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Guess, Inc., designs, manufacture, and licenses an expanding line of women's and men's apparel centered around their popular Guess jeanswear. Guess owns and operates a chain of 61 retail clothing stores in the United States, and a flagship European retail store in Florence, Italy. The company also licenses Guess retail stores in Argentina, Australia, Brazil, Canada, Columbia, Costa Rica, Guatemala, Hong Kong, Italy, Kuwait, Lebanon, Malaysia, Monaco, Panama, Saudi Arabia, Singapore, Spain, and Venezuela, as well as more than 30 stores in Mexico. Guess wholesale sales reached over $600 million in 1994, with sales of licensed Guess merchandise, including footwear, perfume, and wristwatches, adding another $500 million in wholesale volume.
In 1981, Georges Marciano and his brother Maurice arrived in Los Angeles and opened a clothing store in Beverly Hills. Born in Morocco and raised in Marseilles, the Marcianos--who would be joined the following year by brothers Armand and Paul--had previously owned and operated a chain of twelve retail stores in France, but had left that country in order to avoid a tax bill of approximately FF 9 million. (The bill was finally settled in 1986.) Among the merchandise sold in the Marcianos' store were jeans designed by Georges Marciano. These jeans--named Guess, because it was easy for the brothers to pronounce--were meant to fit tightly and featured zippers at the ankles. Innovative for the time, the jeans were stone-washed, giving them a softer feel and lighter colors than typical denim jeans. They also featured what would soon become the distinctive Guess triangle on the back pocket. By then, however, the 1970s' boom in designer jeans had faded. It seemed unikely that a new entry into this tapped-out market could be sucessful.
Georges Marciano flew to New York in December 1981. Despite his limited English, he convinced Bloomingdale's to display on consignment 30 pairs of his European-style jeans in Bloomingdale's flagship New York store. Within three hours, Bloomingdale's sold out of every pair, despite a $60 sales tag. Guess jeans sales took off spectacularly the following year when Paul Marciano arrived in California to direct the company's advertising campaign. Although he had no previous advertising experience, Paul Marciano devised a campaign that revolutionized the way jeans--and clothing--were sold. Instead of adopting the typical studio design, Paul brought his brother's jeans, and the models wearing them, outdoors, using grainy black-and-white photography and provocative poses described by Forbes as "catering to teenage cravings for sex, power, attention and self-love ... electric not only with sexuality but with an implicit brutality and exhibitionism as well." The controversial ads and their sexy Western look swiftly created household names not only of the Guess brand, but also of its models, in effect starting the supermodel trend that would make many of the "Guess Girls"--including Carre Otis, Claudia Schiffer, Naomi Campbell, Eva Herzigova, and Anna Nicole Smith--international stars. By the end of 1982, the Marcianos had sold some $12 million dollars of their jeans.
Demand for their product soon overwhelmed the Marcianos. Searching for the capital to expand and access to cheaper foreign labor, the Marcianos signed a deal in July 1983 with the Nakash brothers of the company Jordache, giving Jordache 50 percent ownership of Guess in exchange for $4.8 million and use of Jordache's Hong Kong manufacturing plants. Under the deal, Jordache was also licensed to set up a new line of jeans, called Gasoline, to use parts of Guess designs in a lower-priced line. The Guess-Jordache deal neglected, however, to provide for written assurances against copying each others' designs, a common garment industry practice called "knockoffs." Instead, the Marcianos relied on the Nakashes' assurances that, given the success of their own clothing designs, they had no need to knock off Georges Marciano's designs. This lack of written agreement would soon come to haunt the company.
Like the Marcianos, the Israeli-born Nakashes manufactured designer jeans, starting their company in 1977 from a single store in Brooklyn, New York and building a $280 million business by 1983. Jordache's fortunes, however, had already begun to slip, as the designer jean market fizzled and the Jordache name increasingly became known as a mass merchandise label. The Marcianos, on the other hand, sought to establish the Guess name as exclusively high-end. Throughout the company's growth, distribution of Guess clothing was limited largely to upscale department stores and the Marciano's own growing chain of MGA (for Maurice, Georges, and Armand) retail stores.
By the time of the Jordache deal, the Marcianos had already begun to expand their line beyond jeans. In 1982 they entered the menswear market through a licensing agreement with Jeff Hamilton, Inc., which marketed a line of men's clothing under the Guess name in exchange for a seven percent royalty fee. Between 1983 and 1984, sales of Guess menswear rose from $2.5 million to $27 million. However, Guess soon sought to terminate the Hamilton license agreement and bring the menswear line in-house, maintaining that Hamilton's Guess line was oriented too strongly toward the young men's market, and that Hamilton's "dumping" (according to Maurice Marcian in the Daily News Report) of Guess merchandise in Kmart and other discount stores was hurting the label's high-end image. This led to a legal battle with Hamilton that slowed growth in menswear, which Guess brought in-house in 1986.
