Investors still waiting for Gucci turnaround

Gucci's Fall Winter 2016 Men's Collection during Milan's Fashion Week. New creative director Alessandro Michele has brought a buzz back to the brand.
Gucci's Fall Winter 2016 Men's Collection during Milan's Fashion Week. New creative director Alessandro Michele has brought a buzz back to the brand. PHOTO: GUCCI

NEW YORK • Gucci's gamble to put Alessandro Michele, a little-known accessories designer, in charge of its creative turnaround, has won praise from the catwalk. Investors are still waiting to see the benefit.

Michele's focus on vintage styling and the brand's double-G logo has been well received by fashion magazines, but sales at the US$3.8 billion (S$5.5 billion) brand have not budged. Gucci accounts for nearly two thirds of parent Kering SA's profit and has barely grown over the past three years.

"Investors are interested in when this new creative momentum will translate into tangible financial results," said Mr Mario Ortelli, an analyst at Sanford C. Bernstein. "The turnaround of Gucci continues to be central to Kering's investment case."

Paris-based Kering needs the revamp to work, yet the timing could not be more challenging. The fallout from the November terror attacks in Paris compounded an already difficult year for Gucci and its luxury peers as demand slowed in almost every region, led by a slump in Asia.

Evidence of how Michele's debut collection, which entered some stores in September, went down with shoppers will become visible on Feb 18, when Kering reports earnings. This week, the 43-year- old Michele unveiled his latest menswear styles.

Kering promoted Michele to Gucci creative director in January last year, tasking him with restoring growth to the 95-year-old label. From his first collection featuring pleated red leather skirts and sheer pussy-bow blouses to his 1970s- inspired vision for spring-summer 2016, Michele brought a buzz back to the brand. He won best international designer at the British Fashion Awards in November.

There are signs his efforts are rekindling demand, with Kering citing double-digit growth of handbags such as the US$2,500 Dionysus and US$1,390 Linea A shoulder bags. Mr Ortelli, the Bernstein analyst, expects Michele to accelerate sales by the middle of this year.

"We're seeing a lot of new clients, a lot of new customers - different, younger, more fashion-forward - buying the collection, but not losing the previous ones," Gucci chief executive officer Marco Bizzarri told The Business Of Fashion website in November.

It will probably take until the second half of the year to see if Michele has delivered on expectations, according to Mr Antoine Belge, an analyst at HSBC in Paris.

Brands such as Louis Vuitton and Kering-owned Saint Laurent took about 18 months to boost sales after similar revamps.

The full complement of Michele's designs will not be in Gucci's boutiques until the third quarter, predicts MainFirst Bank AG analyst John Guy.

Revamping the brand's network of more than 500 stores - the second largest among leather-goods makers after Salvatore Ferragamo SpA - will take as long as four years, Mr Bizzarri has said.

Still, "if the numbers are good in the coming quarters, some people will call it a turnaround", Mr Belge said.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on January 21, 2016, with the headline 'Investors still waiting for Gucci turnaround'. Print Edition | Subscribe