Why Gucci wanted a change – and what’s next

This week, Gucci announced that it will be parting ways with star designer Alessandro Michele, wowing many brand enthusiasts and even fashion insiders.

“He was magical,” the reality star and drag performer Detox shared on Instagram. “A true icon,” added jewelry designer Alex Monroe. “Michele has added a billion a year to Gucci and people are always asking for more,” editor-in-chief Alexander Fury wrote in a blasphemous post in response to the decision.

Others have called out the recent repetitiveness in Michele’s work, or hailed a shift away from “circus fashion.” For months, Gucci and its parent company Kering had been laying the groundwork for a potential transition – bolstering its design ranks with a new head of merchandising and an expanded studio team while citing the need for a more luxurious positioning and more timeless (read: less maximalist and designer-focused).

From 2015 to 2019, under the leadership of Michele and CEO Marco Bizzarri, Gucci achieved the most successful turnaround in luxury industry history, fueled by a 360-degree rebrand that focused on the creator’s campy pie aesthetic. Sales more than doubled while profits quadrupled for the brand, which led the fashion agenda and helped usher in a new generation of young luxury consumers drawn to its sporty styles and bold merchandising.

Was Kering wrong to want more? Admittedly, Gucci has taken a heavier hit than most of its rivals during the pandemic and has taken longer to bring sales back to pre-virus levels. This is partly due to greater exposure to struggling channels such as wholesale, off-price and travel retail. But as the company managed to reduce that exposure, Gucci’s continued underperformance relative to its peers became harder not to see as a sign that consumer interest in Michele’s aesthetic was waning.

Gucci is set to hit a major milestone this year as analysts forecast sales of 10.75 billion euros, up around 10% year-on-year. But the broader luxury market is expected to grow almost twice as fast, up 22% this year, according to Bain.

While fashion watchers often like to analyze leading indicators like social media buzz or brand rankings like Interbrand and Kantar (where Gucci has continued to thrive), revenue growth is often seen as the most trusted arbiter of brand interest, especially by markets. As the biggest Italian fashion brand and the third biggest name in luxury fashion (just behind Louis Vuitton and Chanel), Gucci is expected to outpace the market using its nearly unparalleled resources for marketing, innovation and innovation. investment. Seen from the perspective of slower than average growth, Gucci’s record sales could therefore suggest a brand in decline.

Underperforming rivals can be particularly undesirable from Kering’s perspective, as the company has positioned itself as a high-growth operation while struggling hard to invest its territory in real estate, design and marketing in competition with the imposing budgets of the sector leader LVMH.

Potential plans to further strengthen its position – the group has explored major acquisitions like Moncler, Prada or Burberry, or even a mega-merger with the jewelry-focused conglomerate Richemont – will depend on the high level of market support. A lower valuation would mean less favorable financing for an acquisition, or fewer board seats following a merger.

Michele, too, could be on greener pastures. The designer had spoken of growing increasingly exhausted from his position at the Italian mega-brand – and that was before the company announced it would bolster the novelty by implementing a full return to the calendar of the fashion with 6 collections per year (menswear and womenswear had generally been shown together during his tenure). As one of the industry’s most successful living creators, it’s unlikely we’ve heard the last of him.

Financial analysts, for their part, welcomed the move. “Gucci is suffering from brand fatigue… It needs to open a new creative chapter,” Bernstein’s Luca Solca said. “After seven years at the helm of Gucci’s creative engine, it may be time for a change,” wrote RBC Capital Markets analyst Piral Dadhania, adding that investors believe “a new approach is needed to reinvigorate the Mark”.

Still, the market’s reaction to the news was muted: Kering’s stock rose 2% on Wednesday morning before quickly reversing its gains. Shares ended the week flat and are still trading 23% lower than at the start of the year. It seems likely that investors – like buyers, critics and fashion fans – will remain in a pattern of expectation regarding Gucci until a new creative direction is revealed.

And what should Gucci do next?

