendôme and wash their hands of Gucci once and for all, Nemir stood his ground. He had never stopped believing in the potential of Gucci.

  “Don’t sell unless there is a ‘one’ out in front,” Nemir said finally.

  To draft the investors’ prospectus, a detailed financial document required by the U.S. Securities and Exchange Commission (SEC) before it will approve an IPO, the Gucci team met in secret sessions away from the offices so employees would not learn about the plan.

  “One of our sessions was in a cold, drafty old castle outside Florence, not an especially luxurious one,” recalled Johannes Huth. While a fire burned cheerily in the fireplace to help warm the room as they worked, a sudden downdraft scattered glowing cinders into the room, starting a fire.

  “There we were meeting with the most important investment bankers in the world and suddenly the room fills with smoke and everybody is coughing and swearing and we have to grab all our papers and leave,” recalled Huth, laughing. One of the bankers turned up later at the Gucci IPO in a fireman’s hat.

  On September 5, Investcorp announced plans to take Gucci public, offering 30 percent of the company on international stock markets—which would still leave Investcorp with majority control at 70 percent. The next step was to prepare for the “road show,” a mandatory marketing tour to sell the Gucci stock to European and American investment banks, who would in turn trade it on the open market once the company was listed.

  Knowing that the international financial analysts would grill De Sole mercilessly, Investcorp managers hired a professional coach and prepared a speech De Sole had to memorize. “We didn’t want any ad-libbing,” Huth recalled.

  Last-minute emergencies reduced De Sole’s planned three weeks of rehearsal time to two days. The SEC unexpectedly asked Investcorp to rewrite part of the Gucci prospectus and then the Milan stock market commission refused to list Gucci, citing its recent losses. “It was important to have a listing in Europe,” said Huth, who scrambled to find another European stock market that would accept Gucci. In the nick of time, he got a green light from the bourse of Amsterdam.

  “It was like Italian opera,” said Huth later. “Nothing was ready, nothing worked, everything was chaos. And it all came together at the last minute and everything worked beautifully.”

  De Sole—speech-perfect—and the others told their Gucci story across Europe, the Far East, and the United States, stimulating excitement about the listing as they went. So much so that Investcorp increased the offering to 48 percent. The night before the listing in New York, the executives worked late, settling the final details of the offering. The price was set at twenty-two dollars a share, the high end of the estimated range, and after logging all the orders, they realized that the Gucci offering was fourteen times oversubscribed—an outstanding success for a company on its knees just two years earlier.

  On the morning of October 24, 1995, Domenico De Sole, Nemir Kirdar, and a team of Gucci and Investcorp executives and bankers walked through the doors of
the majestic Renaissance facade of the New York Stock Exchange. An Italian flag hung outside next to the Stars and Stripes.

  Inside, De Sole, amazed, saw a Gucci banner suspended above the trading floor and a large digital sign reading HOT STOCK TO WATCH: GUCCI flashing on and off. As trading opened on the exchange at the customary 9:30 A.M., pandemonium broke out as a flood of last-minute orders for Gucci stock came in. When trading finally resumed around 10:05 A.M., the stock price spiraled up instantly from $22 to $26. De Sole called the Gucci factory in Scandicci, where he had asked all the workers to assemble in the cafeteria. Over loudspeakers booming into the cafeteria, De Sole proudly announced a 1 million lire bonus (about $630) for every Gucci employee around the world, as a cheer went up.

  Just a year earlier, top executives at LVMH and Vendôme had sniffed at projections that Gucci would reach $438 million in sales by 1998. Gucci closed its 1995 fiscal year with record revenues of $500 million.

  In April 1996, Investcorp completed its sell-off in a secondary offering that was even more successful than the first, making Gucci a completely publicly traded company for the first time in its seventy-four-year history. It hadn’t hurt that Ford had churned out another blockbuster collection in March, featuring simple white column dresses with sexy cutouts and flashing gold G Gucci belts that drove the fashion set wild. Now owned by large and small investors across the United States and Europe, Gucci was an anomaly in Italy, where even publicly traded companies were usually controlled by a shareholder syndicate, and in the fashion industry, where most companies were still privately owned.

  De Sole, the naturalized American lawyer who had survived all the vicissitudes of Gucci family management to lead Gucci into the future, knew the years ahead would bring different challenges. Now he would have to answer to profit-oriented shareholders and the global stock market.

  “This is real life, we have to perform,” he said at the time. “I can be fired!”

  Between the two public offerings, Investcorp took in a grand total of $2.1 billion, netting $1.7 billion after paying intermediary costs. The Gucci turnaround—albeit after nearly ten years since Investcorp had made its initial investment—had been the most spectacular, and most unexpected, success in Investcorp’s fourteen-year history.

  Gucci’s remarkable turnaround and spectacular stock market listing soon paved the way for other luxury goods companies to go on the New York stock market, including Donna Karan, Ralph Lauren, and retailer Saks Fifth Avenue, also owned by Investcorp, while Italian designer clothing manufacturer Ittierre SpA went public in Milan.

  Gucci’s listing also coalesced into a sector the scattering of other luxury goods and apparel companies that were quoted on international stock markets. Before Gucci went public, the few companies already listed were a disparate group with little in common: LVMH was still viewed largely as a drinks business, Hermès had such a small float it hardly attracted attention, and the Italian jeweler Bulgari had recently been listed, but was also small—less than $100 million.

  “Gucci created the sector,” said Huth. “With between two billion and three billion dollars of stock out there, Gucci created a critical mass and people started to focus on it.”

