(FORTUNE Magazine) – Domenico De Sole, the Italian-born, 53-year-old president and CEO of the Gucci Group, has staged the biggest company turnaround and brand renaissance in high-fashion history--and practically overnight. When De Sole took the reins in 1994, the fabled Florentine company was perilously close to bankruptcy, plagued by years of bruising infighting among Gucci family members. Recklessly selling schlocky goods, they had trashed their once glamorous brand name. Production was at a standstill, suppliers hadn't been paid, and the work force was angry and dispirited. Today Gucci is a fast-growing luxury powerhouse, with 158 international boutiques that are routinely deluged by elegant shoppers clamoring for branded products such as loafers, handbags, and Technicolor satin shirts. Revenues have more than tripled since 1993 and this year are expected to hit $1 billion. Net profits more than doubled, to $168 million, over the past two years.

De Sole, a Harvard-educated lawyer who began his association with the Gucci Group nearly 20 years ago as its legal adviser, remains somewhat daunted by the speed and intensity of Gucci's revival. In 1995 he projected revenues of $500 million by the year 2000. "Incredibly," he says, "we did $881 million the following year."

Not all has gone well of late in De Sole's revital-ized empire. Gucci stock recently took a one-day pounding after a two-year heady streak, when it consistently traded between three and four times its IPO price of 22. Why the 12-point hit? De Sole warned of lower-than-expected second-half earnings, citing as culprits the weak yen and strong dollar. Gucci sales have dropped sharply in markets dependent on Japanese tourism, such as Hawaii and Hong Kong. Furthermore, Gucci reports in dollars, but about 35% of the company's sales are made in Italy and Japan, where currencies are frail. Thus, much is lost in the exchange. Even so, De Sole was stunned by the stock's dramatic fall. "The market overreacted," he says. "Our sales for the first half of 1997 were up 22.6%, and net profits were up 29%. It's unrealistic to think we can always double sales and profits."

He adds, adamantly, that he will not change his operating strategy. De Sole says his goal for Gucci is to keep pace with larger competitors like privately held Chanel, with estimated revenues of $2 billion, and he boasts that sales already surpassed those of rival Hermes in 1996. In a series of interviews with FORTUNE staff writer Faye Rice, De Sole allowed for future acquisitions but insisted that expansion from within will be great enough near term to satisfy Wall Street--as well as his own appetite for growth.

What were the most important steps that you took to recharge the company and restore luster to the Gucci brand?

First, I wanted Gucci, known for classic accessories, to be a fashion leader. Our apparel, which had been practically invisible, became prominent, which grabbed the attention of fashion-forward consumers and the press.

Second, I wanted us to recapture our great heritage of quality. To dramatically improve quality, which we have done, I first had to get everything working again. The production process had completely broken down. I spent the entire summer of 1994 driving through the hills of Tuscany, meeting with our leather goods suppliers. Incidentally, they had not been paid for previous work done. But I told them Gucci was coming back and urged them to stick with us. I promised to pay their money back, and as an incentive, I vowed to pay a percentage of future wages up-front. This is something that had never been done before.

I told them I was organizing a partner's program for the best and most dedicated artisans and that we would help them upgrade their facilities. If they needed high-tech machines to boost productivity or wanted to expand their plants, we would advance them the money. In return I asked for significant improvements in productivity and insisted that their workers be retrained in quality control and efficiency.

Why didn't these suppliers leave you during the tough times? Why didn't they just go to work for rivals like Fendi or Prada?

You must understand that Gucci had been a vital part of their lives. These are small, family-owned companies, many employed by Gucci for two or three generations. Plus, I motivated them. Executives who cannot motivate people usually fail. I promised them growth and security in the form of steady work. Italy is not like America, where you work for one guy one day and another the next. Steady work is very valuable to them.

Our supplier partners do not participate in Gucci's employee profit-sharing program, but they make a lot of money now because their production has skyrocketed. We produced 250,000 handbags in 1993, and now two million.

I gather that lowering prices was also a key part of your strategy, right?

Yes, I repriced all of our merchandise. I wanted to give great value for the money and have a price position that made sense. We did an analysis of our competitors. Then I sat in a room with Pat Malone, now chief of Gucci America, and we changed the price of every single item. We reduced the price, for instance, of our medium-sized, bamboo-handle leather handbag, a top seller, from $1,300 in 1993 to $1,190.

What was your marketing plan for Gucci's new image? How did you plan to tell the story of how the company had changed?

First of all, I wanted unity of style so that the customer who flies from Tokyo to Milan to New York will find the same image. I wanted the windows at every Gucci store worldwide to be consistently modern, exciting, and dramatic. The cluttered, Turkish-bazaar look that Gucci windows had before was horrible, and many stores did their own thing.

Also, I invested heavily in communications to show that Gucci was changing. We began producing provocative ads and selected the best fashion magazines to showcase them. The campaigns are religiously consistent worldwide--the same image of elegance and modernity everywhere. Our ad spending, which includes public relations and window display, increased from $6 million in 1993 to about $70 million this year.

Please describe the underlying elements of your management philosophy.

Consistency, consistency, and execution, execution. Some companies have great strategies and do a lot of talking, but they don't get it done. I follow through. I call my managers all the time to make sure they have executed what they said they would do.

I'm also obsessed with consistency because it distinguishes great brands. To make sure that goods are consistently displayed, I go on my terminator tours around the world. If the presentation is not correct, I close the store down. A year or so ago I closed the duty-free shop in Hong Kong's airport, a franchised boutique in Taiwan, and Harrods in London. I've scheduled another tour for next month.

But doesn't that sort of tactic lead to lost sales?

I take a long-term view. We may have to sacrifice sales sometimes, but you will ruin your brand if you chase every dollar. At Harrods, for example, our location was bad, the merchandise was all junked up, and our annual sales were only about $100,000. After closing for over a year we reopened in September with a beautiful boutique and a great location. We're projecting $345,000 in sales for the last four months of 1997.

How much responsibility do you feel comfortable delegating to others?

I try to hire good people and let them do their jobs as long as I know what is going on. Some CEOs don't know much about their companies, but I know everything. By the same token I let my managers make decisions, and I respect their suggestions. I have a very open American style and like to keep all our employees involved with what we're doing.

Are there any other important management tactics you'd like to share?

Yes, a lesson I learned from Gucci's bad times: Don't overdistribute. Every store wants to carry Gucci now, but luxury brands must be exclusive, so we are only in the stores that we need to be in. I am, in fact, in the process of reducing the number of upscale retailers that carry Gucci.