Gucci is going through challenging times. According to the financial report of Kering Group, Gucci’s parent company, in the third quarter ending on September 30th, Gucci’s revenue plummeted by 7%, and considering the current exchange rates, it fell by 14%. Regionally, the company’s directly operated retail business in the Asia-Pacific and other regions, including China, saw a 3% decline, while the European and North American markets dropped by 5% and 22%, respectively.
The decline in Gucci’s popularity is also reflected in consumer behavior. On social media, users have expressed observations such as “there are fewer people carrying Gucci on the streets” and humorous comments like “Gucci is about to be kicked out of the luxury circle.”
Such remarks are not baseless. As one of the world’s three major luxury groups, Kering Group, with its flagship brand Gucci, has often been compared to Hermes Group and LVMH Group. Looking at the performance of the luxury market in the third quarter of this year, overall, it is experiencing a downturn. While Hermes Group’s revenue increased by 15.6% year-on-year, it showed a significant slowdown compared to the 27.5% in the second quarter and 32.5% in the same period last year. LVMH Group’s sales revenue increased by 1%, with organic revenue growth, excluding the impact of exchange rates, at 9%, but still lower than the 17% in the second quarter.
However, despite the challenges in the luxury market, the revenue of both Hermes and LVMH is still growing, while Kering Group, particularly Gucci, is facing a noticeable decline. Gucci’s sales in the third quarter, calculated at fixed exchange rates, fell by 9%, and considering the current exchange rates, it dropped by 13%.
As the cash cow of Kering Group, Gucci’s revenue constitutes a significant portion of the group’s earnings. So, what went wrong with Gucci?
Gucci has changed, but is it still Gucci?
According to incomplete statistics, Gucci hosted four major fashion shows this year, but they did not generate as much buzz on social media as brands like MiuMiu. Critics have noted the shift in Gucci’s style, describing it as a transformation from a romantic art princess to a dull corporate executive or a businesswoman.
The most direct reason for Gucci’s drastic change in style is perhaps the change in leadership. At the end of 2022, Gucci’s creative director, Alessandro Michele, resigned, and eight months later, Gucci’s CEO, Marco Bizzarri, who had worked alongside Michele, also resigned. The departure of these key figures, who led Gucci into the era of maximalism, seems to mark the end of that era.
Is it a case of rise and fall with the youth?
The reason why Gucci’s change in style is “unfavorable” is because its previous style was too distinctive. Whether it was the Dionysus bag, butterfly-adorned dresses, pearl-studded loafers, or advertising campaigns featuring real tigers in the Year of the Tiger, Gucci always captured the attention of social media. Its glamorous and eccentric image became ingrained in people’s minds.
However, the younger generation on social media, particularly those born in the mid-1990s and 2000s, may be less aware that Gucci had a different image before 2015. Back then, Gucci was often associated with an “old-fashioned” and “nouveau riche” aesthetic, with iconic red and green striped Boston bags being a common sight.
In 2015, Alessandro Michele, then Gucci’s chief accessories designer, took on the role of creative director. In just ten days before the 2015 Fall/Winter men’s fashion show, Michele, then 42 years old, had to turn the brand’s image around. During a time when “minimalism” had been popular for three years, Michele overturned the previous design style and introduced 36 entirely new looks, drawing inspiration from the Victorian era, the Gothic period, the Middle Ages, and the Elizabethan era.
Models wearing impeccably tailored suits, V-neck knit sweaters, and split-hem skirts paraded on the runway, adorned with bows, floral patterns, and ruffled edges. The departure from the previous aesthetic surprised everyone and established Michele’s position as the creative director.
Following this, Gucci continued down the path of maximalism. Snakes, tigers, birds in flight, garden motifs, bows, lace, sheer fabrics, vibrant reds, blues, and yellows – Gucci embraced elements that were unconventional and unexpected.
This style gained attention on social media. While some saw Michele’s design as overly theatrical, the “nonsense” appealed to the taste of the millennial generation. The eccentric style had a strong attitude, with lively elements sparking a love for life and providing a sense of fulfillment and security.
In 2015, as millennials began to wield economic power, Gucci’s appeal skyrocketed. In the fourth quarter of 2015, after two years of decline, Gucci’s revenue recovered with a 4.8% growth.
Michele lived up to expectations, and his designs became hits in the following years. From the Dionysus bag in the 2015 Fall/Winter runway to the Sylvie bag in the 2016 Spring/Summer collection, and the GG Marmont bag in the 2016 Fall/Winter women’s fashion show – each new product from Gucci became a super hit.
