YOU ARE HERE: LAT HomeCollections

Guess Finds Answer

The apparel maker known for its sexy advertising turns around its sagging fortunes by shifting its focus to retail from wholesale. But keeping pace with fashion trends amid heated competition from savvy rivals remains a challenge.

July 16, 2006|Leslie Earnest | Times Staff Writer

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.

Los Angeles Times Articles