  To promote Gucci’s flotation, Investcorp had encouraged the big international investment banks to designate specific analysts to cover Gucci in the context of the wider luxury goods sector, just as they specialized in other sectors from airlines to automotive to engineering. Investcorp prepared training programs to help the analysts understand Gucci’s strengths in comparison to its competitors’. Suddenly these analysts—many of whom had previously covered apparel manufacturers and retailers—found themselves with priority seats at Gucci fashion shows, tapping their feet to the music and struggling to integrate a critical eye for style into their expertise in financial analysis. They coined the term “fashion risk,” meaning the implications a weak collection might have on business, and began to understand the business cycles of fashion companies, including sourcing, delivery, and sell-through as well as the importance of show reviews, glossy fashion spreads, and the style arbiters of Hollywood.

  While the investment community studied Gucci’s multiples, Tom Ford further streamlined Gucci’s look into a modern, sexy image, restyling all eleven existing product categories and introducing a new home collection that even included a black leather dog bed and Lucite feeding bowls.

  He strove to create a 1990s version of the flash bordering on vulgarity that Gucci had exhibited in the sixties and seventies; he felt that “too much good taste can be dull!” He continued to push that fine line between sexy and vulgar.

  “I pushed Gucci as far as I could,” Ford said later. “I couldn’t have made the heels any higher, or the skirts any shorter.” In 1997, Vanity Fair named Ford’s double-G G-string one of the year’s hottest fads. He had boldly brought it out during the men’s show in January as an embarrassed murmur ran through the audience and brought it back for the women’s show in March.

  “Never have so few square millimeters of fabric generated so much hype,” wrote the Wall Street Journal of the G-string, which sold out in stores worldwide and boosted sales of more conventional items.

  Once he had the look just right, Ford wooed the Hollywood set. First he became an insider. He had already fallen in love with Los Angeles, which he called a “true twentieth-century city,” for its architecture, lifestyle, and influence on contemporary culture. He bought a house there, photographed several Gucci ad campaigns there, and began rubbing shoulders with actors and actresses—some of whom also became his friends. He made his mark with an event that Hollywood will never forget: a sizzling fashion show, dinner, and all-night dance party in a private air hangar at the Santa Monica airport. Gucci sponsored the evening, which raised a record figure for the city’s all-important AIDS Project Los Angeles benefit. Ford’s guest list for the party read like the lineup at the Oscars, but the style of the party was all signature Tom Ford—especially the forty gyrating go-go dancers clad only in Gucci G-strings atop giant Lucite cubes.

  Ford exerted tight control over every aspect of Gucci’s image—not just the apparel and accessories collections, but also the new store concept, advertising, office layout and decor, staff dress, and even the flower arrangements at Gucci events. At the launch of Gucci’s Envy perfume in Milan, Ford colored everything he could black—from the floor, ceiling, and walls of a huge hall that had been transformed into an elegant dining room for the occasion, to the entire menu: black pasta sauced with squid ink, black bread sticks, and even a black entrée! A medley of vegetables provided the only color on the transparent glass plates.

  When he finally finished design work on Gucci’s renovated 14,000-square-foot flagship store on London’s Sloane Street—the model for Gucci stores around the world—he placed security men at the doors dressed head to toe in Gucci black and wearing headsets, a typical Ford touch. Outside, the sleek limestone and stainless steel facade was as imposing as a bank vault. Inside, travertine marble floors, acrylic columns, and hanging lightboxes created a stage set on which Ford’s restyled Gucci products were the stars.

  Even the format Ford developed for his fashion shows was all about control. At a time when other designers still offered several different themes within each show, thinking that the press, buyers, and customers alike wanted choice, Ford pared his collection down to about fifty outfits and sent the three most important looks down the runway first.

  “I would have hundreds of outfits in the showroom and hundreds of Polaroids and twenty minutes to convince the world of my point of view,” said Ford. He would edit and edit and edit, asking himself, “What is my message? What do I want to say?” Once he had decided his message, Ford used a white spotlight to focus the audience’s attention during the show.

  “You go to any other fashion show and they have just a little bit of light bouncing around and you can see people looking at their shoes or up and down and around at the other people in the audience. I wanted t
o get their complete attention,” Ford explained. “I wanted that cinematic quality. When everybody is looking at exactly the same thing at the same time, I can control them and bring them in and up and down and get them going ‘Ooohhh’ and ‘Aaahhh’ all at the same time!”

  Ford’s clear, focused way of showing clothes made it easier for everybody—press, buyers, and customers alike—to make decisions because Ford had already done that work for them.

  Just as determinedly, De Sole renegotiated Gucci’s fragrance license with Wella after a notable fight and bought out Gucci’s watch manufacturer, Severin Montres Ltd., from the craggy Severin Wunderman for $150 million after haggling long and hard over the deal. The new Ford–De Sole designer-businessman team was hailed as the second coming of Yves Saint-Laurent and his business partner, Pierre Bergé.

  Despite all their success, it wasn’t going to be a gentle, coasting ride for them. In September 1997—just a month after the Wall Street Journal held up Gucci as “the hottest name in luxury goods for fashion victims and fund managers alike”—two heady years of rising sales and stock prices at Gucci came to an abrupt halt. De Sole, recently back from a trip to Asia, didn’t like what he had seen there. The best hotels and restaurants in Hong Kong, which for years had been a shopping haven for Japanese tourists, stood empty, while sales slumped in Hawaii—another stopover for traveling Japanese. Gucci did some 45 percent of its business in Asia and even more with Japanese tourists in other markets. Just as they had put the wind back in Gucci’s sales in 1994, Japanese customers took it out three years later.