Revitalizing Gucci: Kering’s paramount endeavor

Gucci has long served as the powerhouse driving the luxury conglomerate Kering forward. Yet, sales of the esteemed Italian brand are decidedly on a downward trajectory in a decelerating global luxury market. Consequently, Kering has little choice but to rejuvenate the brand by elevating its position in the market.

“A group that relies so heavily on a single brand is dangerous,” noted Eric Briones, author of Luxe et Digital in conversation with AFP.

The Italian brand, renowned for its python bags and belts, accounts for 50% of Kering’s revenue and two-thirds of its operational profitability.

Yet, the first quarter of 2024 forecasts a downturn, with Gucci’s sales anticipated to “fall by nearly 20%,” Kering warned in March, alongside an expected “10%” decline for the entire group.

In contrast, LVMH boasts two dynamic brands, Dior and Vuitton. However, as Briones highlighted, LVMH’s roadmap for Michael Burke (CEO of LVMH Fashion Group, which brings together brands such as Celine, Givenchy, Loewe, Kenzo, etc.) is to cultivate five driving brands within the next five years.

Similarly, Italian rival Prada is fervently aiming to expand its brand Miu Miu.

Gucci’s reliance on an Asian and “aspirational” clientele, namely a younger, less affluent demographic drawn to “trendy” products, poses a challenge. The Asian luxury market hasn’t regained its pre-Covid momentum, and the aspirational customers are impacted by inflation.

A few months before the Covid-19 pandemic, in 2019, Gucci embarked on an “upscaling” strategy, focusing on “more sophisticated, higher-end segments with a clientele possessing greater purchasing power,” according to CEO of the luxury conglomerate, François-Henri Pinault.

A significant storytelling effort

“The so-called elevation strategy is, theoretically, the right approach,” commented Julie El Ghouzzi, author of The Luxury Manual, to AFP.

Fashion is fleeting, while luxury is timeless. “Gucci’s business model initially leans closer to fashion, necessitating quicker renewal. Consequently, affection or disaffection for the brand is cyclical,” she explained.

Elevation “is the ability to create iconic, timeless pieces enhanced with fashion’s sparkle,” elaborated El Ghouzzi.

For Kering, this pivot also means reevaluating Gucci’s highly successful fashion positioning under Alessandro Michele. Notably, Michele’s unique collections (who left the company in 2022) skyrocketed Gucci’s revenue from €3.9 billion in 2015 to €10.5 billion in 2022.

“There’s a significant storytelling effort required for iconic pieces: the spotlight should be on the products, not the creative director,” El Ghouzzi analyzed.

“People say, ‘I bought a Kelly’ (Hermès‘ iconic bag). We don’t know who made it; it’s the icon, the story that sells: it was Grace Kelly who used the bag to conceal her pregnancy,” she recounted.

“With Jackie Kennedy, there’s ample material to work with!” El Ghouzzi added, referring to Gucci’s “Jackie” bag made famous by Jacqueline Kennedy.

Simultaneously, Kering has reshuffled Gucci’s leadership, appointing Jean-François Palus, one of François-Henri Pinault’s closest collaborators, as the brand’s head. A new team has been forming around him in recent months.

On Thursday, Gucci announced the appointment of Stefano Cantino, formerly of rival Louis Vuitton, as the new deputy CEO, tasked with “defining and implementing the brand’s strategy.”

“We lacked sufficient expertise and talent in key company positions,” François-Henri Pinault admitted in February, highlighting the luxury sector’s demand for “very strong” expertise in sales, merchandising, and sourcing.

“We remain convinced that the actions currently being undertaken at Gucci should eventually bear fruit,” said HSBC bank in early April, though it does not foresee double-digit sales growth for Gucci until the fourth quarter.