The Marciano's largest legal battle, however, was with Jordache. By 1984, sales at Guess had reached $150 million, with the price of Guess jeans climbing as high as $85 per pair, but the partnership between the two sets of brothers had already soured. The Marcianos sued the Nakash brothers and Jordache in 1984, charging that company with unfair competition and claiming that the Nakash brothers were using their position on the Guess board of directors and their access to Guess designs in the Hong Kong plant to produce knockoffs of Guess clothing in their Jordache line. The Marcianos' suit asked the court to undo the 1983 agreement that had given the Nakashes control of half of Guess.
The battle for control of Guess continued for the next five years. Along the way, both sides leveled charges of corporate espionage and document shredding; the Nakashes weathered an investigation by the Internal Revenue Service into Marciano-alleged tax evasion and customs quota fraud, and the Marcianos faced allegations of improper dealings with the IRS. At one point, the Marcianos hired Israeli commandoes to patrol their offices; the Nakashes, for their part, hired security experts to sweep their offices for bugging devices. Meanwhile, the judge overseeing the suit ordered the Marcianos to repay more than $1.5 million of an alleged $1.8 million in unauthorized fees taken out of the company (including the Marcianos paying themselves double their salaries). Estimated attorney fees ran as high as $10 million per year for each side. As one attorney involved in the case told Forbes: "This is not just war, this is total war. Take no prisoners. There is not an issue that has not been filed. This is litigation at its worst."
Despite Guess's legal distractions, sales continued to grow, reaching $350 million in 1987, with profits of $100 million. While much of its sales continued to be in jeans, Guess had successfully entered the women's market, with its upscale Georges Marciano label, as well as children's, leatherwear, and footwear. Relaunching its menswear line in 1986, Guess began to make inroads in that market as well, placing its products in men's departments of most major department stores. Licensed products, including Guess watches, eyewear, and a Guess women's fragrance line produced by Revlon, also contributed to overall sales: in 1990, Guess watches alone sold an estimated $60 million. Meanwhile, Guess's chain of retail stores, renamed Guess and averaging 2,000 square feet, grew to 19 locations. The company also moved its Los Angeles operations to a 14-acre site encompassing six buildings, where it manufactured 93 percent of its products. By 1990 sales reached an estimated $575 million.
The legal battle between the Marcianos and the Nakashes finally ended in early 1990, when a jury agreed with the Marcianos and returned 100 percent control of Guess to them. A second trial was set for May 1990 to determine damages. However, as the jury in that case was deliberating, the Marcianos announced that they had reached a settlement with the Nakashes for an undisclosed amount. This development occurred over the objections of their attorney, who pushed them to continue the case to full victory. The Marcianos stated, however, that they feared seeing the case continue through the appeals process and still more years of litigation. The Marcianos' attorney then sued them for $17 million in damages.
But with the battle with Jordache over, the Marcianos set about expanding their business. The years of litigation and the enormous attorneys' fees had limited their growth: the company believed that it would have topped $1 billion in sales by its tenth anniversary had it not been for the court case. With their resources freed up, the Marcianos increased their advertising budget to $22 million in 1991. The company also expanded its retail chain, to 33 stores by the end of 1991, including its European flagship store in Florence, Italy. While the recession of the early 1990s slowed growth somewhat, to seven percent in 1991 compared to double-digits throughout the 1980s, Guess menswear took off, with a 41 percent sales growth in 1991 alone. By the end of that year, menswear accounted for just under 40 percent of company sales. International sales were also becoming more important to overall revenues. Licensing arrangements brought Guess clothing to more than a dozen countries, with sales particularly strong in Canada and Japan.
In 1993 Guess and its licensees registered an estimated $700 million in sales. In that year, Georges Marciano stepped down as the company's chairman, chief executive officer, and designer, citing differences of opinion with his brothers over the direction of the company. Georges, who had left the company briefly in 1988, sold his 40 percent share of the company to his brothers for an estimated $200 million. The year before, Maurice Marciano had also left the company, but he returned shortly before Georges Marciano's departure. Maurice was named chairman and chief executive officer and took over direction of design; Paul Marciano remained president and chief operating officer, and Armand continued to act as senior executive vice-president. After leaving Guess, Georges Marciano sued Guess and his brothers for allegedly infringing on the Georges Marciano trademark. Meanwhile, Georges opened a new company, Go USA Surfwear, and purchased 80 percent of Yes Clothing Company.
With Guess ads now featuring Maurice's name instead of Georges Marciano, Guess looked to its overhauled junior's line and international distribution, along with a stepped up promotional campaign, to fuel its further growth. Advertising spending reached $28 million in 1993; international sales were expected to reach 25 percent of total sales by the end of 1995. Licensing also continued to be an important source of revenue, with products now including home furnishings, infant wear, and junior knitwear. Sales of Guess watches topped $100 million in 1994, and Guess footwear sold more than $60 million. Meanwhile, Guess stores had also been growing, to an average of 3,500 square feet, and to 61 stores by the end of 1995, including a 7,000 square-foot store in Hawaii's Ala Moana Center and an 8,400 square-foot store in the Woodfield Mall in Schaumburg, Illinois. In less than fifteen years, the Guess label had grown from 30 pairs of jeans to a diversified, billion-dollar branded empire.
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