Gucci: Combat on the Runway
By: Si Ran Wang
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
Introducing the Players
Since its inception in 1921, the Italian fashion house Gucci has seen changes in its brand identity and perception but has remained consistent in its position as a global powerhouse in luxury. Under the direction of Marco Bizzarri and Alessandro Michele—Gucci’s CEO and creative director, respectively—Gucci has maintained its leadership in the industry, while transforming into a popular brand for the younger generation with its eccentric designs and integration into mainstream culture. Gucci has adapted to the emergence of social media and the critical role it has on influencing spending choices, especially for the younger generations. This is demonstrated by their industry-leading social media presence, with their Instagram follower count of 37.9 million outshining its closest competitors such as Chanel, Louis Vuitton, Versace, and Armani. Furthermore, the company has engaged with the millennial community through various social media campaigns; under the #TFWGucci hashtag, Gucci commissioned brand-centered memes from popular meme creators and artists, generating thousands of posts across social media platforms.
However, the company’s growth showed signs of slowing in 2019. Gucci generated 4.6 billion euros of sales in H1 2019, representing an annual growth of 19.8 per cent - this figure pales in comparison to the growth in previous years, with 36.0-per-cent and 45.4-per-cent growth in H1 2017 and H1 2018, respectively. With millennials under the age of 35 accounting for 62 per cent of sales in 2018, this demographic is a key driver of Gucci’s success. As other luxury brands implement their own strategies to connect with younger consumers, Gucci’s stronghold on this demographic will be eroded if the brand does not continue to innovate and differentiate itself from competitors.
The Rise of Gaming
The gaming industry generated $131 billion in revenue in 2018 and is predicted to reach $300 billion by 2025. Gaming is no longer perceived as just an “antisocial hobby”, but rather as a celebrity-endorsed medium capable of drawing in massive viewership figures. In 2018, Drake, Travis Scott, and NFL wide receiver JuJu Smith live-streamed a game of Fortnite with popular Twitch streamer Ninja, achieving around 700,000 live viewers at its peak. This helped solidify gaming’s place in pop culture as celebrities publicly embraced the industry. The rising popularity of gaming among individuals aged 21-35—who account for 53 per cent of monthly esports viewership— makes advertising in this space increasingly attractive for businesses.
This growth in the gaming industry has attracted investments and partnerships over time. One such example is how Fortnite partnered with the NFL to launch a series of football “skins”, which are outfits worn by a player’s avatar, for purchase in-game. Furthermore, a number of luxury fashion brands have also ventured into the gaming industry through various collaborations, such as in-game clothing designed by Moschino for the life simulation game “The Sims”, character skins for the role-playing game “Final Fantasy” by Louis Vuitton (“LV”), and mini-games released by Hermés, Gucci, and LV.
The first large-scale partnership was announced in September 2019 between LV and League of Legends (“LoL”). Through this partnership, LV created a custom trophy trunk for LoL’s flagship event, the World Championships, as well as a set of in-game skins that were released following the event. In 2018, the World Championships received a unique viewership of 99.6 million people from around the world, surpassing the Super Bowl. LoL has also worked with some of the biggest names in the music industry to create custom songs and music videos for the game. With the average age of LoL players at 26, LV has made a bold move to penetrate an age bracket that is predicted to represent 55 per cent of the luxury market in 2025.
GUCCI x RAZER
As more competitors begin to look into gaming industry partnerships, Gucci needs to establish a foothold with players before the intersection of the luxury market and gaming market becomes saturated. To differentiate itself from LV’s partnership with LoL, Gucci should look towards technology peripheral companies–producers of gaming headsets, mice, and keyboards–that target the overall gaming market and retain universal utility.
