Gucci Needs New Ideas, Talents to Combat Brand Fatigue
Gucci holds the luxury spending downturn mainly responsible for its poor performance but the Italian fashion brand may also have itself to blame, suggesting it could be time to change strategy and hire fresh talent.
MILAN, Italy — Gucci holds the luxury spending downturn mainly responsible for its poor performance but the Italian fashion brand may also have itself to blame, suggesting it could be time to change strategy and hire fresh talent.
Every major luxury goods maker has been hit by the worst spending slump in five years as concerns about economic growth and conflicts in the Middle East and Ukraine hampered demand from the Chinese, Russians and Europeans.
Big brands have also been suffering from consumers’ growing appetite for smaller, less widely distributed labels, particularly in key markets such as China, which was the luxury goods industry’s main growth engine until 2012.
“I think for some brands there is a saturation and a brand fatigue issue in certain markets like Asia,” said Scilla Huang Sun who runs the Julius Baer Luxury Brands Fund.
Gucci, Burberry and Louis Vuitton, part of industry leader LVMH, have all worked hard in the past three to five years to rebuild the aura of exclusivity they lost by going too mass market and milking the label too hard in the mid to late 2000s. The volume-based strategy made shareholders rich but also diluted the brand.
Based on sales performance, some big fashion labels, such as Louis Vuitton or Hermès, appear to have done a better job than Gucci at rebuilding or supporting that exclusive image.
Gucci’s sales have been steadily declining over the past year while Louis Vuitton’s revenues are still growing, albeit in low single digits, and Hermès — which always kept volumes under control — together with Burberry, are still enjoying sales growth of more than 10 percent.
Prada could be the next victim of brand fatigue, having warned that it expected no sales growth this year. Prada was one of the brands that opened the most shops last year, leading analysts to wonder if it was not starting to be over-exposed.
Analysts and investors say Gucci got rid of too many accessible items and on average, raised prices too much. They also mention lack of innovation, which affects brand desirability and ultimately investor sentiment and growth prospects.
A spokeswoman for Gucci’s parent Kering, which also owns Saint Laurent and Bottega Veneta, maintained it was “satisfied with Gucci’s upscale strategy that is underway,” making reference to its third-quarter sales presentation.
PAST ICONS
Gucci says it is pleased with how new products have been received. These include a $4,500 python backpack with bamboo handles, a central fixture of Gucci bags for decades.
“You cannot just keep reviving past icons, you also need to have breakthrough innovation,” Exane BNP Paribas luxury goods analyst Luca Solca said citing designer Hedi Slimane at Saint Laurent as a successful example.
At Hermès, the most expensive European luxury stock — trading at 27 times forward earnings while Kering is on 15 times and Louis Vuitton parent LVMH on 18 times — there is a ban on re-launching old classics. New designs and the rarity of its Kelly and Birkin bags have helped the brand retain its cachet.
At Chanel, designer Karl Lagerfeld helps the brand preserve its edge by putting out six collections a year, which produce at least one best-selling item. Last season, it was a pair of $1,100 iridescent tweed sneakers that sold out.
Nicolas Ghesquiere, the star designer hired by LVMH last year, recently created a new “V” logo for Louis Vuitton and an exclusive line of handbags costing more than 20,000 euros.
Louis Vuitton also gained momentum last month with the opening of its art museum outside Paris designed by Frank Gehry and a limited bag collection created by celebrities such as shoe maker Christian Louboutin to mark its 160th anniversary.
Louis Vuitton has benefited from new ideas and leadership, while Gucci has been run by chief executive Patrizio di Marco since 2009 and for most of the past decade by designer Frida Giannini, who is also now his partner and mother of his child.
Some fashion critics say Gucci has been struggling to regain the sparkle and fashion authority it had when chief executive Domenico de Sole and designer Tom Ford ran it until 2004.
“They lost something special when Tom left,” said Tamara Mellon, the woman who built Jimmy Choo into a global luxury shoe brand and is now developing her own fashion brand.
Gucci customers may also have been driven away by sharp price rises — more than 40 percent in the past four to five years — sending them to more accessible luxury brands such as Michael Kors in the United States and Longchamp in France.
Louis Vuitton also raised prices but more progressively and conducted a less radical shake-up of its product offering. Gucci has provided extensive details on the results of its upmarket strategy while Louis Vuitton has not.
Rivals such as Mulberry and Lancel, part of Cartier owner Richemont, also saw sales plummet after raising prices too much.
Gucci has also had to clean up its wholesale distribution network, affecting revenue, after department stores offered too many discounts, devaluing the brand. Louis Vuitton never does sales and has no wholesale account.
Additional reporting by Pascale Denis; editor: Anna Willard.
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softgrey 
It's not relevant to her job whatsoever. She's there to design and be creative director. Simple as that.
