Gucci Flounders in the Luxury Market
Gucci Struggles as Luxury Market Cools
After several years of heavy post-pandemic spending, luxury shoppers are now tightening their purse strings. Gucci, an iconic luxury brand, is feeling the pinch.
History
Gucci was founded in 1921 by Guccio Gucci in Florence, Italy, initially gaining fame for its high-quality leather goods and equestrian-inspired designs. Over the decades, it evolved into a global luxury brand, known for its innovative fashion.
Gucci, which has experienced a steep drop in sales in recent years, is owned by Kering, the French conglomerate behind 14 luxury brands, including Saint Laurent and Balenciaga. Kering competes head-to-head against conglomerate LVMH, which has more than 75 brands including Dior, Givenchy, and Bulgari. Though the two conglomerates were once similar in size, LVMH’s market cap is now 10 times bigger than Kering’s thanks to strategic acquisitions, diversification, and strong brand management.
Target Markets
While some luxury houses, such as Hermès, exclusively target ultra-wealthy consumers, others, including Gucci, also cater to status-seeking consumers who may not be wealthy. Consumers who aspire to be perceived as being wealthy without the income to match are more likely to reduce spending during tough times, especially on luxury goods.
Chasing Trends
Gucci is critical to Kering’s success, accounting for about half of the conglomerate’s sales. Gucci experienced healthy sales under the rein of creative director Alessandro Michele from 2015 to 2022, introducing hit products such as the GG Marmont leather bag and the leather Princetown slipper. Some of the items introduced during this time, such as the wool-lined version of its slippers, resonated with a younger generation.
However, these trendy products may have contributed to Gucci’s downfall. Gucci has struggled to stay at the top of the industry with fresh and relevant products. It’s possible Gucci relied too heavily on ever-changing fashion trends and tarnished its luxury status by becoming overexposed. Critics say the company released too many variations of its most popular products, maximizing profits in the short term while damaging the brand in the long run.
In contrast, Louis Vuitton of LVMH has a more classic and timeless image, relying much less on trends. Unlike Gucci's tendency in recent years to chase trends, Louis Vuitton has focused on classic designs that transcend fleeting fads. This commitment to enduring style has likely bolstered Louis Vuitton's resilience in an ever-changing market. LVMH’s sales are up.
Reviving Gucci
Gucci’s downturn can also be attributed to declining sales in the Asia-Pacific region. Chinese consumers in particular have shown a divided preference between ultra-luxury and more affordable goods. Gucci, which finds itself positioned somewhere between these two segments, has cited the region as a pain point.
Kering, which appointed a new creative director, Sabato De Sarno, says reviving the Gucci brand will take time. The company is looking to expand its handbag product category with plans for several new product launches.
In the Classroom
This article can be used to discuss target markets and the marketing mix (Chapter 11: Customer-Driven Marketing).
Discussion Questions
- What factors have contributed to Gucci’s downturn?
- Describe how Gucci and Louis Vuitton differ in their approach to luxury.
- Why might Gucci’s middle-ground positioning be problematic?
This article was developed with the support of Kelsey Reddick for and under the direction of O.C. Ferrell, Linda Ferrell, and Geoff Hirt.
Angelina Rascouet, "Gucci Owner Kering Struggles to Revive the Luxury Fashion House, Shares Slip after It Issued Its Second Profit Warning for 2024—and This Time, It’s Pretty Bad," Fortune, April 24, 2024, https://fortune.com/europe/2024/04/24/gucci-kering-struggles-reports-a-slip-in-shares-after-second-profit-warning-2024-lvmh/
"How Gucci Went From High Fashion to Discount Rack," Bloomberg, May 2, 2024, https://www.bloomberg.com/news/videos/2024-05-02/how-gucci-went-from-high-fashion-to-discount-rack
Pamela N. Danziger, "While Kering’s Gucci Warns Of 20% Decline, LVMH Sees Growth In Luxury Market," Forbes, March 28, 2024, https://www.forbes.com/sites/pamdanziger/2024/03/28/while-kerings-gucci-warns-of-20-decline-lvmh-sees-growth-in--luxury/?sh=5831b66a32a7