Can Gucci’s Turnaround Plan Still Work?

On Tuesday, Kering warned investors its sales were down 10 percent this quarter, mostly due to a 20 percent drop at flagship label Gucci, which accounts for more than half of the French group’s revenues and about two-thirds of its operating profit.

In recent calls and presentations, Kering had prepared markets for another lacklustre year as it works to give its brands a more timeless, upmarket positioning.

But Gucci’s sales performance was far worse than expected: most analysts had forecast revenues would decline by around 4 percent this quarter, with the most pessimistic among them projecting a 10 percent drop. On Wednesday, Kering shares plunged 12 percent in Paris trading, wiping €6.3 billion off the company’s market value.

With sales in free fall, Gucci and Kering face mounting concern about whether the company can execute on a long-awaited turnaround at the Italian megabrand.

Last year, the group replaced both creative director Alessandro Michele and CEO Marco Bizzarri, who had piloted Gucci through a phase of explosive growth leveraging a radical, maximalist image overhaul and a commercial strategy that had leaned heavily into accessibly-priced luxuries like little camera bags, low-top logo sneakers, bucket hats, logo tees and collaborations with sportswear brands like The North Face and Adidas.

After growth sputtered during the pandemic — with consumers flocking to blue-chip luxury brands seen as less likely to go out of style than fashion-driven Gucci — Kering has sought to push the brand in a more stable, upmarket direction.

The group has hired a behind-the-scenes designer from Valentino, Sabato de Sarno, whose first collections for Gucci have aimed to usher in a more dressed up, sexed up notion of glamour that’s in step with how many cool, young women want to dress today.

His early shows have provided a palette cleanser after Michele’s off-kilter aesthetic, which attracted super fans as well as plenty of detractors. But the jury is still out on whether De Sarno’s more subtle, sartorial approach will supply a brand story that’s strong enough to get customers excited about Gucci and into stores.

That the brand’s topline has gone deep in the red is hardly a promising sign. But operational hold-ups and waning interest in Gucci’s former aesthetic are also to blame: six months after his first show, De Sarno’s designs still make up less than 5 percent of the assortment in stores, and only two flagships have been converted to the brand’s new store concept.

Gucci is also trying to reboot itself in a deteriorating climate for high-end brands. US credit card spending on luxury goods declined 15 percent last month, following a 19 percent year-on-year drop in January, according to purchasing data from Citi.

The key Chinese luxury market also remains sluggish as the country navigates slower economic growth and depressed equity and real estate values. Kering’s revenue warning flagged poor performance in the Asia-Pacific region as a key challenge for Gucci.

“Kering’s news raises a lot of questions, mainly, have the Chinese fallen out of love with Gucci? Why, and is it fix-able?” Citi analyst Thomas Chauvet said. While plenty of brands are currently struggling with cooling luxury demand, the severity of Gucci’s slowdown suggests there are specific maladies at play. Indeed, the latest numbers show the rest of Kering’s portfolio is broadly flat, which is a bit better than markets expected, according to Chauvet.

Most analysts agree more time is needed before gauging the success of designer De Sarno and new CEO Jean-François Palus’ efforts. But less than a year into the new team’s tenure, some have begun calling for shakeups to the strategy and team.

“A more drastic solution is required,” RBC analyst Piral Dadhania said, suggesting that the company may need to take more aggressive steps to clear old product (Gucci stopped markdowns in stores in 2016).

A new CEO may also be needed: “Despite Kering’s insistence that Jean-François Palus is the right interim CEO for Gucci, the market does not agree,” Dadhania wrote.

As the longtime managing director of Kering, Palus has managed the group’s fashion holdings from a distance for years. But he is seen as having an insufficient track record in the hands-on business of operating a fashion brand.

Saint Laurent’s chief executive Francesca Bellettini is also helping to oversee the turnaround in her new role as the group’s deputy CEO, but it’s hardly guaranteed that her exacting approach to brand building and distribution can be extended across multiple brands.

For now, Gucci’s gone “out with the old,” but customers are still waiting for the new.



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Selena Gomez

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Pierpaolo Piccioli walks the runway during the Valentino Menswear Autumn/Winter 2024/25 show at Paris Fashion Week in January 2024.

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Tik Tok ban

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Compiled by Yola Mzizi.

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