In the fall of 1994, American designer Tom Ford arrived at the beleaguered Italian fashion house Gucci. He produced sleek, sexy collections that transformed the company’s image from frumpy to funky, a makeover chronicled in the film House Of Gucci.
In spring 2024, Gucci – now the key division of £35bn French luxury conglomerate Kering – will once again need a savior to arrest its falling profits and sales.
But there is talk that a predator could emerge instead of a savior. Gucci is one of the two brands most coveted by Bernard Arnault, boss of LVMH, the £350bn Tiffany and Dior empire. The other is jeweler Cartier, a division of the Swiss conglomerate Richemont.
A year ago, Arnault was trying to buy Richemont. Could he now be eyeing Kering, whose shares have fallen 20 percent over the past year, because of Gucci’s problems?
There is also speculation that Gucci’s problems could unseat Kering boss Francois-Henri Pinault, husband of actress Salma Hayek. The Pinault dynasty owns 42 percent of Kering and 59 percent of the voting rights through its Groupe Artémis vehicle, whose holdings also include auction house Christie’s.
Gaga for Gucci: Lady Gaga as Patrizia Reggiani in the 2021 film House Of Gucci. Now the label is having problems again.
However, some wonder whether Pinault should hand over control to his deputy and Yves St Laurent boss, Francesca Bellettini.
Swetha Ramachandran, of unrelated fund managers Artemis, sums up the debate in the £300bn-a-year luxury personal goods sector: “The question for Kering is whether this cut is the deepest “.
JP Morgan and Morgan Stanley have cut their share price targets for Kering, which now expects a 40 to 45 percent drop in first-half profits. This is worse than initially expected and bad news for investors, including Scottish Mortgage, the UK’s largest investment fund, which this weekend remained silent on Gucci’s latest setback.
But analysts at Barclays and elsewhere still rate Kering a buy, suggesting deal activity could develop in an increasingly polarized industry as the high growth of the post-lockdown era slows.
The sector is divided between the clamor for timeless and very expensive “investment” accessories, such as Hermès’ Birkin bags (whose first-quarter sales were up 17 percent year-on-year) and much lower levels of desire for fashion items among the aspirational, but not really wealthy, shoppers Gucci was courting.
Deeply discounted clothing lines created by former Gucci designer Alessandro Michele are now on sale through an outlet store.
Armelle Poulou, CFO of Kering, says that “Gucci is not in the optimal point to position itself,” as it is neither high-end nor affordable enough. But she maintains: “This context can change quickly.”
Ramachandran says Gucci is trying to elevate its brand by charging higher prices. But he says the 40 to 50 percent growth that Gucci enjoyed from Michele’s extravagant aesthetic may not be quickly matched by the spending on the “quiet luxury” creations of his replacement Sabato de Sarno.
Much depends on the return of the Chinese, who make up 35 percent of buyers of high-end clothing, jewelry and watches.
At 62 years old, Pinault hopes that time is on his side. Others will wonder who could play him in a House Of Gucci sequel.
