As shoppers browsed for handbags earlier this month at a Gucci boutique in Paris, the clothing section was quiet and the racks a little sparse.
“There’s less clothing in stock than there would normally be because we’re waiting for the new aesthetic to be unveiled,” one sales assistant said.
The Italian luxury house, which accounts for about half of French parent company Kering’s revenues and two-thirds of its operating profit, is among the industry’s biggest with more than €10bn in annual sales.
But sales have been flagging in recent years and Gucci has been in limbo since the November departure of creative director Alessandro Michele, whose successor Sabato De Sarno unveils his first collection in Milan this week.
“Some clients haven’t noticed much of a difference,” the sales assistant said. “But others, who were really in love with the Michele look, are waiting to see what the new vision is like . . . We’re excited but as much in the dark as the public.”
Kering, whose other brands include Yves Saint Laurent and Balenciaga, is betting that Gucci’s new direction will help revive the group’s fortunes after it has struggled to keep up with rivals that have set sales and growth records during a global luxury boom.
Founded by François Pinault, father of current chief executive François-Henri, the group started as a timber trading company in Rennes before diversifying into retail distribution in the 1990s. After buying a stake in Gucci in 1999, the group gradually transformed to focus on luxury, offloading assets such as sports apparel maker Puma and retailer La Redoute and rebranding the group from PPR to Kering.
De Sarno’s appointment in January from Italian fashion house Valentino has been followed by other big changes at Kering under François-Henri Pinault, whose family controls the group.
After a February announcement that it would create a new beauty division, Kering bought high-end perfumer Creed in June for more than €3.5bn. In recent months, the company announced Gucci chief executive Marco Bizzarri would depart after De Sarno’s first show as part of a wider management reshuffle, and struck a deal to buy a 30 per cent stake in Valentino.
The announcement last week that Alexander McQueen creative director Sarah Burton would leave after 13 years at the helm is another big change within the group.
Elsewhere, the billionaire Pinault family has agreed to buy a majority stake in Hollywood talent manager Creative Artists Agency via its holding company, Artémis.
“I made a series of major decisions that will have a profound impact . . . While we have some reasons to be satisfied, there are also reasons to be disappointed with our performances, starting with Gucci,” Pinault told analysts at the end of July, adding that he believed his flagship brand had the potential to grow to more than €15bn in sales “in the foreseeable future”.
Sales at the French group only ticked up 2 per cent in the first half of 2023, while LVMH gained 17 per cent over the same period. Kering trades at a discount to peers at about 17 times forward earnings, while LVMH trades at 23 times and Hermès at 49 times.
“A pretty blunt assessment is that while a lot of these mega brands address all ages, all genders, all price points, Gucci has gone a bit narrow,” said Erwan Rambourg, global head of consumer and retail research at HSBC, who believes it was a strategic error for Kering’s flagship brand to focus on young, trendy consumers at the expense of older, wealthier customers.
While many brands including Gucci put a lot of focus into cultivating aspirational luxury clients — particularly among China’s fast-growing middle class — in recent years, the brand was slow to move back to catering to ultra-wealthy, particularly in the core US market as luxury spending went up. As trends changed, Gucci’s less developed lines of iconic products left it vulnerable, and the fall in sales was further exacerbated as Chinese buyers grew more cautious after Covid-19 lockdowns.
While analysts largely see the merits of Kering’s moves, many warn that the results will depend on execution as it looks to tackle not only Gucci’s flagging sales but also problems around its cohesiveness as a group run from Paris but overseeing many of Italy’s biggest luxury brands.
“Most of Kering’s companies are in Italy, so there is an issue of distance and culture, and some resentment over solutions imposed from the headquarters in France,” said another industry analyst, adding that the management changes appeared to be “an attempt to take back control by the executive”.
Kering declined to comment for this article.
Under Michele and Bizzarri, Gucci doubled down on its fashion-forward credentials, which worked well for several years. Michele’s glamorous, gender-fluid stylings were a hit, as were Gucci’s cinematic ad campaigns and arresting runway shows. A 2018 collection featured models carrying silicon replicas of their own severed heads, while his last show in 2022 was modelled entirely by pairs of identical twins.
Sales more than doubled from €3.9bn in 2015 when Michele took over to more than €10bn in 2022, as operating profits more than tripled. But Gucci’s approach also tied it to ephemeral trends and the pace of sales growth began to slow, particularly in the past three years.
Michele also resisted the idea of building a more timeless aesthetic for the brand, according to a person with knowledge of the matter.
Michael Ward, managing director of London luxury department store Harrods, said there had been “a shift in aesthetic with customers globally looking for clean investment pieces” rather than the “bright colours, branding and logo motifs” that Gucci is known for, although he noted the trend had benefited other Kering brands such as Yves Saint Laurent and Bottega Veneta.
“The gap in bringing in a new designer has led to the brand standing still whilst others have accelerated . . . We hope that [De Sarno] manages to take the brand back to the classic lines which were so successful during the Tom Ford era,” Ward added, referring to the American designer who is credited with reviving Gucci’s fortunes as creative director from 1994 to 2004.
The appointment of longtime Kering executive and Pinault confidant Jean-François Palus as Gucci’s interim chief executive surprised many in the industry who had expected a permanent appointment. Yves Saint Laurent chief executive Francesca Bellettini was also appointed deputy chief executive of the group.
Bellettini’s promotion was presented by Kering as a way to increase oversight over the group’s brands — an issue that was brought into starker relief after a scandal over a controversial ad campaign at Balenciaga hit sales in Europe and North America — and Palus’s custodianship of Gucci as a way to fast-track the turnaround.
Palus “has been running the group at my side for many years”, Pinault said in July. “So I know that he’s going to be immediately operational, and that was my key concern.”
The beauty division will take time to build but give the group exposure to a fast-growing premium market, allowing its brands to create lucrative new lines of skincare, cosmetics and fragrances.
The Creed deal lends “credibility that their ambitions in beauty are serious”, Citi luxury analyst Thomas Chauvet said at the time.
But the real prize is not yet in the company’s hands. Franco-American company Coty holds the licence for Gucci-branded beauty products until at least 2028. Kering has said it is dissatisfied with the way the beauty license has been managed by Coty, but the beauty group’s chief executive Sue Nabi said there will be no discussion of a Gucci licence deal in the next five years.
The Valentino stake acquisition was announced in July, with an option to take full control from Qatari fund Mayhoola by 2028. Kering has a record of building up smaller brands such as Alexander McQueen and Bottega Veneta, a playbook that could be applied here — although the amount of control it can assert will be limited in the first phase.
Some investors are optimistic about Kering’s future given the recent changes and the overall strength of the luxury market.
“Kering is a company that has brands which are of size, it’s well managed, it has a solid balance sheet,” said Maria Lernerman, analyst at fund manager Harding Loevner, a top 10 active investor in the group.
But others see its gradual problem-solving as too conservative.
“Some investors would have preferred a big bang approach,” said Rambourg, especially since “brands like Louis Vuitton, Dior and Cartier have thrived on being bold”.
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