Gucci Aims to Avoid Boom-Bust -- WSJ
26 Febbraio 2018 - 09:02AM
Dow Jones News
By Matthew Dalton
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 26, 2018).
MILAN, Italy -- Gucci is in the midst of a boom shadowed by the
threat of a bust: fickle shoppers falling out of love with the
Italian fashion house as quickly as they embraced it.
Gucci has been on a tear since it hired creative director
Alessandro Michele three years ago. Sales have risen nearly 80%,
hitting EUR6.2 billion ($7.6 billion) in 2017. Operating profit has
more than doubled to EUR2.1 billion. Mr. Michele's kaleidoscopic
designs -- which mix colorful streetwear, historical references and
garish animal prints -- have been praised by critics and scooped up
by shoppers from New York to Beijing.
Last year, Gucci passed Hermès, the fashion house known for its
high-price handbags, to become the second-biggest luxury brand by
revenue, behind only Louis Vuitton. The brand is flaunted by
celebrities and generates buzz on social media. "Gucci Gang," a
single by the 17-year-old rapper Lil Pump, hit no. 3 on the U.S.
charts last year.
Yet the boom has led analysts and investors to worry Gucci risks
becoming a victim of its own success. As sales continue to grow and
other brands increasingly ape Mr. Michele's designs, they fear
Gucci could become overexposed.
"Consumer loyalty is very fickle," said Luca Solca at Exane BNP
Paribas. "There's a scenario down the road that Gucci is seen too
much."
Gucci executives say they are taking measures to prolong desire
for Mr. Michele's designs. To protect the exclusivity of the brand,
Gucci has ended reduced-price sales in its stores. Discounts are
only available in the brand's handful of factory outlets -- and
only a year after the end of the season in which the clothes first
appeared.
But Gucci is also betting that its star designer can develop
iconic products that defy fashion's boom-bust cycle. That is how
Louis Vuitton and Hermès manage to sell leather goods, even when
fashion trends suddenly turn. Executives say Mr. Michele has
developed some products that continue to power the brand. They
include the Princetown slipper, the Ace sneaker and the Dionysus
handbag.
"People started to question the longevity of the growth already
12 months ago," Gucci CEO Marco Bizzarri said in an interview. "We
keep improving our business and our success."
Gucci is no stranger to sudden shifts in consumer tastes. The
brand ruled the catwalk in the 1990s when designer Tom Ford was at
the helm. Revenue grew under his successor, Frida Giannini, but
toward the end of her tenure, the brand's sleek styling had lost
favor with shoppers.
Under Messrs. Michele and Bizzarri, Gucci rolled out an
instantly recognizable look. Mr. Michele's use of pop culture logos
has made his designs a favorite for fashion-savvy Instagram users.
Gucci "provides Instagram heaven," says Helen David, chief merchant
at Harrods, the upscale London department store.
The brand consistently rates as among the most mentioned luxury
brands on social media, according to Tribe Dynamics, which tracks
online buzz.
At last week's Gucci fashion show in Milan, Mr. Michele's models
wore trench coats and sweaters emblazoned with the logo of the New
York Yankees. Others donned knitwear versions of a medieval
executioner's face mask. Two carried silicon-and-plaster
reproductions of their own severed heads. Photos of the show posted
to Gucci's Instagram account garnered hundreds of thousands of
likes.
"Fashion has followed him," says Jeffrey Kalinsky, director of
designer fashion at Nordstrom. "I don't know why that wouldn't
continue for a very long time."
The challenge now facing Gucci is to convert that buzz into
appeal that can endure across fashion seasons. Gucci is already
investing in store renovations that seek to enshrine Mr. Michele's
status. Sleek minimalist interiors are being replaced with lush
décor that reflects Mr. Michele's flamboyant aesthetic.
Executives say the renovations have produced sharp increases in
revenue at the stores where work has been completed -- so far only
152 of Gucci's 529 stores world-wide. Rolling out those renovations
across the network should deliver a significant jolt to revenue,
executives say.
By creating "continuity" between Mr. Michele's collections,
Gucci aims to insulate the brand from the volatility of
ready-to-wear fashion, said François-Henri Pinault, the French
billionaire who is chief executive of Gucci's corporate parent,
Kering SA, at an earnings presentation this month.
"There isn't a ready-to-wear bubble at Gucci," Mr. Pinault
said.
Write to Matthew Dalton at Matthew.Dalton@wsj.com
Corrections & Amplifications Sales have risen nearly 80%,
hitting EUR6.2 billion ($7.6 billion) in 2017. An earlier version
of this article incorrectly stated the dollar value of the sales.
Also, an earlier version misstated the name of the Princetown
slipper, and incorrectly reported the date of the Gucci fashion
show in Milan.
(END) Dow Jones Newswires
February 26, 2018 02:47 ET (07:47 GMT)
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