Cover Story

For the Downturn, Gucci Downplays the Logos


Paris - How do you sell luxury in a recession? If you're Gucci, you try to convince customers a handbag isn't just an accessory but an investment. The purse getting top billing in Gucci boutiques this season is the New Jackie, based on a style carried by Jacqueline Kennedy Onassis and marketed as a bag "to use and love forever." And GG bags, with the interlocking Gs, long the most visible face of Gucci? They've been banished to a small display near the luggage department. "In the last couple of years there has been a lot of impulsive buying," says Gucci Group boss Robert Polet. Now, "consumers are looking for more authenticity, more timeless products."

More timeless, but also more expensive. The New Jackie sports a price tag of $2,200 and up, or about twice what the GG bags cost. Asking customers to trade up during a downturn might sound crazy, but it's working pretty well for Gucci. The group's first-half 2009 sales were down 3.7%, vs. a 15% decline for the luxury industry, according to consultancy Bain & Co. While younger brands, such as Versace, have been forced to shutter stores, Gucci and rivals Louis Vuitton (LVMUY) and Hermès are weathering the storm by trading on their deep European roots and reputation for fine handiwork.

Each of Gucci's eight brands—including leather-goods maker Bottega Veneta, jeweler Boucheron, and fashion houses Yves Saint Laurent and Alexander McQueen—has mapped its own anti-crisis strategy, hammered out between Polet and top managers. Yves Saint Laurent has trimmed the size of its collections while emphasizing understated French chic. Last summer it launched "New Vintage," a collection of 60 items based on iconic designs in its Paris archives. And it's putting a spotlight on craftsmanship, with ads showing close-ups of stitching on shoes and bags. During the boom years, luxury shopping "was about 'Let's have fun,'" says YSL chief Valérie Hermann. "Now, people are more interested in quality, how it will last."

Other brands are reaching out to price-conscious shoppers with cheaper products. Alexander McQueen is stepping up development of McQ, a midpriced line it launched in 2006 aimed at women in their 20s. McQ prices average just under $300 per item, 40% less than Alexander McQueen. The goal is to create momentum for the brand by cultivating an audience of enthusiastic younger shoppers, says Alexander McQueen CEO Jonathan Akeroyd. "We don't see this purely as a cost-cutting opportunity," he says.

ONLINE GROWTHAlthough Gucci brand managers have leeway on strategy, Polet has imposed tough financial discipline. Ad budgets have been slashed and boutique openings put on hold. One result: More brands are stepping up their Internet presence. Boucheron, for instance, was one of the first high-end jewelry houses to create an online boutique where shoppers can select gems and other features to customize their purchases.

Still, some Gucci lines face a tough slog. Handbag makers may be able to pitch their wares as investments, but that might not work for clothing shops YSL and Alexander McQueen, whose customers won't wear the same dress year after year. Boucheron and YSL are further handicapped because they have few outlets in China, where luxury sales are growing robustly—some 14% during the first half. And even Gucci's strongest brands will have to adapt to China's rising power in the luxury world. Unlike Americans and Europeans, Chinese shoppers show no signs of logo fatigue. "Their motivation for buying is aspirational," says Bain analyst Claudia d'Arpizio. So those GG bags may end up at the front of the store after all.

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Matlack is a Paris correspondent for Bloomberg Businessweek.

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