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HomeUncategorizedGucci’s Next Revamp Needs a More Classic Look

Gucci’s Next Revamp Needs a More Classic Look

Parting ways with Gucci’s designer was an inevitable decision for Kering, the luxury group that owns the brand. Finding a suitable successor will be much harder.

The Italian brand’s creative director, Alessandro Michele, is stepping down immediately, Kering said this week, and no one is lined up yet for his job. From his first runway show in early 2015, Mr. Michele more than doubled Gucci’s sales and tripled operating profit in what is considered one of the most successful luxury-brand makeovers in decades. However, the brand has looked wobbly since 2020 as his designs became less popular. 

After a strong run, Kering’s Paris-listed stock has been one of the luxury sector’s worst performers over the past two years and now trades at a 25% discount to rivals as a multiple of projected earnings. This reflects investors’ belief that its earnings are more vulnerable to changes in fickle fashion trends than those of peers

LVMH

and

Hermès.

Kering has become heavily dependent on Gucci, which generated 74% of group operating profit last year, up from 63% the year Mr. Michele took over.

Kering has done a good job of revamping several brands that were stale, such as Bottega Veneta and Balenciaga. But a focus on trends rather than classic designs means the company cycles through a lot of creative directors. Bottega Veneta is on its third designer in less than a decade.

The approach can lead to booms and busts as looks fall in and out of favor with shoppers. While this isn’t necessarily a problem with smaller labels, most luxury conglomerates are more cautious with the brands that generate the lion’s share of their profits. LVMH-owned Louis Vuitton—which made around 18 billion euros of sales last year Bernstein Research estimates, equivalent to $18.7 billion, compared with €9.7 billion for Gucci—has changed its designer just twice in the past 25 years. Privately owned Chanel has switched creative directors twice in four decades. Neither brand altered its look dramatically during handovers. 

Kering’s decision about who designs next for Gucci is especially important because the company seems so reluctant to spend money on mergers and acquisitions. It recently lost out to

Estée Lauder

in the $2.8 billion sale of Tom Ford, the namesake brand of another former Gucci chief designer. Since 2010, Kering has done just one deal worth more than €1 billion, for eyewear brand Maui Jim. Crosstown rival LVMH has splashed out at least $26 billion over that period on four deals alone: Bulgari, Loro Piana, Belmond and Tiffany & Co. 

Under Mr. Michele’s creative lead at Gucci, Kering delivered total annual shareholder returns of 20%—a very healthy number by most standards but behind the 25% achieved by LVMH and Hermès. Kering would ideally find a designer who can steer Gucci in the more timeless direction of its peers. A less brash look might disappoint adventurous luxury shoppers, but it would help to revive Kering’s unfashionable stock.

Write to Carol Ryan at carol.ryan@wsj.com

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