Opinion: Gucci’s Wild Success May See It Reach Peak Saturation

It is no secret that Gucci is one of the hottest luxury brands in fashion, reaching a pinnacle of popularity enviously coveted by the rest of the industry –  largely helped by the appointment of its chief executive Marco Bizzari and creative director Alessandro Michele who over the past four years have reshaped the Italian fashion house into a success story of booming sales and a maximalist aesthetic.

But concerns over slowing sales growth, an Italian tax investigation that resulted in a €1.4 billion ($1.5 billion) settlement, and a “blackface” scandal around a sweater that forced the brand to apologise and resulted in the launch of a diversity programme, may have taken some of the shine off of Gucci’s glittering record at a time when the luxury market is becoming more complicated for brands to navigate.

Gucci’s turnaround

The turnaround at Gucci has been a well-documented case study for the past few years. Indeed, fashion media have fawned over the brand since the dream duo of Bizzari and Michele was formed in 2015, dedicating thousands of articles explaining the “Gucci Revolution”, its “Secret to Success” and “What Luxury Brands Can Learn From Gucci” heralding in a new chapter of its history.

The praise was justified. Gucci’s sales were booming. At the start of 2018, Gucci reported sales growth of nearly 50 percent and while that has slowed to 20 percent in the first quarter of 2019, its annual results in April saw the Italian fashion house post sales that surpassed €8 billion ($8.8 billion). Far outpacing growth in the overall luxury market and its rivals.

Gucci was also ranked as the top brand in the second quarter of 2019, according to the Lyst Index – a quarterly ranking of fashion’s hottest brands and products that analyses the online shopping behaviour of more than five millon shoppers a month.

For sure, the past four years has seen Gucci at its best. Events held in real cemeteries, runway shows located in culturally rich locations, models walking carrying severed heads, eccentricities and offbeat universes exploited to the maximum. Nothing seemed to stop the brand and it moved from success to success.

Michele’s collections were sought after by celebrities, influencers and most importantly, Chinese consumers. Often ornately detailed and heavily accessoried, Michele's outfits were celebrated as being a breath of fresh air for their maximalist approach.

This eccentric vision of the fashion world seemed to strike a chord with its consumers thanks to a very well-oiled merchandising machine that saw Gucci develop new categories like make-up and fragrances. Gucci sold one million lipsticks in the first month since the launch of its make-up line this May.

Part of Gucci’s success has been down to a wide distribution network and a well-supported communication strategy. It has also leveraged e-commerce, wholesale partners and special collaborations to help transform its business model. Its management certainly took a leap of faith and also helped the so-called revolution thanks to the heavy use of all the available weapons.

What had seemed almost impossible, was now possible. For an established and globally renowned brand to change its skin so dramatically among a plethora of ecstatic fans, was a revelation in what could be done. 

In 2016, Gucci posted a 12.7 percent rise in comparable growth, which was followed by a golden period of sales growth that reached their peak in 2018, with exceptional revenue growth of 36.9 percent and a turnover of €8.3 billion ($9.2 billion). Bizzari declared that Gucci was on track to reach the target of €10 billion ($11.1 billion) in 2020. Almost the double of its 2015 turnover.

Sales slowdown

However in July, Gucci posted a slower than expected rise in sales in its second quarter, resulting in Thomas Chauvet, Citigroup’s Head of Luxury Goods Equity Research,  to write in his analyst note “that the sales miss at Gucci is a negative surprise and will not alleviate investor concerns on Gucci’s fading sales momentum in the second half of 2019.”

Gucci's Fall 2019 Campaign. Photographer: Glen Luchford. Photo: Courtesy.

This was a tough moment for Kering, particularly as its rival LVMH posted continuous improvement in its global revenues in key markets, indicating that the fast and furious approach that it has taken with its Gucci sales push, may not have  been the right path.

A poor performance from the United States, where sales dropped by 2 percent, has become a challenge for Gucci, particularly after the backlash the brand faced over a black roll-neck sweater which was called out for being racist by some consumers. Gucci held back on a big advertising push in the U.S. for the first half of the year, but said it is planning more marketing campaigns this year.

But it's biggest concern may be a slowdown in demand from China. Last week, RBC published a report highlighting the fact that Gucci, for the first time, was not among the top five brands for Chinese purchase intent in bags and ready-to-wear. 

And while Kering’s Chairman and Chief Executive Francois-Henri Pinault said in a news conference last February that momentum with Chinese clients was very strong, a cooling down of its flagship brand among key Chinese customers could represent a serious issue for group performance as no other brand in its group is in the same position to replace Gucci as its star brand, at least for the next two to three years.

YSL is stabilising its growth, Balenciaga doesn’t seem to be able to create a new Gucci effect anymore and Bottega Veneta is still navigating in foggy waters. It seems that Kering may have shot all its best bullets in the past five years.

Globally speaking, Chinese clients represent a third of the global demand of luxury goods and they buy in their home country as well as in other key markets such as Europe. While China largely contributed to Gucci's overnight success thanks to devoted customers and social media followers, the same boost could prove to be a risk because of the high intensity of interest that is burnt in a very short time.

The Chinese market is full of potential and opportunities, and the competition to capture Chinese consumers' attention is fierce. Chinese shoppers can rely on a very diverse range of fashion and luxury brands and the global offer of products is almost infinite. And while Chinese customers are curious and eager for novelties, and brands that push too much on the sales in a very short period seriously risk a saturation effect.

Long-term trouble

What has been defined as Gucci’s Wild Success in China” could represent a long-term trouble for the brand. As Coco Chanel once wisely said “fashion is made to go out of fashion”.

That’s the spirit of a fashion customer, especially regarding a brand that seems to be stuck in a very precise image and vision. What created the wow effect for Gucci initially, now poses a risk for the brand as 15 collections of the same image, identity and message can become a bit déjà vu and monotonous.

Once a brand does relies on the “hot chick” effect, it should know from the outset that this fire won’t last for more than a few years and a new successful revolution inside the same brand will be very unlikely.

While Kering’s Chief Financial Officer Jean-Marc Duplaix has said that the group was expecting a slowdown from Gucci and more normalisation, it’s not clear what its Plan B would be in case of a sudden jolt to its growth. Certainly, Gucci - like many of its peers – cannot soley rely on Chinese customers to drive sales. Though maybe a potential merger and acquisition may be on the horizon.

The difficulty lies in the fact that Gucci represents the lion’s share of Kering’s group sales, around 60 percent. A second phase of its relaunch won’t be an easy feat. And while Gucci’s success represents a powerful example and case study, it cannot be considered a benchmark but a phenomenon.

Especially if the circumstances in the luxury market turn out to be more volatile than expected.

Cover image: Gucci Fall 2019 Campaign. Photo: Courtesy.