GUCCI’S PATH TO 10B EU­ROS

Chief ex­ec­u­tive of­fi­cer Marco Biz­zarri sees lots of po­ten­tial in terms of li­censes, stores and dig­i­tal.

WWD Digital Daily - - Front Page - BY LUISA ZARGANI

FLORENCE — Gucci is “not a fash­ion mo­ment” — and has a goal of 10 bil­lion eu­ros in sales to prove it.

This was one mes­sage of “The Quan­tum Leap” pre­sen­ta­tion by the com­pany’s pres­i­dent and chief ex­ec­u­tive of­fi­cer Marco Biz­zarri on Thurs­day at the tail end of its in­vestor day at the new ArtLab in­dus­trial com­plex.

“I’ve been read­ing and lis­ten­ing to a lot of peo­ple ques­tion­ing Gucci’s longevity, ever since the very be­gin­ning when I joined in 2015. But this is not a fash­ion mo­ment. [Cre­ative di­rec­tor] Alessan­dro [Michele] has cre­ated a new de­mand, a new lux­ury, a unique styling lex­i­con, that is res­onat­ing not only with Mil­len­ni­als, which is our most im­por­tant growth en­gine, al­though we are grow­ing dou­ble-digit in all age brack­ets. So we can re­ally say it’s not about de­mo­graph­ics, but it’s a state of mind. Fash­ion is not only about the prod­uct, but it’s an idea that you can’t re­sist to buy, it’s in­tan­gi­ble, an emo­tion and com­pelling,” said Biz­zarri.

Those in­tan­gi­ble emo­tions have served Gucci well, as Biz­zarri said the tar­gets set

in 2016 were achieved much ear­lier than ex­pected and on Thurs­day he re­vealed a new am­bi­tion: to reach sales of 10 bil­lion eu­ros, with an earn­ings be­fore in­ter­est and taxes mar­gin of more than 40 per­cent (last year it was 34 per­cent), al­though he de­clined to pro­vide a time frame.

“I don’t think this is too bullish or not unattain­able,” he said, down­play­ing the fluc­tu­a­tions that hit the mar­kets on Thurs­day, for ex­am­ple, and em­pha­siz­ing the long-term goals for the brand. “Longevity is not at stake; I am not wor­ried about the num­bers.” Gucci has seen no sign of a slow­down in the first and sec­ond quar­ters of the year, he added.

Re­spond­ing to a ques­tion about the tar­get — which places Gucci in the same league as Louis Vuit­ton, which an­a­lysts pegged as hav­ing rev­enues of up­ward of 9 bil­lion eu­ros in 2017 — Biz­zarri said “it was not a ques­tion of if, but when. Size is im­por­tant. It’s not a clear in­ten­tion, but sooner or later. If you look at the dif­fer­ent pace of growth, ours is bet­ter,” al­though he un­der­scored he was think­ing of “grow­ing as Gucci” and not fo­cus­ing on the com­pe­ti­tion.

The road to this 10-bil­lion-euro tar­get passes through tap­ping into the po­ten­tial of Gucci’s beauty and eye­wear li­censes; or­ganic whole­sale; boost­ing the grow­ing travel re­tail chan­nel; a re­tail space in­crease; its on­line busi­ness; the po­ten­tial of Gucci’s net­work of stores that still need to be re­mod­eled af­ter Michele’s new con­cept, and re­tail KPIs.

Gucci’s li­cense busi­ness went through what Biz­zarri called “the per­fect storm” since he and Michele joined the com­pany, since beauty and fra­grances were mov­ing to Coty Inc. from Proc­ter & Gam­ble Co. and eye­wear to Ker­ing Eye­wear. “In both cat­e­gories, now we are not even at the same level of the last year of the li­censes, the po­ten­tial is enor­mous. We have just one fra­grance cre­ated by Alessan­dro, Bloom, which got all the prizes pos­si­ble,” he said. “In 18 months, there will be a very im­por­tant roll­out. Alessan­dro has a real love for fra­grance and beauty, he is a real ex­pert and we can be­come real lead­ers in the in­dus­try. We are very much be­low mar­ket.”

Beauty will be launched in May next year, fol­lowed by a fra­grance in Septem­ber 2019, he re­vealed.

Gucci’s e-com­merce sales were up 108 per­cent in the first quar­ter, he said. On­line sales grew to 270 mil­lion eu­ros in 2017 from 120 mil­lion eu­ros in 2015 and traf­fic dou­bled to 224 mil­lion eu­ros from 100 mil­lion eu­ros in 2017. The com­pany launched e-com­merce in China and Saudi Ara­bia last year, fol­lowed by Qatar and Kuwait in April 2018. The next launches will be in New Zealand and Hong Kong in 2018.