Razer, one of the most highly-regarded gaming hardware producers, is an ideal partner for Gucci. The company began in 2005 with a focus on sleek gaming hardware with a neon green and black motif. Razer has since introduced a new colour variation, Quartz, in an attempt to increase product variation and to embrace female consumers. This brand positioning matches well with Gucci’s pivot into an eclectic lineup of “21st century contemporary coolness.” A partnership could result in increased revenue, brand awareness, and new market share for both companies.
Unlikely Comrades
The entry strategy should be a three-pronged approach with a focus on product design, influencer marketing, and recurring revenue generation. To secure a partnership, Gucci should license its brand to Razer and release a line of collaboratively designed limited edition products. This ensures the products retain their artistic value, while also serving the unique needs of the gaming community.
Typically, luxury brands minimize dependency on wholesale and royalty revenue to maintain control over the sales experience and avoid brand deterioration. To maintain scarcity and prevent brand deterioration as a result of the proposed partnership, merchandise should be produced in limited quantities and be available for a limited period of time. Pop-up stores should be opened in Los Angeles, Shanghai, and London to maximize control over the sales process by Gucci and encourage buyers to experience the product. These three cities each present themselves as the most attractive major city within the Americas, Asia, and Europe respectively–based on a large population, a fashion-centric millennial demographic, and substantial interest in gaming. This will not only cater to the 43 per cent of tech peripheral consumers who visit physical stores to make purchases, but also to luxury shoppers of which more than 90 per cent make purchases in-store.
The launch of the stores will be a joint project between the two companies and all sales associates will be trained on the norms of both industries to ensure a consistent sales experience. In addition, the first set of launches will be limited to the three pop-up locations in order to increase exclusivity and catalyze the formation of a secondary market where the products will be resold at an even higher price. Although Gucci and Razer won’t receive the profits from this higher price, this will increase the allure of the products and the two brands. Prior to launch, PR packages will be sent to a collection of existing Razer affiliates in the streaming community. This aligns the product with established figures in the gaming world and would ease adoption by the community, as highly respected streamers have tremendous influence on the purchasing habits of regular players, and 74 per cent of consumers rely on social media networks when it comes to purchasing decisions. These representatives will be spread across different gaming platforms to maximize exposure to a broader variety of audiences, giving Gucci an edge over its competitors.
Razer will be able to cement its position as a leader in the tech peripherals industry through the early adoption of luxury brand partnerships. This will elevate Razer’s status and reinforce the premium image of their products. Additionally, it will expand their product offering even more to cater to gamers seeking more prestigious designs. By breaking into the gaming industry through tech peripherals, Gucci can remain platform neutral and attract the overall gaming market, rather than focusing on a single game or console.
Spoils of War
The benefit of this strategy will be almost exclusively realized through exposing Gucci’s brand to the gaming segment, ultimately increasing long term sales on account of increased awareness among younger demographics. The direct revenue impact is likely to be immaterial due to the marketing expenditure, limited quantity, and revenue-sharing with Razer. Given there are currently 380 million esports viewers, growing at a rate of 13.8 per cent year-over-year, the partnership offers Gucci access to a rapidly expanding and largely untouched market. Due to the limited nature of the release, the resale price of these products will likely be heavily inflated and contribute to the exclusivity of the product in the mind of consumers. As a result, the release would fuel demand for future collaborations. Yeezy, Kanye West’s fashion label, released their Yeezy Boost 350 shoes in very limited supplies over the course of three years before there was enough stock for casual consumers to purchase a pair. Similarly, it is important for Gucci to play the long game; the first release will be limited in quantity, but as scarcity drives demand and increases publicity, it will better position Gucci for future releases.
Holding the Fort
As luxury brands branch out into foreign territory and battle for a piece of this market, Gucci must move quickly to establish itself in the eyes of gamers. Collaboration with one of the most innovative and highly respected brands in tech peripherals will mitigate the risk of a failed launch. The partnership is projected to capture market share within a growing demographic and position the brand advantageously for long-term sales growth, defending Gucci’s position as the premier luxury brand for millennials.