From WSJ
http://m.wsj.com/articles/guccis-luster-fades-in-tough-luxury-climate-1414117772?mobile=y
Guccis Luster Fades in Tough Luxury Climate
The iconic brand finds it harder to excel at a time when smaller competitors are gaining ground.
Over the past few years, Helen Nonini, a 35-year-old executive in Milan, has sold off most of her once-beloved Gucci handbags and accessories. She even got rid of a roomy Gucci travel satchel she received as a gift.
I just dont want to be categorized, says Ms. Nonini. I dont want someone in the street to look at me and know right away who designed the bag Im carrying or how much I paid for it. Lately she has been favoring other big-ticket, albeit logo-less, labels like Bottega Veneta.
Winning back customers like Ms. Noninimany of whom are unexcited by the luxury brands that provided a thrill for so longis an uphill battle for Gucci, whose red-hot growth has sputtered.
On Thursday, Guccis parent, Kering SA, said third-quarter sales for the brand declined 1.6% compared with the same period a year ago. Overall sales at the luxury conglomerate rose by 3.3%, to 2.6 billion ($3.29 billion).
Those results are part of a continuing trend. According to Bain, global sales growth of accessories such as handbags and shoes has been decelerating. They grew by 7% last year, compared with 16% in 2012, and are expected to rise 5% this year.
The travails of Gucci, whose sleek stores and coveted goods helped fuel the rise of luxury megabrands 15 years ago, illustrate some of the problems facing fashions iconic brands today: How to maintain a tony aura while still ringing up the volumes that investors crave.
Luxury shoppers are a fickle bunch; and nearly every brand at the high end of the spectrum faces the challenge of keeping its products both exclusive and readily availableconcepts that seem to be less and less compatible. Guccis efforts to play to both sides of the equation, for example, have resulted in a wide range of prices and assortments that have diluted the brands exclusivity, analysts say.
A series of factors, including the end of eye-popping growth in China, Russian sanctions and Europes protracted economic malaise, are partly to blame for the problems at some luxury brands. And fresher haute labels, such as Delvaux and LVHM-owned Celine, are attracting sophisticated customers who prefer an alternative to the obvious logo look.
For the oft-cited triumvirate of luxury power brandsLouis Vuitton, Gucci and Pradathe wear and tear is becoming evident as their sales growth has ebbed.
Louis Vuitton, a division of LVMH Moët Hennessy Louis Vuitton , posted near-flat sales in 2013 after years of 10%-plus growth. At Prada, the main brand of the Prada group, sales were almost flat in the first half of this year, compared with 32% rise for the full year ending January 2013.
Gucci started feeling the pain last year. Sales at the brand fell 4.5% in the first half this yearfar from the 17% annual growth it posted in 2010. Last year, Gucci reported 3.56 billion in sales, down 1% from 2012.
Gucci right now has too many products, too big stores and its price range is very wide compared with other luxury brands, says Pierre Francois Le Louet, chairman of French consultancy Nelly Rodi. Its products are not as unique as they were before.
In an interview, Gucci chief executive Patrizio di Marco stressed that the house has been drawing more inspiration from its archives.
Gucci was founded in 1921 as a genteel leather-goods makera pinnacle of Made in Italy craftsmanship. By 1953 the brand had opened its first store abroad, in New York City. Its butter-soft leather handbags and loafers were worn by the likes of Audrey Hepburn. But in the 1980s, a family feud precipitated a stunning decline of the brand, when an expansion into everything from key chains to mugs left it nearly bankrupt.
In the 1990s, new management led by Harvard-trained lawyer Domenico De Sole and Tom Ford, a model-turned-designer, was installed. The pair served up generous dollops of sex and celebrity sizzle. Those collections turned Gucci back into a megawatt name by the mid-1990s.
Along with Louis Vuitton and Prada, Gucci began pitching expensive wares to a whole new class of arrivistes willing to plunk down $1,000 or more for a new bag with a recognizable emblem. The profits on leather goods were huge, and the brands poured that money into hundreds of swanky new stores. Gucci spent 77 million for just one Milan emporium in 2001.
Guccis sales rose by more than tenfold between 1991 and 2004. The brands success was such that LVMH attempted to take it over, launching a protracted battle with the company that was resolved when PPRtoday known as Keringtook a major stake in the house.
Messrs. De Sole and Ford clashed with PPR executives and left the company in 2004a move that shocked the fashion word.
By the time Kerings owner Francois Pinault drafted Mr. di Marco as CEO in 2008, the stores were overflowing with merchandise bearing the double-G insignia. The entry-level price on bags was just 500. Those cheaper products accounted for 32% of total sales, according to the company.
At the same time, Kering was nurturing its previously-acquired brands like Saint Laurent, Balenciaga and Bottega Venetabrands that have increasingly been gunning for Guccis coveted high-end consumers.
