Once known primarily for its denim jeans, Guess Inc. designs, manufactures, and licenses a wide variety of men's and women's denim, cotton, and knit apparel. Guess products are available primarily in factory and retail stores in the United States and Canada, as well as through its Internet store at http://www.guess.com. Its apparel lines, which are designed in classic yet trendy and upscale styles, include jeans, pants, overalls, dresses, skirts, shorts, shirts, blouses, jackets, and knitwear. Its accessories, which complement its apparel lines, include eyewear, footwear, fragrances, handbags, jewelry and watches, leathers, swimwear, and kids' and infants' apparel. The company's products are marketed under trademarks including GUESS, GUESS, GUESS U.S.A., GUESS Jeans, GUESS and Triangle Design, Question Mark and Triangle Design, BRAND G, a stylized G, GUESS Kids, Baby GUESS, and GUESS Collection. Guess' advertising campaigns are well known for their innovative and creative images, having been highlighted in international ad campaigns in nearly every major magazine, on television, and other such mediums. Guess advertising has been awarded nearly every distinguished design award, and The Metropolitan Museum of Art chose the Guess Press Book and Nashville catalogue for its Permanent Library Collection.
Origins in Early 1980s
In 1981, Georges Marciano and his brother Maurice arrived in Los Angeles and opened a clothing store in Beverly Hills. Born in Morocco and raised in Marseilles, the Marcianos--who would be joined the following year by brothers Armand and Paul--had previously owned and operated a chain of twelve retail stores in France, but had left that country in order to avoid a tax bill of approximately FF 9 million. (The bill was finally settled in 1986.) Among the merchandise sold in the Marcianos' store were jeans designed by Georges Marciano. These jeans--named Guess, because it was easy for the brothers to pronounce--were meant to fit tightly and featured zippers at the ankles. Innovative for the time, the jeans were stone-washed, giving them a softer feel and lighter colors than typical denim jeans. They also featured what would soon become the distinctive Guess triangle on the back pocket. By then, however, the 1970s boom in designer jeans had faded. It seemed unlikely that a new entry into this tapped-out market could be successful.
Georges Marciano flew to New York in December 1981. Despite his limited English, he convinced Bloomingdale's to display on consignment 30 pairs of his European-style jeans in Bloomingdale's flagship New York store. Within three hours, Bloomingdale's sold out of every pair, despite a $60 sales tag. Guess jeans sales took off spectacularly the following year when Paul Marciano arrived in California to direct the company's advertising campaign. Although he had no previous advertising experience, Paul Marciano devised a campaign that revolutionized the way jeans--and clothing--were sold. Instead of adopting the typical studio design, Paul brought his brother's jeans, and the models wearing them, outdoors, using grainy black-and-white photography and provocative poses described by Forbes as "catering to teenage cravings for sex, power, attention and self-love ... electric not only with sexuality but with an implicit brutality and exhibitionism as well." The controversial ads and their sexy Western look swiftly created household names not only of the Guess brand, but also of its models, in effect starting the supermodel trend that would make many of the "Guess Girls"--including Carre Otis, Claudia Schiffer, Naomi Campbell, Eva Herzigova, and Anna Nicole Smith--international stars. By the end of 1982, the Marcianos had sold some $12 million dollars of their jeans.
Demand for their product soon overwhelmed the Marcianos. Searching for the capital to expand and access to cheaper foreign labor, the Marcianos signed a deal in July 1983 with the Nakash brothers of the company Jordache, giving Jordache 50 percent ownership of Guess in exchange for $4.8 million and use of Jordache's Hong Kong manufacturing plants. Under the deal, Jordache was also licensed to set up a new line of jeans, called Gasoline, to use parts of Guess designs in a lower-priced line. The Guess-Jordache deal neglected, however, to provide for written assurances against copying each others' designs, a common garment industry practice called "knockoffs." Instead, the Marcianos relied on the Nakashes' assurances that, given the success of their own clothing designs, they had no need to knock off Georges Marciano's designs. This lack of written agreement would soon come to haunt the company.
Like the Marcianos, the Israeli-born Nakashes manufactured designer jeans, starting their company in 1977 from a single store in Brooklyn, New York and building a $280 million business by 1983. Jordache's fortunes, however, had already begun to slip, as the designer jean market fizzled and the Jordache name increasingly became known as a mass merchandise label. The Marcianos, on the other hand, sought to establish the Guess name as exclusively high-end. Throughout the company's growth, distribution of Guess clothing was limited largely to upscale department stores and the Marciano's own growing chain of MGA (for Maurice, Georges, and Armand) retail stores.