“Three years ago we were lag­ging be­hind in tech­nol­ogy, but in the last two years Ker­ing and Gucci in­vested heav­ily in in­fra­struc­ture and tech­nol­ogy and we are catch­ing up quickly. There is a huge op­por­tu­nity for growth; we are not yet at the end of this process.” The goal is to triple rev­enues of the e-com­merce chan­nel, which now ac­counts for 10 per­cent of sales.

Dig­i­tal is key to Gucci in terms of com­mu­ni­ca­tion and be­cause of Michele’s mind­set. Biz­zarri noted that the brand’s lat­est ad cam­paign fronted by Harry Styles and launched this week had al­ready gar­nered one mil­lion likes.

“We are su­per-keen to work through dig­i­tal, we are be­com­ing a me­dia com­pany,” he said with a smile, cit­ing the num­ber of vis­its, which reached 224 mil­lion in 2017. “You can imag­ine the pos­si­bil­i­ties we have to con­nect these cus­tomers and the po­ten­tial of the mes­sage, to en­large the Gucci tribe. It’s a real fac­tor of growth. In­sta­gram is fly­ing lit­er­ally — at the end of the first quar­ter we had al­most 25 mil­lion fol­low­ers.”

Ac­cord­ing to Tribe Dy­nam­ics, Gucci’s pro­gram­ming and con­tent strat­egy gen­er­ate earned me­dia value ranked num­ber one rel­a­tive to the com­pe­ti­tion at an es­ti­mated value of $62 mil­lion.

For the first time, in 2018, Gucci’s ag­gre­gated dig­i­tal me­dia in­vest­ment will ex­ceed its in­vest­ments in tra­di­tional me­dia chan­nels. The largest com­po­nent of the dig­i­tal spend has been al­lo­cated to­ward na­tive pro­gram­ming, fol­lowed by paid so­cial. Gucci’s in­vest­ment in dig­i­tal me­dia, in­clud­ing search en­gine mar­ket­ing, con­tin­ues to grow, reach­ing 55 per­cent of to­tal me­dia spend in 2018.

“We still be­lieve in print, we didn’t cut that, we still think there are a lot of pos­si­bil­i­ties,” con­ceded Biz­zarri, who em­pha­sized that Michele and his team “never thought about age, it’s more about a state of mind.”

Other data in­cluded: 67 per­cent of sales are de­rived from fe­male cus­tomers, con­sis­tent with 2015. Lo­cal clients ac­counted for 66 per­cent of the busi­ness, well-di­ver­si­fied in terms of client na­tion­al­ity. In terms of cus­tomers, all na­tion­al­i­ties grew by dou­ble dig­its last year. Euro­peans ac­counted for 14 per­cent of the to­tal, Amer­i­cans for 24 per­cent, Ja­panese for 9 per­cent, Chi­nese for 28 per­cent and other Asians 19 per­cent, while Mid­dle Eastern­ers rep­re­sented 5 per­cent.

Mil­len­ni­als ac­counted for 56 per­cent of sales and Biz­zarri said Gucci dis­pelled myths re­lated to that cat­e­gory, which has proven to be very loyal and to not limit their spend­ing to the en­try price. “It de­pends on how you con­nect with them,” he said.

He noted that all prod­uct cat­e­gories have shown a turn­around and that the av­er­age price was up 20 per­cent “not due to a spe­cific, dif­fer­ent of­fer but be­cause of a per­ceived up­grade in level and po­si­tion­ing,” fol­low­ing the ar­rival of Michele.

The ex­ec­u­tive, who fa­mously hand­picked Michele to suc­ceed Frida Gian­nini, spear­head­ing the text­book turn­around of the brand, paid trib­ute to the de­signer’s clear vi­sion, as he “writes dif­fer­ent chap­ters of the book” for the brand.

“The en­force­ment of this value is one of the strengths of his aes­thet­ics, his sto­ry­telling, the use of signs and sym­bols brings a sense of be­long­ing and cre­ated a sense of loy­alty and self-ex­pres­sion that is very im­por­tant for cus­tomers, who feel they be­long to a cer­tain tribe. There is an ex­treme co­her­ence in ev­ery sin­gle touch point — the Art Walls, the shops, the shows, the pack­ag­ing, the ads, the so­cial me­dia. This is one of the strengths of the busi­ness model we put to­gether. In our in­dus­try, there are com­peti­tors with two dif­fer­ent cre­ative di­rec­tors, those that use pop-ups a lot, that do capsules that are not put into the main net­work. In cer­tain cases this is con­sid­ered as pru­dent, for me this di­lutes the value and cre­ates dif­fer­ent mes­sages, as if the com­pany is afraid of pre­sent­ing what the cre­ative di­rec­tor is do­ing. For us, our model is more re­flec­tive and re­li­able,” boasted Biz­zarri.