Beyond bags, products like the Gucci bee-embroidered sneakers, furry mules, pearl-studded loafers, and clothing with intricate patterns and bold colors drove countless young people to go crazy for Gucci. Gucci became synonymous with the younger generation’s style.
Public data shows that during the entire fiscal year of 2016, millennials bought approximately half of Gucci’s products. Reflected in the financials, Gucci entered double-digit growth in 2016, with a growth rate exceeding twice the average level of the luxury goods market. In 2017, amidst the global recovery of the luxury goods industry, Gucci’s annual sales increased by 45%, surpassing €6 billion for the first time and surpassing Hermes for the first time.
However, during the three years from 2016 to 2018, while Gucci maintained strong growth, concerns began to emerge. Looking at the revenue growth rate, after achieving a 45% growth in revenue in 2017, Gucci’s growth slowed down in the following years. It was 37% in 2018, plummeted to 13% in 2019, and dropped significantly by 23% in 2020 due to the pandemic.
Marco Bizzarri, the then CEO of Gucci, mentioned that the slowdown after explosive growth is a normal phenomenon, and a brand cannot sustain a monthly turnover growth rate of 50% to 60%.
Some believe that Gucci’s performance decline stems from the brand’s focus on creating hit products during its rapid expansion phase, without sufficient “refinement” or “consolidation.” Therefore, compared to brands like Hermes and Chanel, Gucci lacks brand recognition.
Gucci’s past hits, such as the Dionysus bag, pearl-studded loafers, furry shoes, and dad sneakers, have become relics of the past in the second-hand market, being resold with a touch of nostalgia.
Regarding this, Zhou Ting, the director of the Institute of Guests Research and a luxury goods expert, believes that Gucci never lacked brand recognition. The innovative, logo-centric products were the reason for Gucci’s popularity, and Gucci’s decline is attributed to the inability to sustain innovation.
In Zhou Ting’s view, successful hits usually have several characteristics: differentiation that others cannot replicate or replicate in the short term, a brand image that continues to rise, and a loyal customer base based on irreplaceable customer value.
Many of Gucci’s products have been swiftly copied and replicated by other brands, making it challenging to maintain a distinctive identity. Collaborations with low-end brands and discounting have also damaged the brand image.
The youthful customer base that once supported Gucci lacked loyalty. Due to their diverse and individualized demands, they chose to move away, contributing to Gucci’s downfall and the inability to establish enduring classics.
Can staying “fresh” save Gucci?
In fact, over the past few years of slowing performance, Kering Group has been searching for new growth points for Gucci.
In May 2019, Gucci launched a lipstick produced in collaboration with the globally renowned perfume and cosmetics company Coty. The trendy terracotta color range and luxurious retro packaging briefly became a trend on Xiaohongshu (Little Red Book). Unfortunately, in late 2019, the lipstick demand declined due to the pandemic.
At the same time, the logo trend was prominent in 2019, leading Gucci to change its logo design. The two G’s that faced each other were replaced by overlapping in the same direction, boosting the sales of Gucci belts.
In 2020, Gucci collaborated with The North Face to release an outdoor-themed joint collection.
Gucci continues to strive to create a sense of novelty for consumers, but after the pandemic, this strategy seems to have lost its effectiveness.
In 2021, as the market rebounded, Gucci’s revenue surged by 30.8% to €9.73 billion. However, in 2022, Gucci’s sales growth dropped to 1%, and in the third quarter of this year, it experienced another decline.
Regarding this, Zhou Ting believes that it is challenging for Gucci to return to its peak. Trends are constantly changing, and consumers, tired of one style, naturally choose another. For example, after years of showcasing youthful fashion, the “old money” style, with its “distinctive” and “unique” characteristics, becomes fashionable. But this does not necessarily mean that people genuinely like this style; often, consumers just choose something “different.”
Today, the challenges Gucci faces may be more complex than those in 2015. In 2015, the luxury goods market was still on a growth trajectory, with a positive consumption environment and consumers in an eager stage for luxury goods. However, after experiencing the pandemic, the global economy has slowed down, and consumer behavior has become more rational. Even high-end consumers no longer have time for consumption, as the main rhythm for high-net-worth individuals in 2023 is busy schedules.
Looking at the performance of the top luxury goods in the third quarter of this year, LVMH Group’s sales increased by only 1%, far below analyst expectations. Although Hermes continued its double-digit growth trend, the growth rate slowed significantly year-on-year.
Perhaps now, Gucci returning to the old-money style is the right move, after all, “even wealthy people who wear luxury goods have to go to work every day.”