Gucci Turnaround Gathers Speed as New Designs Win Over Shoppers

  • Full-price sales have accelerated since March, Bizzarri says
  • CEO’s confidence contrasts with sorry state of luxury spending

Gucci is on course to top 4 billion euros ($4.5 billion) in revenue for the first time this year as the Italian luxury brand’s revival gathers speed under its new leadership duo.

Sales of items designed by new creative director Alessandro Michele have accelerated since March as more have reached shelves, Chief Executive Officer Marco Bizzarri told reporters Thursday before a fashion show for Kering SA’s largest brand in the cloisters of London’s Westminster Abbey.

“We are particularly optimistic and confident,” said the CEO, who took over 18 months ago. “Just go and visit the shops. It is the only brand that has people in the shops.”

Bizzarri’s bullishness contrasts with the sorry state of luxury spending. Sales of expensive handbags and other goods have slowed as China’s economy cools and as terror attacks weigh on the feel-good factor that drives purchasing. The sector will expand at best 2 percent this year, the second weakest rate since 2009, Bain & Co. estimates.

“Today, if you want to grow you need to steal market share,” said Bizzarri. “The only way is through creativity.”

Red Leather

So far, Michele has demonstrated that, winning favorable press coverage and industry accolades. Yet his collections featuring red leather skirts and sheer pussy-bow blouses have only been available in boutiques since the third quarter; Gucci is still clearing out his predecessor’s merchandise.

Click here for Gadfly commentary on luxury companies getting into cosmetics

“For nine months we were just talking,” said Bizzarri -- something that tested investor patience given that Gucci accounts for more than half of Kering’s operating income.

Since then, the CEO’s efforts to reorganize management, cut the number of products by 30 percent and change everything from packaging to store design are paying off, he said. Sales of Michele’s women’s ready-to-wear have surged 66 percent this year, while his shoes for women are up 46 percent and new handbag sales are up 7 percent, led by designs such as the $2,250 Dionysus.

Long-term Ambition

Michele’s collections now account for about 70 percent of sales and the full complement of his designs will be in stores by early 2017, said the CEO, whose long-term ambition is to lift Gucci revenue to 6 billion euros, according to an investor presentation published Friday. Sales of Gucci items at other retailers -- so-called wholesale revenue -- are positive for a third straight quarter, the CEO said.

Markdowns on old stock will continue to weigh on growth this year, Bizzarri told reporters. Excluding their impact, “there is no doubt we will outperform the market,” he said.

Bizzarri also plans to refurbish fewer stores, targeting around 50 this year, from a previous goal of about 60. Cosmetic changes such as marble tables displaying rings, headbands and sunglasses alongside new bags in some boutiques have had a similar uplift on sales at a lower costs, he said, declining to quantify the increase.

“I don’t think the transition needs to wait for all the shops to be refurbished,” Bizzarri said, referring to previous comments he made that it could take as long as four years to refit all of Gucci’s 522 stores. “In terms of business, I think that we will have the full impact at the end of 2017.”

*Gucci has converted 13 shops so far this year, refurbished 34 in 2015
*CEO plans to make cosmetic changes to about 60 stores in 2016
*Sales are growing in all regions except Japan
*Mid-term revenue goal is to grow more than twice the market average
*Mid-term goal to widen margin to c. 30%
*Mid-term goal to keep capex below 5% of revenue

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE