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How Guess Got Its Groove Back


In his twenty-five years as chief image guru at the fashion label Guess? Inc., (GES) Paul Marciano has turned a number of pretty women into supermodels. There was the German beauty, Claudia Schiffer, who became a staple of black-and-white Guess magazine ads in the late 1980s. And there was the voluptuous Texas waitress, Vickie Smith. Marciano says he suggested she use the name Anna Nicole. He was less successful in trading on the already white-hot celebrity of Paris Hilton, who was featured in a series of Guess ads two years ago but left to pursue an acting career. "The Guess girl is edgy, sexy, confident," he says. "And she loves to be looked at."

But Marciano's greatestmakeover is the one he and his brother Maurice have pulled off at Guess. Just a few years ago the company seemed like a fashion victim. The baggy urban look had taken over the jeans business. Department stores, struggling to compete with discounters such as Kohl's (KSS) and Target (TGT), began pushing established brands such as Polo Ralph Lauren, Calvin Klein, and Guess to sell their jeans for lower prices. Average prices tumbled from $68 to $29. Guess sales fell 14% in 2002, and it reported an $11 million loss. "It was the darkest days of the denim business," Paul Marciano says.

Rather than continue lowering prices and diluting the brand, the brothers took their signature Euro-trendy look more upscale, shifting their denim sources from the U.S. to the finer weaves of Italy and Japan. They had their pants stitched and washed in smaller batches, often at high-cost U.S. facilities. And they opened more Guess stores. There are 706 of them now, up from 118 in 2001, and there may be 150 more in 2007, one-third of them in the U.S. The average price of women's jeans at Guess stores has climbed to $103, twice what it was a few years ago. "We had no resistance from the customer," Maurice says. "They understood they were paying more for quality. "

The company's financials now look as sexy as one of Paul's model discoveries. Sales have doubled since 2002, to an estimated $1.2 billion this year, even though the Guess wholesale department-store business is just a third of what it was at its peak. Profits have come back, to an estimated $110 million for 2006. And Guess stock has shot up seventeenfold, to a recent 65, helping it land on BusinessWeek's annual list of the 100 fastest-growing small companies.

Opening stores gave the Marcianos an opportunity to feature more Guess merchandise. Instead of being limited to a wall of jeans and a couple of racks of shirts at Bloomingdale's (FD), Guess stores showcase its watches, shoes, handbags, and fragrances. The stores also make it easier for the brothers to launch labels, such as Marciano, a higher-end clothing line for women that makes up a third of sales at some locations. Next year the company is rolling out a new G by Guess concept with 30 stores. Jeans prices there will top out at $65 a pair.

A PIECE OF THE RETAIL MARKUP

Overseas, the company has 376 locations. But lately the Marcianos have been buying back licensing agreements they had with foreign distributors so they can capture more of the retail markup for themselves. In Europe in particular, this translates into much larger revenues because the Guess brand was traditionally sold in fancy specialty stores where prices on jeans average $168.

Europe is a journey home for the Marcianos, who got their start in the 1970s operating retail shops in the south of France. Their first Guess product was skinny, stone-washed jeans with zippers at the ends of the legs. For years the Marcianos battled the Nakash brothers, founders of Jordache Jeans and early Guess investors, for control of the company. The Marcianos won and took the company public in 1996.

Today, Maurice and Paul share the title co-chairman and chief executive. Maurice handles operations and design; Paul runs marketing. Sometimes they quarrel about why a particular photo shoot has to take place in, say, Brazil and not in nearby Malibu. But these days they get to solve their own disputes--and no one else really has a say.

By Christopher Palmeri


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