Divorce in the Gucci style: The last of the Guccis has danced the soft- shoe shuffle out of the company, ending one chapter in a stormy story of legal battles and sibling rivalry. The family has gone, but problems remain. Nicholas Faith reports

AS SOON as Maurizio Gucci had signed the deal selling his half share of the family company 10 days ago, his chairman's office was sealed and his papers removed. Although the clear-out was ordered by the firm's new owner, Investcorp, the Arab-backed investment bank, the gesture was entirely in the tradition of a story that bears more resemblance to an Italian soap opera than orthodox company history. Nine years before, the office formerly occupied by his uncle Aldo had been cleared and the locks changed after Aldo had lost a power struggle.

But the latest episode does have a certain finality about it. Maurizio, the founder's grandson, was the only member of the family still involved in the firm. He will remain in an ill-defined role as a consultant, but in effect, from now on Gucci will have to do without a Gucci; it has become another of the many fashion names, from Christian Dior to Mont Blanc, to be owned by impersonal international investment groups.

The family's downfall is the result of a series of quarrels and lawsuits typical of Florentine families since the days of the Medici. 'The Florentines,' says one family friend, 'are very litigious and sharp- tongued, they have extreme tastes and go in for extreme behaviour.'

Although it is one of the few glamorous international brand names not backed by the fame of a fashion business, Gucci nevertheless established a leading position in the fashion industry, a jet-set favourite. Rajiv Gandhi wore the loafers that were its most famous product, as did many Latin American dictators - hence the phrase 'he went out Guccis up' - the equivalent of 'he died with his boots on'. When important new tax legislation was being discussed in the US Congress in 1986, it was fought every inch of the way by Washington's highly-paid lobbyists, who congregated in a corridor outside the Senate chamber. The battle became known as 'Showdown in Gucci Gulch', an unwitting tribute to the power of the brand name of the loafers worn as part of their uniform by lobbyists and yuppies.

President Clinton wore a Gucci tie for the historic photo-opportunity when he brought Yasser Arafat and Yitzhak Rabin together on the White House lawn - though one Gucci employee commented: 'Clinton is not the sort of person we like to see wearing our products.'

Behind the bitch and the glamour lies a story that will surely become a classic case study in business schools the world over. For it embodies the paradox behind any glamorous brand name: the establishmentof a balance between the need to expand and the need for exclusivity - and the constant need to refresh the image, and the goods associated with it, without losing the house style and the timeless elegance which made Gucci, like other major brands, famous in the first place. It is the story of a name that adorned dollars 1bn annual sales in the 1980s.

The business was founded by Guccio Gucci, a former maitre d'hotel at London's Savoy Hotel, in 1906 as a saddlery shop in Florence. It catered to the needs of the local aristocracy, who were fond of their hunting and shooting. Indeed, although his successors have moved far from the firm's roots, Guccio had set the tone that has pervaded it ever since: of his family's products as casually elegant elements in the informal lives of the Rich and the Beautiful - less formal than their French equivalents and based on the old Italian traditions of craftsmanship in the manipulation of leather and pigskin, for saddles, handbags - and casual shoes.

Although Guccio opened outlets in Rome, Milan and, after the war, London, Paris and New York, his company might have remained one of the horde of small enterprises that congregate in Florence's crafts markets had it not been for his son Aldo, who was chairman from 1953 to 1984 and died in 1990 aged 84. One of his two brothers, Vasco, lived quietly and died childless in 1974. The other, Rodolfo, only entered the family business in the 1970s after attempting unsuccessfully to exploit his Italianate good looks in Hollywood.

By all accounts, Aldo felt himself to be more American than Italian, soon moving to New York and eventually becoming an American citizen. He had intuitively perceived that his casual yet expensive style fitted perfectly into the tradition of old New York money - the way of life of men, and particularly women, who combined worldly fame with some sense of style.

Indeed, it is one of the major ironies of the story that only now are the Italians themselves discovering Gucci. It was rich American tourists, among them Grace Kelly, who first spotted the understated elegance of the firm's handbags and above all the loafers (invariably called moccasins by Gucci aficionados) that fitted in so well with their lifestyle.

In the 1950s and 1960s, as the firm's intertwined 'GG's became an established trademark in the fashion world, Gucci moved way ahead of other craft-based names. The firm's origins dictated its expansion since the clothes came much later, almost as an appendix to the basic accessories business. This contrasts with other famous names: Giorgio Armani originally became famous for its menswear, and French names such as Hermes or Chanel were based on scarves and clothes respectively.

