GUCCI’S PATH TO 10B EUROS
Chief executive officer Marco Bizzarri sees lots of potential in terms of licenses, stores and digital.
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.