Why Gucci wanted a change – and what’s next

This week, Gucci announced that it would be parting ways with its star designer Alessandro Michele, stunning many brand followers and even fashion insiders.

“He was magical,” reality TV star and drag performer Detox said on Instagram. “A true icon,” chimed in jewelry designer Alex Monroe. “Michele added a billion a year to Gucci and people keep asking for more,” fashion editor Alexander Fury wrote in a profanity-laced post in response to the move.

Others called the latest iteration in Michele’s work or hailed a shift away from “circus fashion.” For months, Gucci and its parent company Kering had been laying the groundwork for a potential transition — bolstering their design ranks with a new chief merchandising officer and expanded studio team, while citing the need for a positioning that’s more luxurious and more timeless (read: less maximalist and designer driven).

From 2015 to 2019, Gucci under Michele and CEO Marco Bizzarri delivered the most successful turnaround in the history of the luxury industry, fueled by a 360-degree rebrand that went all-in on the designer’s campy magpie aesthetic. Sales more than doubled while profits quadrupled at the brand, driving the fashion agenda and helping usher in a new generation of young luxury consumers drawn to its sporty styles and bold merchandising.

Was it wrong for Kering to want more? Admittedly, Gucci took a harder hit than most rivals during the pandemic and took longer to get sales back to pre-virus levels. This was partly due to a higher exposure to difficult channels such as wholesale, discount and travel retail. But as the company managed to reduce that exposure, Gucci’s continued underperformance relative to peers became harder not to see as a sign that consumer interest in Michele’s aesthetic was fading.

Gucci is expected to cross a major threshold this year, as analysts expect sales of 10.75 billion euros, up about 10 percent year-on-year. But the broader luxury market is estimated to be growing almost twice as fast, up 22 percent this year, according to Bain.

Models walk the runway for the Gucci Twinsburg Show during Milan Fashion Week Spring/Summer 2023.

While fashion observers often love to analyze leading indicators like social media buzz or brand rankings by the likes of Interbrand and Kantar (where Gucci has continued to thrive), top-line growth is often seen as the most reliable arbiter of brand interest, especially by markets. As Italy’s largest fashion brand and the third-largest name in luxury fashion overall (after Louis Vuitton and Chanel), Gucci is expected to outgrow the market by using its almost unparalleled resources for marketing, innovation and investment. Viewed through the lens of slower-than-average growth, therefore, Gucci’s record sales could actually indicate a brand losing heat.

Underperforming rivals may be particularly undesirable from Kering’s point of view, as the company has positioned itself as a high-growth company as it struggles to stake its turf in real estate, design and marketing in competition with the towering budgets of sector leader LVMH .

Potential projects to continue strengthening its position – the group has explored major acquisitions such as Moncler, Prada or Burberry, or even a mega-merger with jewelry-focused conglomerate Richemont – will depend on high levels of market support. A lower valuation would mean less favorable financing of an acquisition or fewer board seats after a merger.

Michele could also be headed for greener pastures. The designer had spoken of growing increasingly tired of his position at the Italian mega-brand – and that was before the company announced it would reinforce the news by implementing a full return to the 6-collection-a-year fashion calendar (menswear and womenswear had normally been displayed together during his tenure). As one of the industry’s most successful living creators, it’s doubtful we’ve heard the last of him.

Financial analysts, for their part, welcomed the move. “Gucci is suffering from brand fatigue… It must open a new creative chapter,” Bernstein’s Luca Solca said. “After seven years in charge of Gucci’s creative engine, it may well be time for a change,” RBC Capital Markets analyst Piral Dadhania wrote, adding that investors believed “a new approach is needed to revive the brand.”

Still, market reaction to the news was muted: Kering’s stock rose 2 percent in early morning trading Wednesday before quickly giving up gains. The shares ended the week flat, and are still trading 23 percent lower than at the start of the year. It seems likely that investors — like buyers, critics and fashion fans — will remain in a pattern regarding Gucci until a new creative direction is revealed.

And what will Gucci do?

Kering has honed a playbook of leaning on brand insiders or first-time and emerging creative directors to put a bold new spin on its brands. Michele’s Gucci or Sarah Burton’s Alexander McQueen exemplify the former approach; Daniel Lee’s renewal of Bottega Veneta or Demna’s Balenciaga illustrate the latter.

However, rebooting today’s Gucci could be a more challenging mission than previous turnarounds: Michele’s decadent takeover of the brand often involved multiple brand signatures from its various creative eras at once. It won’t be easy to find a fresh foot to put forward from the brand’s archives.

On the other hand, a team tasked with generating bold new design ideas—as was nurtured for Lee at Bottega Veneta—is sure to excite the market. But using news to drive a €10 billion-a-year megabrand is a riskier venture than at a €1 billion house like Bottega Veneta. At Gucci’s current scale, the brand will have to walk a tightrope, balancing fashion excitement and long-term desirability.

For now, Gucci is sticking to the “timelessness” recipe, leaning on its expanded studio team and new merchandising director to steer the ship until a successor is announced.

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Compiled by Darcey Sergison.

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