Gucci made the big mistake of snubbing these new brands, says Mr. di Marco. If youre too confident about your own strength, you risk to underestimate this phenomenon, which in real terms is market shares that you could lose or new consumers that others win because theyre better than you.
Kering said Thursday that sales at Saint Laurent and Bottega Veneta rose 28% and 10%, respectively.
Even as the smaller labels offer growth, the conglomerates like Kering and LVMH ultimately need the likes of Gucci and Vuittonwhich contribute the lions share of the groups overall salesto deliver the volumes and results that keep investors happy.
Mr. Pinault hoped Mr. di Marco could work some of the same magic he had at the companys Bottega Veneta division, famous for its logo-less intrecciato woven bags and the slogan When your own initials are enough. Bottega, which also makes clothing and other accessories, had grown tenfold during Mr. di Marcos seven-year tenure.
Before taking the helm at Gucci, Mr. di Marco summed up his view of the brand in a 150-page manifesto. Among other things, he said that the emphasis on the logo and an overreliance on cheaper entry-level products were endangering Guccis allure. At that point, 90% of the handbags sold by Gucci bore logos. If you use the logo as if it were the only thing youve got, its wrong, he says.
Once in the job, Mr. di Marco established clear goals: Clean up the midrange products and the surfeit of logos, while still offering something affordable to draw in new customers. Currently, logo products make up 37% of Guccis range.
Gucci continued to push midprice items and increased the number of more exclusive productspriced between £2,000 and £3,500, or about $3,200 and $5,610by just 1% between September 2013 and May 2014, according to Sanford C. Bernstein. Some analysts say the push isnt enough to appeal to higher-end customers.
By contrast, Louis Vuitton expanded its higher-end bag offerings by 6%. And it has slowed new store openingsadding about 30 new doors in the last five years compared with nearly 200 at Gucci.
While Kering and its conglomerate cousins have served as incubators for brands such as Bottega Veneta and Celine, Mr. di Marco believes that the surge of the smaller labels has exposed the weakness of the big houses dependence on their iconic logos.
Some marques have lost credibility among the superrich and celebrities due to their ubiquitous logos as well as their resonance with reality-show personalities like Kim Kardashian.
While the problem isnt exactly new, it seems to be more pronounced. Theres a continuous trade-off between short term profitability and long-term reputation, says Armando Branchini, chairman of Altagamma, an association of Italian luxury brands.
http://m.wsj.com/articles/guccis-luster-fades-in-tough-luxury-climate-1414117772?mobile=y
Guccis Luster Fades in Tough Luxury Climate
The iconic brand finds it harder to excel at a time when smaller competitors are gaining ground.
Over the past few years, Helen Nonini, a 35-year-old executive in Milan, has sold off most of her once-beloved Gucci handbags and accessories. She even got rid of a roomy Gucci travel satchel she received as a gift.
I just dont want to be categorized, says Ms. Nonini. I dont want someone in the street to look at me and know right away who designed the bag Im carrying or how much I paid for it. Lately she has been favoring other big-ticket, albeit logo-less, labels like Bottega Veneta.
Winning back customers like Ms. Noninimany of whom are unexcited by the luxury brands that provided a thrill for so longis an uphill battle for Gucci, whose red-hot growth has sputtered.
On Thursday, Guccis parent, Kering SA, said third-quarter sales for the brand declined 1.6% compared with the same period a year ago. Overall sales at the luxury conglomerate rose by 3.3%, to 2.6 billion ($3.29 billion).
Those results are part of a continuing trend. According to Bain, global sales growth of accessories such as handbags and shoes has been decelerating. They grew by 7% last year, compared with 16% in 2012, and are expected to rise 5% this year.
The travails of Gucci, whose sleek stores and coveted goods helped fuel the rise of luxury megabrands 15 years ago, illustrate some of the problems facing fashions iconic brands today: How to maintain a tony aura while still ringing up the volumes that investors crave.
Luxury shoppers are a fickle bunch; and nearly every brand at the high end of the spectrum faces the challenge of keeping its products both exclusive and readily availableconcepts that seem to be less and less compatible. Guccis efforts to play to both sides of the equation, for example, have resulted in a wide range of prices and assortments that have diluted the brands exclusivity, analysts say.
A series of factors, including the end of eye-popping growth in China, Russian sanctions and Europes protracted economic malaise, are partly to blame for the problems at some luxury brands. And fresher haute labels, such as Delvaux and LVHM-owned Celine, are attracting sophisticated customers who prefer an alternative to the obvious logo look.
For the oft-cited triumvirate of luxury power brandsLouis Vuitton, Gucci and Pradathe wear and tear is becoming evident as their sales growth has ebbed.