Gucci was lucky: his expansion in the 1970s and 1980s coincided with what has been described as the 'age of innocence' so far as brand names were concerned. Like pioneers such as Pierre Cardin, Gucci happily covered every article he could find with his name without appreciating the damage such commercial promiscuity could do to his company's image. The mistake originated with Aldo's middle son Paolo. It was he who pushed hardest 'to secure Gucci's future through licensing', as he put it. Indeed at one point Paolo was given charge of a new division to license the name, but that - inevitably, given the characters involved - didn't work out.

Paolo fell out with his uncle Rodolfo; his father had given him control over the important American subsidiaries. In revenge, Rodolfo fired him from the Italian company for allegedly failing to carry out his duties supervising the production in Florence.

In 1983 Rodolfo died, leaving his half- share in the group to his only son Maurizio, then a mere 25 years old. This brought him into direct conflict with Aldo and the three sons, all much older than him, who owned the other half of the business.

The 1980s were largely spent in an extraordinary series of lawsuits leading to two criminal prosecutions. The first row was between Paolo and the rest of the family, who sued him for trying to set up his own range of goods to be sold under the name Paolo Gucci. The suit was costly: the Gucci board spent up to dollars 8m ( pounds 5.3m) a year fighting Paolo's right to set up on his own, while Paolo accumulated a substantial fighting fund made up of fees from licensees of his name. The action trailed through the courts in the US and Britain. It was finally concluded in 1990. The judge, Sir Nicolas Browne- Wilkinson, was severity itself. Paolo, he said, 'seemed not unduly concerned to be an accurate witness at the best of times, and on occasion he told me deliberate lies'.

But in the meantime Aldo had not escaped unscathed, for Paolo had turned against his own father. He had examined the books of the US subsidiary in great detail and discovered that his father had siphoned off much of the profits to avoid tax by paying large sums to offshore companies for work that was never actually done. In October 1984, the 79-year-old was forced out of his job, and two years later received a one-year prison sentence in the US after admitting evading more than pounds 7m of tax.

By then Maurizio was under suspicion. Aldo and his son Roberto alleged that Maurizio had arranged to have his father's signature forged in an attempt to evade inheritance tax. After fleeing from Italy, he returned in 1988 to face charges of the illegal export of capital. He was convicted of attempted fraud and given a one-year jail sentence, though the conviction was later quashed and he was allowed to take on his inheritance as chairman of the group. But the beginning of the end for the Guccis was in 1987 when the other half of the shares formerly owned by Aldo and Vasco were bought by Investcorp for a cost put at between dollars 170m and dollars 300m.

Investcorp is no ordinary bank. According to one account, its founder, Nemir Kirdar, an Iraqi-born banker who formerly worked for Chase Manhattan, had 'spotted the opportunity for a kind of Michael Milken in a burnoose' - acting as a bridge, as he put it, 'between Middle Eastern investors and those companies in the West that needed new capital' .

Kirdar started Investcorp in 1982 with backing from more than 300 Gulf-based investors (including the former Saudi oil minister, Ahmed Zaki Yamani). Just 11 years on, it is worth more than dollars 1bn and in 1992 showed profits that had doubled to pounds 41.5m.

In the past decade, Investcorp has specialised in buying up brand-name companies to be developed, or floated, or both. It first came to prominence when it bought control of Tiffany's in New York for a mere dollars 150m, selling off the building and floating it for a sixfold profit. Since then it has bought Chaumet, the famous firm of French jewellers, from the receivers, and plunged further into the fashion game by spending pounds 1bn on Saks Fifth Avenue, to which it applied its usual technique: selling stakes to its own shareholders while retaining management control. It has not confined itself to luxury goods. Last June it bought Thorn-EMI's lighting division for pounds 162m. It has also indulged in some industrial restructuring, merging Nouvelle Lemania, a manufacturer of watch movements, with Breguet, a Swiss watch manufacturer owned by the bank and its clients.

But Investcorp made two fundamental misjudgements in its handling of Gucci. It assumed the consumer boom of the 1980s would last. It also believed, in the words of one well-placed observer, that it 'could afford to overpay Aldo and his children for their half-share in Gucci because they thought Maurizio would be convicted in his legal tussle with the other side of the family and they could then buy his half cheaply. They would then spruce up the firm and sell it off as they had done with Tiffany's' But when Maurizio's conviction was overturned, they had to do a deal with Maurizio, leaving him in charge.

