Gucci Better Take Care Not to Fix What Isn’t Broken
Analysis by Andrea Felsted | Bloomberg
November 23, 2022 at 11:23 p.m. EST
I’ll never forget it: Singer-songwriter Harry Styles, in a quintessentially British fish and chip shop, with a chicken.
To me, that Fall 2018 campaign for Gucci’s men’s tailoring collection exemplifies everything that Alessandro Michele brought to the Italian fashion house as its creative director. His approach was quirky, yet commercial. He recruited an A-list star for a blockbuster marketing campaign, but he wasn’t shy with that trademark touch of eccentricity.
The blueprint won Michele an army of young fans at the more than 100-year-old label, generating a level of growth that had never been seen before in fashion.
More recently, though, Gucci has struggled, and Michele is now exiting, parent Kering SA said Wednesday. As of now, no replacement has been named. The design team will continue until a successor is announced.
A fresh vision could reset Gucci once more and reignite its stellar sales growth. But even though the fashion company is slowing from what has been a phenomenal run, it is not coming apart at the seams. Kering must draw on all of its skills to ensure it doesn’t disrupt demand for horsebit loafers and Dionysus bags.
It’s hard to overstate Michele’s influence on Gucci, as well as on the broader fashion industry. After his appointment in 2015, he ushered in a bold maximalism in stark contrast to the industry’s prevailing minimalism. With clashing prints and a reinvented double-G logo, his “granny chic” styles helped to more than double Gucci’s revenue to €9.7 billion ($10 billion) in 2021 from just under €4 billion in 2015. The operating margin rose to 38.2% from 26.5% over the same period.
Kering’s shares have generated a total return equivalent to 20% a year during Michele’s rein — twice that of the MSCI World Textiles Apparel & Luxury Goods Index.
But the pandemic dealt a blow from which Gucci never really recovered. Its ostentation looked at odds with the somber mood of the outbreak. The young Chinese shoppers who were some of the brand’s biggest fans seemed tired of it — when the country reopened in 2020, they rejected Gucci’s high fashions and instead splurged on the classics, such as LVMH Moet Hennessy Louis Vuitton SE’s namesake brand and Dior, as well as Hermes International. Consequently, Gucci has underperformed its rivals.
Up until now, Kering, supported by Gucci Chief Executive Officer Marco Bizzarri, has backed Michele to recapture sales. It has invested in high-profile marketing campaigns, extravagant shows, more celebrity tie-ups and collaborations with Palace, North Face, Adidas AG and sister house Balenciaga. More recently it has tried to take Gucci upmarket and augment Michele’s cutting-edge designs with a more timeless look, emphasizing its heritage and craftsmanship.
But rejuvenating a luxury house is extremely difficult without a fresh creative vision. Michele has had a relatively long tenure for a top designer, and a change has been looking increasingly likely, particularly after Kering shook up the Gucci design team under Michele earlier this year.
This new chapter could revive the buzz around the brand. That’s perhaps why Kering’s shares rose 2% in early trading on Wednesday before falling back.
Given Gucci’s profile, Kering will have its pick of candidates. It could opt for an internal appointment, as Michele’s was, or hire from within its other houses. Alternatively, it could recruit from outside of the group. A wild card would be former creative director Tom Ford. Following the $2.3 billion sale of his eponymous company to Estee Lauder Cos., Ford is expected to leave the cosmetics giant by the end of next year.
Michele’s successor will be tasked with taking the brand to €15 billion of sales in the medium term and expanding it beyond fashion. That means broadening its assortment of leather goods, including travel accessories, developing its menswear and moving into high-end jewelry. Hospitality is another opportunity.
Yet the creative rupture is not without risks. Gucci is not broken. Its underlying sales rose by 9% in the third quarter, and it remains the hottest brand in the Lyst Index, which measures online searches and social media engagement. Given that it accounted for 55% of Kering’s revenue last year and almost three quarters of operating profit, its parent must manage the transition carefully.
A new direction will take time and it could be disruptive. Michele was pragmatic, embracing historic best-sellers into his collections. His successor must do the same to minimize the upheaval. In the meantime, they’ll face a resurgent Prada SpA and a potential turnaround at Burberry Group Plc.
Luckily, Kering is a master of identifying the right talent and supporting them with considerable resources. Look no further than how the company brought in Demna Gvasalia at Balenciaga, for example, and how it seamlessly managed the shift from Daniel Lee to Matthieu Blazy at Bottega Veneta.
But given that Gucci is the driver of Kering’s fortunes — and its valuation — it must be as creative in its choice of top designer as Michele has been during his time at the brand.
