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 Michele's kaleidoscopic designs -- which mix colorful streetwear, historical references and garish animal prints -- have been praised by critics and scooped up by shoppers from New York to Beijing.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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