He was faced with a company out of control. By the time Maurizio was in the saddle, Gucci had become far too widely spread and had lost its sense of direction. The name had become synonymous with the spivs, wide boys, yuppies and hustlers of the 1980s.

As the rows escalated and the ageing Aldo lost his grip, the family had grown greedy. The name was franchised with wild abandon. It - and the precious linked GGs - were fixed to more than 10,000 items ranging from coffee mugs to tennis rackets offered in several thousand stores and boutiques. By contrast Hermes, its great competitor, was strictly controlled by a united family and had gone from strength to strength, keeping full charge of its products and its outlets. It was profitable even in the depths of recession last year.

Maurizio knew exactly what was wrong. 'The underlying problem,' he told the all- powerful New York paper, Women's Wear Daily, 'was the lack of a unifying philosophy. In 1976 there were too many Guccis going in too many directions. What I am trying to do now is undo all the damage that was done, consolidating the company and the image.' But, as names like Pierre Cardin had discovered, it is appallingly difficult to regain the high ground once your name has become devalued.

Maurizio's instinct was sound. His first step was to hire Dawn Mello, one of the idols of US fashion who had refurbished the image and the merchandise in Bergdorf Goodman, one of New York's favourite department stores that had grown shabby and unfashionable, partly by introducing Italian designers to New York.

Maurizio tempted Mello with an irresistible package that included an apartment costing an alleged pounds 200,000 to refurbish and pounds 60,000 a year to run. But she was worth the expense. Her basic aim, as executive vice- president and creative director, was to revert to the idea of Gucci as an essential element in the way of life of the world's richer inhabitants - to 'erase the consumer's association of Gucci with bourgeois status-label consciousness', in the words of Woman's Wear Daily. 'Gucci,' said Mello, 'should be designing products that you don't discard after a season . . . it should not be trendy. It's a matter of style not fashion.'

Claiming that 'Gucci is a name and as important a name as any designer, or at least it was at one time and can be again once the product is identified', she hired designers who were professionally respected but relatively unknown to the public in an effort 'to discover what had made Gucci great in the past and to bring back those things'.

She and Maurizio then set about hacking away at the undergrowth to refocus the business. They withdrew thousands of products, and closed 665 counters in department stores, while reducing the number of duty- free and franchise outlets

By 1985 there were 2,500 points of sale worldwide entitled to brandish the precious name. She cut them down to a mere 300, of which half were company- owned, and the other half shops-within- shops (or within duty-free stores). Gucci's British outlets are now confined to its two stores, one in Bond Street the other in Sloane Street, and in Harrods' Room of Luxury.

She and Maurizio bought back most of the licensing agreements that had done so much to drag the name downmarket, keeping only those for perfume, watches and sunglasses. This was pretty drastic stuff, since in the year before she took over, direct sales by Gucci (at wholesale prices) had amounted to only dollars 300m - although the margins were a healthy 20 per cent pre-tax - while sales of licensed products amounted to more than dollars 700m. Undeterred, the new management team aimed to replace all the lost sales, and reach the dollars 1bn mark by 1994, with sales exclusively through their own, as opposed to franchised, products.

Mello went back to the firm's roots when she identified two major growth areas: shoes and handbags. Hence the extension of the loafer-cum-gold-clasp formula to soft pumps, to coloured suede loafers, then to high-heeled shoes and on to the dainty clogs that bewitched the fashion-conscious last year. She realised that fewer women worked in the 1950s and 1960s, so they carried small handbags. 'We worked to make the same designs bigger and roomier,' she said.

It was largely Mello who virtually eliminated one trademark, the red and green stripes, and put the GGs on the inside of products to combat the image of Gucci as a symbol of status rather than of craftsmanship. No detail was too small: she saw that the previously glittery gold buckles tended to tarnish, and replaced them with duller but longer-lasting gold. Maurizio shared her love of detail, 'which my grandfather learnt at the Savoy. It is the click of a Dunhill lighter when you open it - true quality runs right through a product, and is not something you can copy'.