By the time of the Jordache deal, the Marcianos had already begun to expand their line beyond jeans. In 1982 they entered the menswear market through a licensing agreement with Jeff Hamilton, Inc., which marketed a line of men's clothing under the Guess name in exchange for a 7 percent royalty fee. Between 1983 and 1984, sales of Guess menswear rose from $2.5 million to $27 million. However, Guess soon sought to terminate the Hamilton license agreement and bring the menswear line in-house, maintaining that Hamilton's Guess line was oriented too strongly toward the young men's market, and that Hamilton's "dumping" (according to Maurice Marcian in the Daily News Report) of Guess merchandise in Kmart and other discount stores was hurting the label's high-end image. This led to a legal battle with Hamilton that slowed growth in menswear, which Guess brought in-house in 1986.
Court Battles Later in 1980s
The Marciano's largest legal battle, however, was with Jordache. By 1984, sales at Guess had reached $150 million, with the price of Guess jeans climbing as high as $85 per pair, but the partnership between the two sets of brothers had already soured. The Marcianos sued the Nakash brothers and Jordache in 1984, charging that company with unfair competition and claiming that the Nakash brothers were using their position on the Guess board of directors and their access to Guess designs in the Hong Kong plant to produce knockoffs of Guess clothing in their Jordache line. The Marcianos' suit asked the court to undo the 1983 agreement that had given the Nakashes control of half of Guess.
The battle for control of Guess continued for the next five years. Along the way, both sides leveled charges of corporate espionage and document shredding; the Nakashes weathered an investigation by the Internal Revenue Service into Marciano-alleged tax evasion and customs quota fraud, and the Marcianos faced allegations of improper dealings with the IRS. At one point, the Marcianos hired Israeli commandoes to patrol their offices; the Nakashes, for their part, hired security experts to sweep their offices for bugging devices. Meanwhile, the judge overseeing the suit ordered the Marcianos to repay more than $1.5 million of an alleged $1.8 million in unauthorized fees taken out of the company (including the Marcianos paying themselves double their salaries). Estimated attorney fees ran as high as $10 million per year for each side. As one attorney involved in the case told Forbes: "This is not just war, this is total war. Take no prisoners. There is not an issue that has not been filed. This is litigation at its worst."
Despite Guess' legal distractions, sales continued to grow, reaching $350 million in 1987, with profits of $100 million. While much of its sales continued to be in jeans, Guess had successfully entered the women's market, with its upscale Georges Marciano label, as well as children's, leatherwear, and footwear. Relaunching its menswear line in 1986, Guess began to make inroads in that market as well, placing its products in men's departments of most major department stores. Licensed products, including Guess watches, eyewear, and a Guess women's fragrance line produced by Revlon, also contributed to overall sales: in 1990, Guess watches alone sold an estimated $60 million. Meanwhile, Guess' chain of retail stores, renamed Guess and averaging 2,000 square feet, grew to 19 locations. The company also moved its Los Angeles operations to a 14-acre site encompassing six buildings, where it manufactured 93 percent of its products. By 1990 sales reached an estimated $575 million.
Marciano Control Returns in Early 1990s
The legal battle between the Marcianos and the Nakashes finally ended in early 1990, when a jury agreed with the Marcianos and returned 100 percent control of Guess to them. A second trial was set for May 1990 to determine damages. However, as the jury in that case was deliberating, the Marcianos announced that they had reached a settlement with the Nakashes for an undisclosed amount. This development occurred over the objections of their attorney, who pushed them to continue the case to full victory. The Marcianos stated, however, that they feared seeing the case continue through the appeals process and still more years of litigation. The Marcianos' attorney then sued them for $17 million in damages.
But with the battle with Jordache over, the Marcianos set about expanding their business. The years of litigation and the enormous attorneys' fees had limited their growth: the company believed that it would have topped $1 billion in sales by its tenth anniversary had it not been for the court case. With their resources freed up, the Marcianos increased their advertising budget to $22 million in 1991. The company also expanded its retail chain, to 33 stores by the end of 1991, including its European flagship store in Florence, Italy. While the recession of the early 1990s slowed growth somewhat, to 7 percent in 1991 compared to double-digits throughout the 1980s, Guess menswear took off, with a 41 percent sales growth in 1991 alone. By the end of that year, menswear accounted for just under 40 percent of company sales. International sales were also becoming more important to overall revenues. Licensing arrangements brought Guess clothing to more than a dozen countries, with sales particularly strong in Canada and Japan.
