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SCMP Reporter

For a man who has long been sitting in the eye of a storm he seems remarkably relaxed.

But then if you choose to be head of Italian luxury giant Gucci, a company which people will literally kill for, trouble comes with the territory.

While discussing one of the world's most acrimonious corporate battles in recent years, Domenico De Sole kept his cool.

'They were trying to only buy a little bit of the company and control it indirectly,' he said, with one foot casually wedged on the edge of a glass-topped table in his Hong Kong hotel suite.

'That was back in 1999 so we had this big fight with them. It still continues.'

The 'big fight' is with Gucci's deadly rival LVMH which flared up after the French house had gradually accumulated a 34 per cent stake.

Rather than continuing to sleep with the enemy, Mr De Sole brought in a white knight in the shape of French retail group Pinault Printemps Redoute (PPR).

Gucci made a US$3 billion share placement which gave PPR a 40 per cent stake and diluted LVMH down to 20 per cent.

A fuming LVMH boss Bernard Arnault was left to seek redress through the courts. His main case has been to claim that Amsterdam and New York-listed Gucci had broken Dutch corporate laws by not insisting on a general offer to benefit all shareholders.

'Suddenly they found religion like St Paul on the way to Damascus,' quipped Mr De Sole, in one of those baritone voices upon which Italians have put a trademark.

'They had an opportunity to make an offer to everybody. I begged them to make an offer. Myself and some members of our board even went to see them and told them the price at which they [should] make an offer. They refused to do it.'

The designer gloves came off and in the two-year spat that has followed Mr De Sole has been sued for defamation by LVMH.

The French company also alleged he personally benefited from the PPR placement, forcing him to publicly disclose his Gucci share options to refute the claim.

Gucci has hit back with a case through the European Commission in Brussels alleging that LVMH used its stake to try and frustrate the Italian house's business plans.

Last month, Gucci suffered a major blow when the Amsterdam Enterprise Court ordered an inquiry into the mismanagement claims.

If Gucci ultimately loses the case which could drag on for many months more, the PPR placement would have to be unwound, putting LVMH back in the driving seat as the biggest shareholder.

LVMH has claimed it would take a passive role in such an event. Mr De Sole's reported retort was: 'I don't trust [LVMH] for a second.'

Behind the legal wrangling, which seems so unbecoming for the gilded world of high fashion, are the straight-forward business motives of keeping a key rival off balance, he claimed.

'The most important thing to understand is they are our number one competitor,' said Gucci's president and chief executive.

'That is why it is important for us to be totally independent from them. We compete with LVMH for everything. We compete for stores, we compete for location of stores, we compete for personnel, we compete for designers.'

That was underlined by Mr De Sole striking a deal in December to set up a luxury apparel label for top British designer Alexander McQueen under the Gucci Group umbrella.

Mr McQueen had been working as design chief for Givenchy, one of LVMH's brands.

It is easy to understand why Mr De Sole does not feel too ruffled by all the legal shenanigans. The 57-year-old is no of arbiter of haute couture but is a lawyer by profession.

After a childhood moving around Italy with his military officer father, he won a scholarship to study law at Harvard University in the United States.

His career culminated in a partnership with the Washington law firm Patton, Boggs. That background explains why Mr De Sole speaks English with an accent which is in equal measure Italian and US east coast.

One of his clients was the Gucci family, which had got into a long-running scrape in the mid-80s with the US tax man or as Mr De Sole jokingly calls it 'the Infernal Revenue Service'.

The Guccis came up with a radical solution to the problems besetting their US operations.

'They asked me to manage the company and take care of the tax problem which I did,' said Mr De Sole. 'It was a major jump but you never know in life. When I started school I wanted to be a journalist. Then I become a lawyer and then I started selling handbags,' he said, enjoying the gag at his own expense.

He went through years of turbulence as the Gucci family battled each other over control of the house rather than their business rivals.

Patriarch Guccio Gucci would have been turning in his grave. Inspired by the elegance around him in his job as a lift attendant at the Savoy Hotel in London, in 1921 he returned to Florence to set up a shop selling luggage and saddlery.

