The Evolution of Guess: New Label, Accessories Lead Firm’s Retail Push

“We were never in trouble in terms of cash flow,” Maurice Marciano said. “We were experiencing losses....We were opening stores and distribution centers. So on paper we were losing money, but actually we were not. It was painful for the short term, but for the long term it was the right thing to do and we were going for it.”

Paul Marciano said he and his brother continued to invest tens of millions of dollars in advertising. “Find a year that we have not [advertised] in a magazine. Did we ever back down? Never.”

The Marcianos declined to comment on their brand advertising budget for this year, although the spike in multipage inserts and street ads since February and the Hilton campaign indicate a healthy boost. In 2002, the company said ad expenditures were $45 million in the U.S. and another $65 million worldwide.

From bumped-up advertising to rising net profits, the positive swing is attributed to managing inventory levels, developing products and implementing cost-reduction measures such as closing unprofitable doors. In the next several months, three Guess Kids stores will be converted to Guess or Marciano stores and two will be shut. Guess Kids posted a loss of $1.8 million on sales of $6.1 million in 2003. However, it will continue as a licensed concern. Four more Guess stores will be closed down next year.

The closings notwithstanding, the key to the company’s comeback has been in controlling its destiny through its signature stores.

Guess Inc. rings in 72 percent of net revenues from its own retail operations. There are 186 Guess-owned stores in the U.S. and Canada, in addition to 80 Guess-owned factory stores and three Guess Kids outlets. There are another 24 freestanding, licensed stores in Europe, and 19 on the way in the next year or so, including shops in Budapest and Prague, Paul Marciano said. Europe is the company’s fastest-growing territory and sales are anticipated to rise another 25 percent in the next year.

Retail in Asia and the Mideast, and Latin America, which boast 172 and 38 non-company owned stores respectively, is restructuring. Many stores may go from licensing and franchise control to a partnership with the Marcianos. There are 14 shops in South Africa and Australia.