Good Times at Gucci

Posted by: Charles DuBow on January 24

Have rumors of the death of the luxury sector been greatly exaggerated? In recent days many of the best-known and biggest companies in the sector, such as Richemont and Luxottica, have seen their share prices drop amidst concern about growth in the U.S. But French luxury goods group PPR today announced strong fourth-quarter revenue, based largely on success at Gucci, which continued to outperform the sector.

Fourth-quarter sales at Gucci Group increased 5.2% to €1.092 billion ($1.602 billion,) and same-store sales were up 14.2%. For the full year, Gucci's sales, which is the biggest-selling Italian brand in the world, rose 8.4% to €3.867 billion ($5.670 billion) and same-store sales rose 14.9%.

In BusinessWeek's Best Global Brands report in August 2006, we reported that Gucci generated over $7 billion worldwide of revenue in 2006. But that was when the economy was soaring and no one had ever heard the term "subprime crisis." (See our story here.)

What was the secret of Gucci's success last year? It opened 40 new stores in 2007, all of which are directly-operated. Its Fashion and Leather Goods division was up 19%, and growth in Asia outside of Japan was 38%, resulting in an 18% jump in revenues. Even in the slumping North American market sales climbed 18%. In Europe sales were up 9% and in Japan 2%.

This success can be seen as a vindication of the decision by PPR's owners, the Pinault family, to not renew the contract of Gucci Group's former CEO Domenico De Sole and creative director Tom Ford in 2003. At the time, many industry observers were certain that without them at the helm, the group would flounder as it had before they came on board in 1989. In addition to Gucci, PPR also owns other iconic luxury brands such as Yves Saint Laurent, Bottega Veneta and Balenciaga.

But can Gucci continue to outperform? New creative director Frida Giannini has not won the critical praise of her predecessor. Many fashion insiders complain that her designs are too formulaic and commercial, lacking the ground-breaking, risk-taking style of Ford. But in 2002 Gucci's profits were plunging, and so had PPR's share price. The Pinaults, who were saddled with debt, may have been having second-thoughts about the brand. But Giannini, along with new CEO Robert Polet, have won the hearts of PPR shareholders by putting the bottom line over hemlines. The Pianults must be glad they held on to Gucci after all.