In the first half of 2018, Gucci’s revenue rose by 44 percent, to $4.4 billion, with its operating margins reaching 38 percent, a record high for the brand. This is the sixth consecutive quarter that Gucci’s revenue has increased by 30 percent or more, and this one is particularly notable: Comparable revenue at the same time in 2017, when Gucci’s sales began to take off, had risen by 33 percent.
Driving the growth is the brand’s direct retail sales. Revenue from directly operated stores was up 46 percent over the year before, while e-commerce sales increased by 88 percent. Overall, direct sales account for 86 percent of Gucci’s sales, and Palus said during a call with investors on Thursday that the goal over the next few years is for Gucci’s wholesale revenue to account for less than 10 percent of the brand’s overall sales.
Gucci has invested in a new store format — so far redesigning 120 existing stores and opening a new flagship in New York’s Soho neighborhood in May — and closed 25 percent of its wholesale distribution relationships. The brand doesn’t have any plans to open new wholesale outlets. To grow its e-commerce channel, which the brand aims to grow its share of sales from 4 percent of revenue to 10 percent, Gucci has invested in online clienteling tools and a redesigned website, and increased digital media spend to 55 percent of its total media budget.
“This is logical. We are more and more selective of the wholesale partners we have — it’s about being inclusive around experience, while being exclusive around the brand target and the distributors,” said Jean-François Palus, Group Managing Director at Kering Group, parent company of Gucci. “We need to allocate products and resources first to our own channels.”
Guiding Gucci’s distribution strategy is its merchandising approach. According to CEO Marco Bizzarri, who laid out Gucci’s growth plan to investors in June, the brand’s merchandising is led by a “new aesthetic” strategy: Gucci’s creative director, Alessandro Michele, and its head merchandiser, Jacopo Venturini, have full control over how Gucci’s stores and websites are merchandised. The goal is to showcase the complete Gucci collection, without it being diluted by the decisions of a buyer.
“The creativity of Alessandro is exactly what we need. The reason why we are so successful and so quick is because we bet, at the very beginning, for all the 500 shops we have to carry all the products that Alessandro did across the board,” said Bizzarri in the investor presentation. “So it was the biggest bet ever. We bet billions on [this strategy], because we wanted to raise the message immediately.”
To convey a complete picture of the Gucci under Michele’s creative direction, the brand has prioritized wholesale relationships based on which partners will buy in to the entire collection, rather than just picking and choosing what might best perform for customers.
The idea is that, through the entire collection, no one customer group will be targeted. While millennials account for the fastest-growing sector of Gucci’s sales, Bizzarri said that wasn’t a strategy.
“What is absolutely important? We never target an age,” said Bizzarri in the presentation. “We didn’t want to target the millennials. We didn’t want to target a specific bracket age. We always wanted to target a state of mind. And that’s the reason why all the age brackets are growing.”
It’s a new approach to the idea of exclusivity in luxury, that shapes a new way of selling: While price points are still prohibitive to the majority, the brand isn’t selling to a specific person who shops at a specific store, while turning other people away. Luca Solca, head of luxury goods at Exane, explained it this way in a recent Business of Fashion piece: “Given how big some brands have become — Gucci being a case in point — [Bizzarri] said focusing on exclusivity would be self-limiting. He spoke instead of a younger generation of consumers that wants to belong to a tribe, while being able to express their own individuality. In short: Inclusivity is the new exclusivity.”
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