At the same time she realised that the fashion press could not be attracted by such details. Hence such amusing little items as Gucci dog-collars (at pounds 165) or the handsome dark-green leather gardening aprons, complete with Gucci trowel and fork, designed to draw in journalists who then went on to write about more important items.

But some observers believe she and Maurizio went too far. First they swept away the canvas bags that had been a mainstay of sales, especially in the US. 'Yes, of course she had to get rid of the plastic,' said one insider, 'but the canvas bags were craftsmanlike, in the Gucci tradition. And besides, they were very profitable, since they were made industrially and margins were several hundred per cent.'

The over-ruthlessness, combined with the worldwide economic slowdown, dashed Mello and Maurizio's hopes of making up for the loss of discontinued products and franchises through vastly increased sales of the remaining items in the range. They had, seemingly, killed a cash cow for the sake of taking the brand name upmarket.

But the criticisms of Maurizio go further than over-selectivity. Even his closest associates admit that although he has great taste and flair, 'he's not a very good businessman. He doesn't take bold decisions. He's very Florentine, rather duplicitous and weak. He's certainly not the modern equivalent of Medici like Lorenzo the Magnificent'.

In an effort to show that he was the legitimate heir to his uncle and grandfather, he spent lavishly: with Montedison he sponsored one of the Italian entries in the America's Cup. 'Their sailors were beautifully dressed, but weren't very good at their job,' said one insider.

He spent a fortune on refurbishing the group's headquarters in Piazza San Fedele in Milan, complete with walnut and cherry panelling. He also spent more than pounds 5m buying and refurbishing an 18th century palazzo as the hew headquarters for Gucci's Florence branch, and as a showroom and 'university' for training craftsmen in the art of Florentine leatherwork.

More fundamental are the criticisms of his choice of executives. Production, in particular, was poorly planned: some shops even ran short of classic loafers. Even Marks and Spencer was quicker to exploit one idea - Mello's glamorous clogs - and other firms were also able to make more money than Gucci out of the fashion version of another apparently humdrum item, the humble leather rucksack.

Losses naturally mounted, as the savage restructuring coincided with the recession, which hit every glamour business. Even so, the last reported losses of dollars 15.4m for 1992 were a drop of a third on the 1991 figures.

Given the record, 'the Arabs have really been quite patient with him', says one observer. But by this summer their patience had clearly worn thin.

The crucial battleground is Gucci's US subsidiary, which still accounts for half total sales - down from three quarters a few years ago as it was more affected by the new slimming-down policy. For a year the stand- off between the two owners paralysed the business and led to a cash crisis when Gucci's Italian employees received their August pay cheques a week late. Investcorp had made it clear it would invest the necessary amount, up to dollars 100m, to cope with Gucci's debts and relaunch the firm, but only after the stand-off had been resolved.

The first row came over Maurizio's plan, blocked by Investcorp, to move the firm's New York shop from Fifth to Madison Avenue, a step which would have brought a much-needed dollars 20m and placed it nearer its fashion-conscious customers. The argument escalated with the defection to Investcorp of Domenico del Sole, the lawyer who had headed the US operation for a decade. Acting, he said, on behalf of his daughters, he instituted a personal claim in a New York court on 21 July alleging that Maurizio had borrowed and failed to repay some dollars 4m.

At the same time, the US subsidiary filed a counter-claim to the holding company suit after Maurizio had claimed that the cash crisis had been caused by its refusal to pay the parent something between dollars 60m and dollars 75m for goods already supplied.

In return Investcorp alleged that Maurizio violated a 1991 agreement with Investcorp by wrongfully pledging his own shares and borrowing dollars 600,000 from the US unit. Maurizio's lawyers finally admitted that in 1991 their client had pledged 10 per cent of his shares as security for a bank loan, but claimed the debt had been repaid earlier this year. Nevertheless, the deal was in contravention of the original agreement with Investcorp by which both sides had to offer their shares to the other.

But Maurizio was really only trying to exact a high price for his share. And indeed, as a friend said, 'with his pounds 100m he is the most liquid businessman in Italy - apart from the Mafia of course'. He has now sailed off on a cruise to Cuba on his yacht, one of the most handsome sloops in the world, formerly owned by Stavros Niarchos.

By contrast, Investcorp is unlikely to be entirely happy with its victory. Already over- exposed to the luxury goods business, it is taking on a business that is still in the recovery ward. And Maurizio, sunning himself on his yacht, may yet have the last laugh.

(Photograph omitted)

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