Guess Hits 21- Year Milestone
The Marciano brothers, relieved that 2001 is over and their company GUESS? Inc. survived the often-insurmountable,look forward cautiously. But they also look forward with plenty of experience behind them. This year marks the 21st anniversary of the Los Angeles-based manufacturer and retailer of junior and contemporary apparel.
Guess, which was founded by Maurice, Paul, Armand and Georges Marciano in 1981, was among the fashion denim pioneers of its age, arriving at a time when younger shoppers were looking for more options than those presented at conservative department stores.
Decades later, the denim scene has a lot more players, and the pressure for profits is relentless. As Guess prepares to celebrate 20 years in business (in its 21st year of existence) on May 9, the question is, can the company go another couple of decades?
Paul Marciano, who shares the chairmanship and title of chief executive officer with his brother, Maurice, who oversees the company’s design direction, won’t commit that long, noting that the anniversary itself is an achievement.
“Of course that is our goal, but we can’t make plans for the long term,” he said. “When we started Guess, we thought we could go five years and that was our goal. So, we’re comfortable to be here for two to three more years, and from there, another three years.”
The idea that Guess may be sold has popped up among industry observers, but that scenario isn’t likely, according to president Carlos Alberini.
“That’s not in our plans, for sure,” Alberini said. “There’s a lot of growth opportunity to take the company to a new level. We see significant opportunities to expand our margins as a vertically integrated business and create value for our shareholders.”
Coming off a frustrating year, Guess isn’t out of the woods yet, say analysts. The company is projecting a 10 percent sales decline for 2002 following a 13.1 percent net revenue decrease to $677.6 million last year. In 2001, net income also plummeted 62 percent to $6.2 million and same-store sales fell 13.2 percent. The revenue decrease was attributable to weakness in the wholesale business (down 25.4 percent) while profit margins took a beating during the company’s inventory sell-off.
It’s that wholesale sector—representing 38.4 percent of revenues—that causes retail analyst Dorothy Lakner to remain bearish about the company’s 2002 performance.
“I’m not recommending the stock,” said Lakner, who works for CIBC World Markets Corp. “Nearly half their business is wholesale, and department stores have had it tough for the past couple of years. I’m still waiting for signs that department stores are more optimistic about the second half of the year.”
Alberini points out that Guess has started the year on stronger footing. The company pared down its excess inventory 33 percent to $96 million. Debt levels fell to $87 million from $116 million and cost-cutting led to a 29.6 percent decline in selling, general and administrative expenses. In addition, some 200 people were laid off from the company’s technology-intensive distribution facility in Louisville, Ky.
Movement is afoot to grow Guess’ licensing business with the arrival of Nick Gehring, the company’s new head of licensing expansion. Paul Marciano said he’s open to deals in home furnishings and fragrances.
Furthermore, Alberini said, the company’s Web site is about to post a profit this year and is generating sales above the typical store figures, which averaged $374 per square foot last year, down from $452 in 2000.
Last year wasn’t the first time the company hit a bump. In 1997, it had to retool its operations, slashing the workforce by 6 percent, shifting three-quarters of production overseas and setting an ambitious sales goal of $2 billion by 2003. The overhaul worked until September 2000, when the company reported its first same-store sales decrease in 27 months.
To ensure its current longevity amid edgy denim upstarts Seven, Paper Denim & Cloth and others, Guess launched its Italian-made G Brand line two years ago in Italy, France and Spain as well as its top doors in the United States. The higher-end look, ranging from $118 to $350 retail, is detail-conscious—with jeans sporting patchwork details or crumpled textures—and has been widely received abroad, prompting the company to extend distribution into Japan and Southeast Asia this year.
Another key avenue of growth this year is an expanded retail strategy with 20 to 25 stores opening per year for the next seven years, mostly in the northeastern United States, an area representing “huge potential,” according to Paul Marciano. The overseas plan is more conservative, with about 30 to 50 locations projected, most of them in Europe, including the recently opened stores in Rome, London and Paris.
“There are not that many shopping centers abroad like in America, so the distribution channel is more in the streets, which is very capital-intensive,” Marciano said.
Marciano noted that Guess has stores in most developed countries—a dream come true considering the difficulties faced in starting the company.
For the Marcianos, the adventure began with the three-zip Marilyn jean. The product, viewed with skepticism by most retailers, sold out at Bloomingdale’s in New York, giving the brothers the confidence to plunge ahead, expanding into men’s apparel and licensing markets.
To help brand the company, a sexy, high-end marketing campaign debuted under the creative direction of Paul Marciano, featuring up-and-coming models who attained Guess Girl status following the launch. Texan Megan Ewing is the newest Guess face, and the role has opened up modeling doors for her at Victoria’s Secret, Glamour, Elle and Maxim.
Not all the brothers stuck it out over the years. Armand Marciano remains involved as the senior executive vice president overseeing distribution, while Georges Marciano, who is credited with naming the company, left Guess in August 1993. Roughly three years later, it went public.
Businesses can attest to the challenges and opportunities presented by opening up their accounting books to the scrutiny of analysts and the public. Paul Marciano said the pressure is on to perform considering his family owns 83 percent of the company.
“If we do well, we benefit, and if we don’t do so well, we’re the ones most punished by it,” he said.
Some businesses may rue the day they go public, but Marciano said the decision hasn’t fostered any regrets.
“I don’t look back,” he said.