In 1993 Guess and its licensees registered an estimated $700 million in sales. In that year, Georges Marciano stepped down as the company's chairman, chief executive officer, and designer, citing differences of opinion with his brothers over the direction of the company. Georges, who had left the company briefly in 1988, sold his 40 percent share of the company to his brothers for an estimated $200 million. The year before, Maurice Marciano had also left the company, but he returned shortly before Georges Marciano's departure. Maurice was named chairman and chief executive officer and took over direction of design; Paul Marciano remained president and chief operating officer, and Armand continued to act as senior executive vice-president. After leaving Guess, Georges Marciano sued Guess and his brothers for allegedly infringing on the Georges Marciano trademark. Meanwhile, Georges opened a new company, Go USA Surfwear, and purchased 80 percent of Yes Clothing Company.
With Guess ads now featuring Maurice's name instead of Georges Marciano, Guess looked to its overhauled junior's line and international distribution, along with a stepped up promotional campaign, to fuel its further growth. Advertising spending reached $28 million in 1993; international sales were expected to reach 25 percent of total sales by the end of 1995. Licensing also continued to be an important source of revenue, with products now including home furnishings, infant wear, and junior knitwear. Sales of Guess watches topped $100 million in 1994, and Guess footwear sold more than $60 million. Meanwhile, Guess stores had also been growing, to an average of 3,500 square feet, and to 61 stores by the end of 1995, including a 7,000 square-foot store in Hawaii's Ala Moana Center and an 8,400 square-foot store in the Woodfield Mall in Schaumburg, Illinois. In less than fifteen years, the Guess label had grown from 30 pairs of jeans to a diversified, billion-dollar branded empire.
Competitive Pressures in Late 1990s
In 1996, Guess became a publicly traded company when it made its initial public offering in July. At about this same time, Guess continued with its earlier expansion plans. However, the next year was a disappointment to Guess due to weak performance in its retail stores, weaknesses in its wholesale division, slower-than-expected non-core Asian licensing revenues, and discontinued licenses. However, three areas were stronger: its international operations, mostly in Latin America and Europe; certain core licensed product lines, such as handbags and accessories; and women's knitwear.
In 1998, Guess launched its new line of high-end ring-spun denim jeans called Premium Denim for both men and women. However, the company lost market share in 1998, mostly due to competitive pressures in the branded basic jeans business and a terrible retail environment. Guess started, in early 1999, its first virtual retail (e-commerce) store at its web site, http://www. Guess.com. The web site, since its inception, had consistent interactive success in combining fashion images, information, and technology.
Guess reduced its expansion plans in 2000 in order to concentrate more on improving investment returns, regaining business strength, and strengthening capital structure. Even so, Guess was still able to open 56 new stores in critical locations throughout the U.S. and Canada, while closing three under-performing stores. Guess also opened a new distribution facility in Louisville, Kentucky. In the fall, Guess introduced G Brand, a complete line of high-quality women's and men's jeanswear that used premium quality Italian ring spun denim in its European designs. Annual retail and wholesale sales increased by more than 32 percent. However, the company's profitability declined greatly because of higher retail occupancy costs due to less productive stores along with additional expenses for new stores; large inventories due to excessive buying and slowing sales trends; low productivity in its new Kentucky distribution facility; increased consulting fees; increased expenses with Guess Canada; and higher advertising expenses. At the end of 2000, Guess had 212 stores in the United States and Canada.
Decline Spurs New Strategy in 2000s
The popularity of Guess clothing peaked in the spring of 2000 with its advertising campaign that featured the wearing of sexy jeans and short-shorts on such models as Naomi Campbell, Claudia Schiffer, Anna Nicole Smith, and Eva Herzigova. However, the company's fortunes began to plummet near the end of 2000 when sales declined over increased competition. With sluggish sales, Guess' inventories became quite high. In 2001, in response to its problems, Guess began to implement a strategy to improve its profitability and maximize shareholder returns by reinvigorating its past successes at attracting fashionable and trendy men and women. Carlos Albertini was hired as chief operating officer and Frederick G. Silny was hired as chief financial officer in order to coordinate this new strategy, which included using creative new merchandising techniques, retail expansion plans, and strong marketing methods.
