The Rise and Fall of Gucci: From High Fashion to Discount Racks

🖼️ The Gucci Image

Gucci is synonymous with a larger-than-life, sexy, and adventurous spirit. It’s the brand that makes you want to live out your deepest, most unconventional fantasies. Gucci doesn’t belong in a mall; it belongs in a museum. But behind this glamorous facade, the reality has been a bit less enchanting. Gucci, an icon of Italian fashion, has faced a dramatic slowdown, particularly in Asian markets, seeing sales fall by 20%.

📉 The Struggle

The $50 billion conglomerate that owns Gucci, the French company Kering, has been through its own rollercoaster. Despite owning other storied brands like Yves Saint Laurent, Bottega Veneta, and Balenciaga, Gucci remains the mothership. Yet, the brand has struggled recently, with its flagship store facing a slump in sales, dragging down Kering’s entire portfolio with it.

🏢 A Tale of Two Conglomerates

Kering, controlled by the Pinault family, faces its main rival in the form of LVMH, which owns luxury giants Louis Vuitton and Christian Dior. These two conglomerates control much of the French fashion world. This rivalry climaxed in the late ’90s when LVMH tried to acquire Gucci, but Kering swooped in as a “white knight,” eventually buying Gucci.

📊 Diverging Trajectories

In the years since, LVMH’s value has soared to $450 billion, outpacing Kering, which hasn’t seen similar growth. Gucci is largely responsible for this, accounting for about 50% of Kering’s sales and more than two-thirds of its operating profit. In contrast, Louis Vuitton contributes to only a quarter of LVMH’s sales but half of its profits, offering more stability.

🎨 Alessandro Michele’s Impact

The man behind Gucci’s brief resurgence was Alessandro Michele. Appointed in 2015 as creative director, his hit products like the Marmont bag, Dionysus bag, and the Princetown slippers became iconic. Under Michele, Kering’s market cap quadrupled, and Gucci’s sales more than tripled. His bohemian chic designs resonated well with younger generations, marking a revival for the brand.

🔄 The Fashion Balancing Act

Maintaining the right balance in fashion is challenging. Gucci’s decline in the Lyst rankings reflects its struggle to keep up. Its recent downturn has seen sales miss targets repeatedly, causing stock prices to tumble. On the other hand, Louis Vuitton’s stable performance has catapulted Bernard Arnault, head of LVMH, among the world’s richest individuals.

📊 Fashion vs. Luxury

There’s a fundamental difference between fashion and luxury. Fashion is trend-reliant, whereas luxury depends on timeless heritage products. Louis Vuitton and Hermes exemplify this. For instance, the Hermes Birkin bag, launched in the 1980s, still commands high prices, often costing more than 10,000 euros. Gucci, by contrast, missed the opportunity to turn Michele’s hit products into timeless pieces, opting instead for short-term gains.

📈 Investor Sentiments

Investor confidence reflects this difference. For every dollar of profit LVMH earns, investors give it $24 in value. Kering’s is significantly lower at $15. This disparity is attributed to LVMH’s diversified portfolio, which is less susceptible to fashion trends compared to Kering’s heavy reliance on Gucci.

🔥 Pinault’s Focus

Francois-Henri Pinault, head of Kering, aims to elevate Gucci into the exclusive luxury space alongside brands like Hermes, Chanel, and Louis Vuitton. Although Pinault has been vocal about this strategy since 2006, achieving it remains a challenge. Observers often blame Pinault’s hands-off management style compared to Arnault’s direct involvement. The 2022 Balenciaga scandal, where the brand faced backlash over an ad campaign, is often cited as evidence of Pinault’s distracted leadership.

🎭 Shifting Focus

In 2023, the Pinault family bought a majority stake in Creative Artist Agency, seen as another distraction for Francois-Henri. Gucci’s parting with Michele in 2022 and the appointment of Sabato De Sarno from Valentino aim to elevate the brand but require time. Pinault’s vision for Gucci to become a true luxury player is more of a marathon than a sprint.

🕰️ Conclusion

The journey of Gucci from a high-fashion icon to facing challenges on the discount rack is a manifestation of the complexities in the luxury and fashion industries. While Kering’s future remains intertwined with Gucci’s fate, strategic moves and leadership decisions will determine if Gucci can regain its former glory and join the ranks of truly timeless luxury brands.