After a thorough study of your company and a meticulous analysis the information you have given me, I have concluded that if Yves Saint Laurent changes from a differentiation strategy to a differentiation focus strategy, it is possible for YSL to double its profit within three years. The upsides of the change are a 150-percent increase in profit and strong brand awareness in a niche segment whose profile will be described in details hereafter.
On the other hand, there are downside risks, including high possibility that Louis Vuitton, Tods and Bulgari will attempt to replicate YSL products since they are close to the targeted positioning as well (See Appendix A). The specific goals for YSL in the next 3 years include focusing on a specific segment of the fashion industry. YSL’s current operations and net sales of $145 million are small, compared to Gucci and even YSL Beaute but they make differentiation focus strategy a suitable and viable option.
Furthermore, the prospect of targeting a niche market also arises from YSL’s prominent image as sophisticated sexy and European-chic. Hence, I recommend that YSL develops a focus on men and women who are “thirty and thriving”. These clienteles are those who are beautiful and sophisticated with a promising career. They are quite successful for their age and seem to “have, but still want it all” such as young successful entrepreneurs or middle-management investment bankers.
The benefits of focusing on clientele who are in their 30s are the solidity of their earnings which will drive stable sales and their tendency toward elegance and departing from pure chic and hip. The other goals that coupled with a targeted niche segment are improving operating margin and sales. With the declining trend in royalties, I recommend that YSL should discount them and focus mainly on operating margin excluding royalties. The milestones are 20% in the 2004, 24% in 2008 and 28% in 2005 which will bring YSL’s operating margin to Vuitton’s vicinity.
However, increasing volume in sales should increase as in well in order to gain a more critical mass. The milestones are set as followed: at least $200, 300 and $400 in the first, second and third year respectively. These targets will uniquely reposition YSL since it has a higher operating margin than Hermes and its sales target is much lower than Vuitton which signifies its exclusivity (See Appendix B). Product: There are two products offering options that I would consider: ready-to-wear clothes or leather bags.
Both products are desirable in the chosen niche market. Louis Vuitton has a leather-dominant product mix while Hermes would be a more appropriate competitor for read-to-make apparel. It is important that YSL only choose one product on which it can focus because a diverse product mix when implement a differentiation-focus strategy runs a dilution risk. The durability of leather is an advantage with lower product line turnover than apparel. Bags are often viewed as more versatile as a fashionable statement compared to the constantly changing trends in apparel.
However, the habit of buying clothes when new season comes around can drive higher sales. In the case that clothing is chosen, it is recommended that the sizes should range from 0-2 and the fit should enunciate our clienteles’ confident figures. These factors contribute to the exclusivity. Also, there are a lot of opportunities for synergies in production. YSL can have production in Italy with the help of Gucci’s excellent suppliers relationship and expertise as well as its own factories in Paris.
Price: In order to meet the targeted sales of $400 million after 3 years, if each item is has a premium price of $3000, YSL is aiming to sell 134,000 items in 2005. It is a reasonable estimate considering that after the acquisition of Mendes, YSL will have the capacity to produce and sell at such volume. However, it is recommended that YSL open additional stores (See Place/Distribution Channel). When buying raw materials from suppliers, YSL and Gucci need to collaborate to ask for better discounts.
YSL should also sell off any unnecessary factories bought from Mendes in France if it is more economical to produce in Italy with Gucci. Place/Distribution Channels: Gucci and YSl can also share facilities including warehouses in Italy and factories in France. Another recommendation is that YSL should purchase all its licensees, sever contracts with other distributors and wholesale businesses even if they are bringing in earnings. YSL needs an exclusive distribution channel to match the nature of its products. YSL should only sell its products through directly operated stores.
YSL need to work with Gucci’s recent revamp team in order to change their store layouts to have a lounge ambience, fitting with the sophisticated 30s. YSL also needs to ask Gucci to pick 15 new locations in Italy for additional stores. There should only be stores in Italy and France to preserve the European charm which is a big part of its brand image and identity. It must close down the distributor in Japan so it can have a complete control over what the stores look like, how the sales representatives dress and behave.
Another distribution channel that YSL should explore is the budding e-commerce culture but YSL should retain exclusivity by restricting access unless existing customers have a code authorized by YSL to log in. Promotion: “A luxurious brand for the most fortunately beautiful people on earth” The phrase should be the tagline for any YSL advertisement and a benchmark to assessing the brand performance. Also, it is important to reiterate the “fortunately beautiful” in marketing campaign as to reinforcing the exclusivity of the clientele and to anchoring the brand with such clientele.
Even the buying experience is unique. It is a negotiation between the salesperson and the customers to determine each other’s fit. Salespeople should be told not to rush a sale and customers are encouraged to make multiple visits to the store before purchasing. In addition, if Gucci has Tom Ford, YSL needs to use Yves’s revered figure in marketing. An image of the young Yves will add to the mystique of the brand and a linkage to a rich history. I hope these recommendations are helpful and I am looking forward to working with you.