Guess Finds Answer
As the millennium dawned, Guess Inc. was feeling the heat.
Stores everywhere were selling low-priced baggy britches. The Los Angeles company had become famous by selling skinny jeans with fat price tags. Now it felt pressured to alter its styles and cut the cost of its products, recalls co-founder Maurice Marciano.
So he decided to do neither. Instead, Marciano raised prices and opened more Guess stores.
The company was an early entrant in the industry’s denim price surge. Its least expensive jeans go for $78, up from $48. And its priciest denim now goes for nearly $200.
At the same time, Guess revamped its operations, shifting the focus to retail from wholesale. And the results have been striking.
“In just five years, you’ve seen a dramatic shift in the structuring of their business,” said Erin Moloney, an analyst with Merriman Curhan Ford & Co., who expects strong profit from Guess this year and next.
After taking a hit early in this decade, Guess’ sales and profit took off. Sales at established stores, a key industry indicator, have been up for three years straight. Profit nearly doubled last year after quadrupling the year before. And its stock price doubled in the last year, closing Friday at $40.45, down 35 cents.
This year, Guess expects revenue to surpass the $1-billion mark for the first time.
All this is particularly good news for brothers Maurice and Paul Marciano, who share the titles of chairman and chief executive and together own almost half of the retailer’s shares, a stake worth more than $900 million despite recent sales of $80 million in stock.
“It has taken time,” Maurice Marciano said of the company’s decision in 2000. “But it has paid off.”
Now, Guess is ratcheting up its international expansion.
The company just opened new European headquarters in Florence, Italy, plus a showroom in Hong Kong to better reach markets in Japan, South Korea and China.
“The next three to five years will be a crucial development expansion of Guess’ business, but mainly worldwide,” Paul Marciano, 54, said during a recent interview at the company’s corporate base near downtown.
Today, the company and its licensees worldwide operate about 645 Guess, Guess Accessories and Marciano stores, the latter a 2-year-old chain that targets a slightly older customer with higher-priced merchandise. Nearly half of the stores are company-owned. Licensees and distributors operate most of the stores outside the U.S. and Canada.
By the end of this year, the number of stores is expected to jump to 766, a 19% increase from a year earlier, with the largest growth rate outside the U.S.
About 84% of its U.S. revenue comes from its retail operations. About 900 U.S. department and specialty stores stock Guess products, compared with about 2,400 in the late 1990s.
“Guess has done a phenomenal job over the last three years of keeping their eye on the ball,” said Holly Guthrie, an analyst with Morgan, Keegan & Co. Inc.
Some things, however, have not changed. Guess’ marketing tactics, which helped usher in an era of sex-infused advertising, have stayed on course. Although its ads -- which in the past featured models Claudia Schiffer and Anna Nicole Smith -- grab the eye, they don’t please everybody.
The latest Guess model, a pouty teenage blond named Tori Praver, is featured on the company website wearing lacy panties, a bra dripping with rhinestones, and spike heels -- not exactly a back-to-school ensemble.
“I hate their marketing campaign,” said Christine Smith, a 22-year-old student who stopped by the Guess store in Santa Monica recently. “It’s overdone. A little subtlety would help.”
Subtlety isn’t the strong suit of a company that last year ran a two-page spread in Vanity Fair showing the ubiquitous socialite Paris Hilton, apparently topless, in unsnapped jeans hugging a strategically placed snake to her chest.
“Clearly, they’re selling sex,” said Mike Kamins, professor of advertising at USC. “But I think they’re also selling this image of being avant-garde, this raunchy, naughty rebel -- without a cause maybe, but a rebel.”
Paul Marciano, who directs the company’s marketing without employing an ad agency, is proud of what he’s accomplished.
“We are associated with a sexy image and we should be that,” he said, a French accent linking him to his family roots in Marseilles. “As of today, I still go on location for every shoot. That’s what we call passion.”
According to Women’s Wear Daily, the fashion industry’s bible, Guess ranked 21st last year in its list of most recognized brands, ahead of Gucci, Rolex and Disney.
This strength has allowed Guess to ride out fashion cycles and to strike licensing deals for products such as perfume, shoes, eyewear, jewelry, watches and children’s clothing, Marciano said.
The company, which reaps about 25% of its revenue from denim sales, produces a wide variety of clothes, shoes, purses and other products for trend-hungry teens and young adults.
A mannequin in the Santa Monica store was outfitted recently in $168 jeans topped with a $98 sundress, which a saleswoman said was selling very well. Other Guess products on display: a $69 corset, a $44 rhinestone-studded tank top and a $235 handbag.
This is the Guess message: “Look, you want to be cool? We know cool,” said Marshal Cohen, chief industry analyst with the NPD Group market research firm. “They say, ‘This is who we are, take it or leave it.’ ”
For now, at least, shoppers are taking it.
But Guess has no shortage of challenges ahead, including trying to keep pace with fashion trends amid intense competition from savvy rivals, including Bebe Stores Inc. in Brisbane, Calif. Such businesses depend on a very fickle group of consumers who switch stores on a whim
Kelly Watson, a 22-year-old model, is typical of the customer Guess tries to attract.
“Guess and Bebe are my only stores,” said Watson, a Las Vegas resident who was shopping at the Guess store in Santa Monica recently wearing a micro-mini skirt and a short-sleeved hoodie with “bebe” across the chest. She left Guess with a new skirt, sunglasses and perfume “even though I didn’t need it.”
Competition isn’t the only cloud hanging over Guess, which went public in 1996.
The company said in February that the Securities and Exchange Commission notified President Carlos Alberini that it was considering filing civil charges against him related to his tenure at Footstar Inc., where he was chief financial officer before signing on with Guess in 2000. Alberini, who analysts say was a key player in Guess’ recent turnaround, said the matter was pending.
In addition, a state lawsuit seeking overtime pay for current and former store managers was filed against the company in February 2005.
Compared with the turmoil of the past, the Marcianos’ situation seems downright tranquil. The brothers have weathered many a storm, including bruising legal battles, labor woes and family fractures
Initially four brothers, including Georges and Armand, worked together in a rented 700-square-foot office in L.A.’s garment district. Their plan: Sell that most all-American of products -- blue jeans -- but with a European twist. They shocked some people by stone-washing their denim, said Maurice Marciano, 57.
Buyers “said, ‘You mean you are actually washing the jeans with stones?’ ” he recalled. “They really thought we were cuckoo.”
Guess also ignored conventional wisdom when it came to pricing, marking some of their jeans as high as $70. It was a stunning success. Sales climbed to $12 million within a year. Teenagers had to have them.
“I remember clearly my daughter having a hysterical fit because I wouldn’t buy her Guess jeans at $39 because you could buy [jeans] for $11 or $12 at the Gap,” said Ilse Metchek, executive director of the California Fashion Assn. in Los Angeles.
The company went on to become the Southland’s largest apparel maker. It also absorbed some staggering punches.
In an ill-fated 1983 union, the Marcianos sold a half-interest in their business to the Nakash brothers of apparel maker Jordache Enterprises Inc. After a highly publicized legal brawl that stretched over nearly seven years, the Marcianos recovered full ownership.
In 1993, Georges Marciano left, reportedly over a disagreement in strategy. Armand Marciano resigned three years ago and is now co-owner of ABS by Allen Schwartz, a Los Angeles women’s apparel firm.
Paul and Maurice Marciano say their own lives are tightly intertwined.
“What we do everyday, we enjoy, Maurice and me,” Paul Marciano said. But being on top of your game doesn’t mean you can rest.
“Maurice and I constantly question ourselves,” he added. “And what if? And what if?”