That grew into a world-renowned fashion brand that adorned the likes of Jacqueline Kennedy, Grace Kelly and Ingrid Bergman.

'Guccio Gucci was great, his children were brilliant and they made the company very successful. Then the third generation was a disaster,' said Mr De Sole.

In fact the arrogance of Gucci's son Aldo was to blame, according to a new book The House of Gucci: A Sensational Story of Murder, Madness, Glamour and Greed.

Elderly Aldo's attitude is said to have provoked bitter rows with his three sons, his brother Rodolfo and nephew Maurizio. Meetings often ended with ashtrays and poisoned words flying, the book claimed.

The problems Mr De Sole had to clear up were caused when Aldo's son Paolo publicised documents showing his father had evaded taxes.

Maurizio ended up selling half the company to Investcorp a Bahrain bank. But he did not have long to enjoy the US$120 million he received. He was killed by a hit man hired by his ex-wife Patrizia Reggiani who is now serving 26 years in jail.

The murder was in 1995, coincidentally the year that Mr De Sole was promoted to be chief executive of Gucci, which by then was completely shorn of family shareholders. The company had its designer-back to the wall with high expenses and sinking sales. The family had also diluted the brand by franchising out many of the stores.

To pull Gucci back from the brink, Mr De Sole has employed two key strategies. Firstly get the stores back under the company's control to maintain quality and consistency, and secondly buy other luxury brands, taking a leaf out of LVMH's book, to widen Gucci out from leather goods and loafers.

'There is a limit if you want to keep Gucci the way we like it, a really great, exclusive luxury brand,' said Mr De Sole, who was in town to open Gucci's ninth Hong Kong store.

'That is why I think you need to be a multi-brand reality. You can use your business expertise to grow more than one brand.'

Gucci now also owns fashion houses Yves Saint Laurent and Rive Gauche and has majority stakes in shoe maker Sergio Rossi, leather goods house Bottega Veneta and watch maker Bedat, as well as Alexander McQueen.

Mr De Sole's next move is expected to be the HK$11 billion purchase of Italian designer label Valentino.

It is all adding up in the numbers. The Gucci Group last year saw revenues soar 83 per cent and operating profits gain 43 per cent. Net profits were US$336.7 million on sales of US$2.25 billion. In 1994 sales had been as little as US$200 million.

Gucci shares closed at US$83.60 and are up 82 per cent over the last three years.

The turnaround story is such a good one that academics from Mr De Sole's old university Harvard are making a case study of it.

Mimi Pun, who heads Gucci's regional operations, said it was down to her boss's insistence on attention to detail and maintaining standards.

'Mr de Sole always reminds all of us that we have to be constantly consistent and consistently constant,' she said.

It all goes to show what can be achieved in an era of rampant global consumerism with powerful brands and good management who are all singing from the same song sheet.

'Luxury brands, it is right, they are very profitable,' said Mr De Sole. 'But there is a tremendous amount of work to be done because if you lose your position, if you deplete your brand, your great money machine, is broken.'

The Gucci family's rise and fall is a lesson not lost on Mr De Sole: 'What you have today you can lose it tomorrow if you are not careful.'

Biography

Domenico De Sole was born in Rome in 1944. After graduating in law he moved to the United States in 1970 to take a masters degree at Harvard University. He stayed on in the US and became a citizen while rising to become a partner in the Washington law firm of Patton, Bloggs. In 1984 he switched from law into business by becoming chief executive of Gucci America. Ten years later he moved to Italy to become chief operating officer for the group and in 1995 he was promoted again to group chief executive and president. With design chief Tom Ford he is credited with turning around Gucci after the exit of the family as shareholders. He led Gucci's listing in Amsterdam and New York in 1995 and has overseen a series of acquisitions of luxury brands. Mr De Sole is based in London and has an American wife and two children. He is a member of the advisory board of Harvard Law School.



Head of Italian luxury giant Gucci bares steel behind slinky style