Gucci aims to rival Louis Vuitton with USD12b target

After surpassing Hermes, Gucci has Louis Vuitton in its sights. The Italian fashion brand, owned by Kering SA of France, aims to lift revenue to 10 billion euros (USD12 billion) from last year’s 6.2 billion euros, according to an investor presentation yesterday. That would rival LVMH’s Louis Vuitton, long the biggest and most profitable name in luxury.

With a 45 percent increase in sales last year driven by designer Alessandro Michele’s decadent creations – crystal-coated sunglasses and painted handbags – Gucci pulled ahead of Hermes International. It’s also neck-and-neck with Chanel SA but growing faster than the privately held French brand, analysts estimate.

Gucci’s ambition is to become “a definitive 21st century statement of contemporary coolness,” Michele said in the presentation.

Kering shares, which have risen about 35 percent this year, were down 1.5 percent at 12:55 p.m. in Paris.

Gucci and other luxury labels are riding a wave of demand led by China, where sales are surging after a multiyear slump caused by a crackdown on corruption. Gucci has been the industry’s top performer since the appointment of Michele as creative director three years ago. The current upswing follows a boom-and-bust cycle for the Italian brand, whose fortunes had slumped after the departure of designer Tom Ford in 2004.

While not giving a time frame, Gucci said it aims to widen its operating margin to at least 40 percent after reaching 34 percent last year. The new target would be nipping at the heels of Louis Vuitton, whose margin is estimated at being the highest in luxury. 

To achieve the new goals, Gucci plans to increase retail space about 3 percent a year and triple online sales, which reached 270 million euros last year. It’s also concentrating more on its own store network as it aims to reduce its reliance on distributors. Wholesale revenue was 14 percent of the total in 2017, down from 16 percent the prior year. Bloomberg