While the majority of its previous business was selling wholesale products to department stores, Guess began to make its retailing sector its main activity in 2001. With increased competitors, Guess decided to emphasize what other companies could not offer customers: the complete Guess lifestyle of jeans, accessories, and image. However, Guess and the ailing retail industry experienced poor sales due to the economic recession that fell upon the United States and the devastating reactions to the September 11 attacks. Thus, net earnings plummeted from $20.4 million in 2000 to $9.4 million in 2001. However, Guess was still able to reduce its cost structure and inventory levels. In fact, inventory levels were reduced by over 33 percent. It was, unfortunately, forced to reduce the number of new stores openings from 60 to 25. This same year, Guess debuted its online outlet at its web site, http://www.Guess.com/outlet. The company also purchased the remaining 40 percent of Guess Canada with the intention of benefiting on its growth potential.
Guess continued to be hurt in 2002 with decreasing consumer confidence and continuing negative economic and political developments. However, the company was able to effectively manage its inventories and costs while product lines were enlarged, which increased customer interest. The style of the Guess men's line was improved in order to create products that were more appealing to customers and more consistent with the Guess brand. Extra money was injected into marketing and advertising programs in order to reinforce the brand's appeal. As a result, independent surveys showed that Guess was ranked as one of the top five brands in total U.S. spending by teenage girls. In November, Guess.com partnered with Amazon.com in order to give the Guess brand wider online (Internet) exposure. The company opened a total of 24 new stores consisting of 21 new full-price retail stores and three factory-outlet stores and closed two under-performing stores in the United States and Canada.
At the end of 2002, Guess operated a total of 249 stores in the United States and Canada, consisting of 171 full-price retail stores, 11 kids stores and 67 factory outlet stores. Its leading domestic wholesale customers included Federated Department Stores, Inc., Dillard's, Inc., The May Department Stores Company, and Marshall Field's. Guess' retail store in Florence, Italy, was an integral part of its European design activities, and its international licensees and distributors operated 222 Guess stores in 37 countries.
Guess' retail, wholesale, and licensing business segments showed mixed performance results in 2003. The company made progress within its retail stores as the economy improved overall for the industry. The company's actions and investments began to show positive returns when comparable store sales for the year grew 9.3 percent as compared with 2002. The retail segment provided the largest gains due to improvement of its women's and men's lines as well as growth in its accessories line; strong results from its U.S. specialty stores; and a strong record for its Canadian stores. However, its wholesale business within department stores hit hard times when Guess products appeared in only 950 department store and specialty shop locations, after an all-time high of 2,400 locations only a few years earlier. In 2003, inventory levels declined 12.7 percent from 2002, having been cut in half within the last three years. In the fall of 2003, Guess announced a development and distribution partnership with Parlux Fragrances, Inc. in which a new Guess fragrance collection would be tied in with the company's image and its customers' sexy and casual lifestyle.
The next Guess girl, Paris Hilton, was hired in 2004 to help recapture business along with the company's glamorous image. The company's web site showed Hilton in various sexy poses. In the summer of 2004, Guess launched the Marciano chain, an extension of its brand Marciano that was designed in the style of sexy, yet sophisticated apparel and accessories. Stores in Los Angeles, California; McAllen, Texas; and Toronto, Canada were opened to serve slightly older customers interested in higher-end clothes and accessories such as glitzy evening dresses and fancy jeans. Additional Marciano stores were planned to open in the Unites States later in the year. Guess also began opening several Accessories boutiques, a mall-based chain that carried only accessories such as handbags and hats, but no clothes. Besides these two new store concepts, Guess was also planning on 100 store openings over the next 12 months.
Now a billion-dollar multinational retailer, Guess was one of the most widely recognized brands in the world. Known for quality, marketing creativity, and popularizing new trends and styles, the company had seen increased competition throughout its markets during the first few years of 2000. While jeans remained the foundation of Guess style, the company continued to expand its lines to include comfortable, casual clothing and accessories for women, men, children, and babies to meet every lifestyle. Guess possessed licensees and distributors in 232 retail stores in 77 countries throughout North America, South America, Europe, Asia, Africa, and Australia. Guess' wholesale business was represented in over 846 establishments in the United States. Guess owned and operated a chain of over 180 retail and factory stores, and over 1,000 in-store shops in other retailers in the United States. Guess had more than 30 stores in Mexico and about 46 stores in Canada.