“From the very be­gin­ning, Alessan­dro said he did not want to work only with celebri­ties, but with cre­ative pi­o­neers, peo­ple from the dig­i­tal world that he scouted and brought to fame, open­ing the brand to them. This is a sign of new times for me, that he did not iso­late their work, but in­serted them as real col­lab­o­ra­tions dis­tribut­ing them in Gucci stores and plac­ing them in our ads.” Fu­ture tie-ups of this kind are end­less, he imag­ined.

Pressed to ex­plain how he could en­vi­sion fu­ture and long-last­ing growth, avoid­ing brand fa­tigue, Biz­zarri un­char­ac­ter­is­ti­cally showed a touch of an­noy­ance. “There is no way that I can en­sure that there is no brand fa­tigue. But do you see brand fa­tigue?” he said rhetor­i­cally, point­ing to the per­for­mance and so­cial en­gage­ment. “There is no an­swer to that [about guar­an­tee­ing growth], we are in an in­tan­gi­ble busi­ness, but the only way is to make sure that I as a ceo can see that Alessan­dro and his team feel the free­dom to raise the bar, and that is the cul­ture we have built here, one of pas­sion, joy and re­spect to fos­ter cre­ativ­ity. This is a cul­ture that is not repli­ca­ble. What I am sure is that this is not a fash­ion mo­ment. He cre­ated a new aes­thetic and I need to make sure that he has the best ac­cess to project his cre­ativ­ity across the board. The risk is to cre­ate bound­aries for him.” He cau­tioned against do­ing things the same way be­cause they work.

He also trum­peted bal­anced com­mu­ni­ca­tion across fash­ion and im­age and vol­ume-driven prod­ucts, an equi­lib­rium be­tween cre­ativ­ity and mar­ket needs, a bal­anced mix be­tween car­ry­over (70 per­cent) and new­ness to guar­an­tee a sus­tain­able and healthy growth. “This dy­namic ap­proach to car­ry­over has en­sured a sta­ble num­ber of sku’s in the col­lec­tion with a po­ten­tial slight de­crease go­ing for­ward. If you don’t push new­ness, you can be­come soon bor­ing.”

Fash­ion-driven, yet func­tional prod­ucts are key, he added. “Some­times I read Gucci has be­come streetwear, but 85 per­cent of our sales are non-streetwear-re­lated and 10 per­cent of Gucci’s client base is only buy­ing streetwear, so this per­cep­tion is wrong,” he clar­i­fied.

Biz­zarri sees huge po­ten­tial in the brand’s net­work of stores, which to­tal 520. Of these, 165 were re­fur­bished by the end of the first quar­ter. Fol­low­ing the re­vamp, sales in those ban­ners have shown a 20 to 30 per­cent in­crease. The ren­o­va­tions are ex­pected to be com­pleted at the end of 2021. Re­tail ac­counted for 85 per­cent of sales com­pared with 83 per­cent in 2016. “In our busi­ness, we have to be wel­com­ing and in­clu­sive. Ex­clu­siv­ity is a myth, it ex­ists only in terms of the prod­uct.”

Last year, Gucci hired 1,200 peo­ple in re­tail­ing “to match the traf­fic we are ex­pe­ri­enc­ing,” he said. He is also set on de­liv­er­ing sales den­sity growth across all re­gions. The av­er­age sales den­sity world­wide in eu­ros per square me­ter went from 20,000 eu­ros in 2015 to more than 30,000 eu­ros in 2017. “This is be­low the best-in-class av­er­age so there is huge op­por­tu­nity as more than 50 per­cent of shops didn’t achieve the tar­get,” said Biz­zarri.

In terms of pro­duc­tion, he said the shoe struc­ture is al­ready in­te­grated in­ter­nally, stand­ing at 65 per­cent. “The big change is in leather goods, stand­ing now at 25 per­cent be­tween fac­to­ries and su­per­vised pro­duc­tion while the goal is to reach 60 per­cent. We closed 10 M&A and 10 more are in the pipe­line, in­clud­ing leather and metal hard­ware in­dus­trial plat­forms.”

Asked about a hookup with Alibaba, Biz­zarri said “un­til there is a clear pic­ture of what they do [in terms of coun­ter­feits], there is no in­ter­est to start one.”

“There is no an­swer to that [about guar­an­tee­ing growth], we are in an in­tan­gi­ble busi­ness, but the only way is to make sure that I as a ceo can see that Alessan­dro [Michele] and his team feel the free­dom to raise the bar, and that is the cul­ture we have built here, one of pas­sion, joy and

re­spect to fos­ter cre­ativ­ity.”

— MARCO BIZ­ZARRI, GUCCI

A look from the Gucci cruise show.

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