Kering has developed a playbook to rely on brand insiders, or new and emerging creative directors, to put a bold new spin on its brands. Michele’s Gucci or Sarah Burton’s Alexander McQueen illustrate the first approach; The redesign of Bottega Veneta by Daniel Lee or the Balenciaga of Demna illustrate the latter.

Reviving today’s Gucci, however, might be a more difficult mission than previous turnarounds: Michele’s decadent take on the brand often involved layering numerous brand signatures from his various creative eras simultaneously. Finding a new foot to highlight in the brand’s archives will not be easy.

On the other hand, a team tasked with generating bold new design ideas – like Lee’s brief at Bottega Veneta was – would surely excite the market. But using the novelty to generate a mega-brand of 10 billion euros a year is a riskier undertaking than at a billion-euro house like Bottega Veneta. At Gucci’s current scale, the brand will have to walk a tightrope balancing fashion excitement and long-term desirability.

For now, Gucci is sticking to the “timelessness” brief, relying on its expanded studio team and new merchandising director to steer the ship until a successor is announced.

NEWS IN BRIEF

FASHION, BUSINESS AND ECONOMY

Raf Simons closes his label. The Spring/Summer 2023 collection shown in London in October will be the brand’s last, Simons said in a statement posted on Instagram on Monday.

Balenciaga apologizes after being accused of sexualizing children in ads. The label removed photos showing children holding teddy bears dressed in what appeared to be bondage gear after the footage sparked outrage on social media.

Louis Vuitton gets the most likes on Instagram with a viral football campaign. The Annie Leibovitz luggage campaign harnessed the power of soccer superstars Cristiano Ronaldo and Lionel Messi.

Adidas is investigating allegations that Kanye West mistreated its employees. Allegations continued to mount over the rapper’s erratic behavior and treatment of designers and other employees of Adidas, whose collaboration with Ye was once one of the most successful in industry history.

Vestiaire Collective banishes fast fashion. About 5% of listings will be affected by the move, the resale site said, as it seeks to position itself as an eco-conscious player at the upper end of an increasingly competitive market.

Nordstrom is cutting its profit forecast due to soaring costs. The company’s total revenue fell to $3.55 billion in the third quarter from $3.64 billion a year earlier.

Abercrombie sees better sales in the holiday quarter and posts a surprise profit. Chief executive Fran Horowitz said the company expects the fourth quarter to “reflect more of a pre-pandemic holiday.”

Frasers Group acquires Gieves & Hawkes. The acquisition will secure the long-term future of the 250-year-old brand, said Michael Murray, chief executive of Frasers.

Primark is to invest £140m in store property. The budget retailer said the investment will include the opening of at least four new stores and create at least 850 jobs.

Hong Kong loses top spot for luxury shopping to New York. Manhattan’s Upper Fifth Avenue is now the most expensive street in the world for shopping, according to a survey by commercial real estate firm Cushman & Wakefield Plc. Hong Kong’s Tsim Sha Tsui district comes second, followed by Italy’s Via Montenapoleone in Milan.

UN COP27 summit ends with last-ditch deal for landmark climate damages fund. The talks in Egypt ended with an agreement to help poorer countries pay for the damage caused by climate change.

PEOPLE

Sephora names Guillaume Motte CEO. The former deputy chief executive of LVMH Fashion Group succeeds Chris de LaPuente, who took office in June. Motte’s appointment comes as Sephora re-enters the UK market.

The Woolmark Prize names the 2023 finalists. The Australian Fashion Award for Young Talent has chosen A. Roege Hove, Bluemarble, Lagos Space Programme, Marco Rambaldi, Maxxij, Paolina Russo, Rhude and Robyn Lynch as finalists for its 2023 award.

MEDIA AND TECHNOLOGY

JD.com will cut salaries for top executives as part of China’s “common prosperity” push. The e-commerce giant announced on Tuesday that it will cut the salaries of more than 2,000 senior executives by 10-20% next year.

China’s Fosun is looking to sell its stake in Cainiao, Alibaba’s logistics arm. Fosun has appointed a financial adviser to handle the sale of its less than 5% stake in Cainiao and the plan is at an early stage, according to people familiar with the matter.

Compiled by Darcey Sergison.