Louis Vuitton, a division of LVMH Moët Hennessy Louis Vuitton , posted near-flat sales in 2013 after years of 10%-plus growth. At Prada, the main brand of the Prada group, sales were almost flat in the first half of this year, compared with 32% rise for the full year ending January 2013.
Gucci started feeling the pain last year. Sales at the brand fell 4.5% in the first half this yearfar from the 17% annual growth it posted in 2010. Last year, Gucci reported 3.56 billion in sales, down 1% from 2012.
Gucci right now has too many products, too big stores and its price range is very wide compared with other luxury brands, says Pierre Francois Le Louet, chairman of French consultancy Nelly Rodi. Its products are not as unique as they were before.
In an interview, Gucci chief executive Patrizio di Marco stressed that the house has been drawing more inspiration from its archives.
Gucci was founded in 1921 as a genteel leather-goods makera pinnacle of Made in Italy craftsmanship. By 1953 the brand had opened its first store abroad, in New York City. Its butter-soft leather handbags and loafers were worn by the likes of Audrey Hepburn. But in the 1980s, a family feud precipitated a stunning decline of the brand, when an expansion into everything from key chains to mugs left it nearly bankrupt.
In the 1990s, new management led by Harvard-trained lawyer Domenico De Sole and Tom Ford, a model-turned-designer, was installed. The pair served up generous dollops of sex and celebrity sizzle. Those collections turned Gucci back into a megawatt name by the mid-1990s.
Along with Louis Vuitton and Prada, Gucci began pitching expensive wares to a whole new class of arrivistes willing to plunk down $1,000 or more for a new bag with a recognizable emblem. The profits on leather goods were huge, and the brands poured that money into hundreds of swanky new stores. Gucci spent 77 million for just one Milan emporium in 2001.
Guccis sales rose by more than tenfold between 1991 and 2004. The brands success was such that LVMH attempted to take it over, launching a protracted battle with the company that was resolved when PPRtoday known as Keringtook a major stake in the house.
Messrs. De Sole and Ford clashed with PPR executives and left the company in 2004a move that shocked the fashion word.
By the time Kerings owner Francois Pinault drafted Mr. di Marco as CEO in 2008, the stores were overflowing with merchandise bearing the double-G insignia. The entry-level price on bags was just 500. Those cheaper products accounted for 32% of total sales, according to the company.
At the same time, Kering was nurturing its previously-acquired brands like Saint Laurent, Balenciaga and Bottega Venetabrands that have increasingly been gunning for Guccis coveted high-end consumers.
Gucci made the big mistake of snubbing these new brands, says Mr. di Marco. If youre too confident about your own strength, you risk to underestimate this phenomenon, which in real terms is market shares that you could lose or new consumers that others win because theyre better than you.
Kering said Thursday that sales at Saint Laurent and Bottega Veneta rose 28% and 10%, respectively.
Even as the smaller labels offer growth, the conglomerates like Kering and LVMH ultimately need the likes of Gucci and Vuittonwhich contribute the lions share of the groups overall salesto deliver the volumes and results that keep investors happy.
Mr. Pinault hoped Mr. di Marco could work some of the same magic he had at the companys Bottega Veneta division, famous for its logo-less intrecciato woven bags and the slogan When your own initials are enough. Bottega, which also makes clothing and other accessories, had grown tenfold during Mr. di Marcos seven-year tenure.
Before taking the helm at Gucci, Mr. di Marco summed up his view of the brand in a 150-page manifesto. Among other things, he said that the emphasis on the logo and an overreliance on cheaper entry-level products were endangering Guccis allure. At that point, 90% of the handbags sold by Gucci bore logos. If you use the logo as if it were the only thing youve got, its wrong, he says.
Once in the job, Mr. di Marco established clear goals: Clean up the midrange products and the surfeit of logos, while still offering something affordable to draw in new customers. Currently, logo products make up 37% of Guccis range.
Gucci continued to push midprice items and increased the number of more exclusive productspriced between £2,000 and £3,500, or about $3,200 and $5,610by just 1% between September 2013 and May 2014, according to Sanford C. Bernstein. Some analysts say the push isnt enough to appeal to higher-end customers.
By contrast, Louis Vuitton expanded its higher-end bag offerings by 6%. And it has slowed new store openingsadding about 30 new doors in the last five years compared with nearly 200 at Gucci.
While Kering and its conglomerate cousins have served as incubators for brands such as Bottega Veneta and Celine, Mr. di Marco believes that the surge of the smaller labels has exposed the weakness of the big houses dependence on their iconic logos.
Some marques have lost credibility among the superrich and celebrities due to their ubiquitous logos as well as their resonance with reality-show personalities like Kim Kardashian.
While the problem isnt exactly new, it seems to be more pronounced. Theres a continuous trade-off between short term profitability and long-term reputation, says Armando Branchini, chairman of Altagamma, an association of Italian luxury brands.
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