Is Kering becoming too dependent on Gucci?

Investors and market analysts love to make alarming predictions about the future of companies they invest in; most of the time to soften the blow of a unavoidable loss. What is causing them to worry at the moment? The success story of Kering's top performing label, Gucci. Some investors are becoming more and more nervous of Kering’s future as it becomes dependent on Gucci due to its recent, rapid growth. Is the group placing all of its bets on one label?

Gucci has been soaring to an unimaginable high in recent times, thanks to CEO Marco Bizzarri and creative director Alessandro Michele. Three years ago it would seem unimaginable that Gucci would out perform LVMH label Louis Vuitton. Today, this is a strong possibility.

Let’s talk figures: Gucci has seen a turnover of turnover of 6.2 billion euros (7.2 billion US dollars) in 2017 (that is, 42 percent growth compared with the previous year), 2.1 billion euros (2.4 billion US dollars) in current operating income (69 percent growth). An impressive feat.

When former chairman and managing director of Stella McCartney and Bottega Veneta, Marco Bizzarri, joined Gucci in 2015 the Italian fashion house was in bad shape, with a downturn in growth and falling turnover. His first move as CEO was a thorough clean-up: transformed Gucci’s distribution network, changed sales strategies online and in stores, improved communication targeting millennials and gave all product lines a much needed makeover.

Bizzarri’s most recent project is to reduce the share of independent suppliers, placing a significant part of Gucci's production under the label's control. Although it seems like a difficult task, this talented CEO is not one to shy away from a challenge.

Even so, the question remains: will all this success come to an end? While Gucci's perfume and beauty departments offer promising outlooks for growth, the ambition presented by Marco Bizzarri are no small feat: achieve a turnover of 10 billion euros (11.7 US dollars) in the mid-term, with a margin of 40 percent. “In 2019 and beyond, we will go twice as fast as the growth of the market,” predicted the CEO.

The stock market only provides further support for his claim: Kering shares hit a historic high this Monday 10 July (2017). Investors in Gucci no longer worry about the outlook of this particular designer brand within Kering. Now the question that comes to mind when we think about the the brand is, “When will Gucci succeed in overtaking Louis Vuitton on turnover as well as profitability?”

Should Kering boost other brands in the group?

The other, more ambiguous question is how long investors will remain excited about Gucci. While maximum growth is the natural aim of any CEO, some market analysts are wondering whether or not Kering should help other brands in the group grow.

Kering is currently completely dependent upon Gucci. Cited by the French magazine Zonebourse, Gucci represents 57 percent of the income and 73 percent of the operating income of Kering’s luxury division in 2017. Gucci’s contribution to its parent company is excessive at best, and possibly even unwise.

The question of whether or not Kering’s dependence on Gucci ensures a sustainable future for the parent company is easier to ask than to answer. Historically, there are two brands that have the potential to become as successful as Gucci is at Kering: Yves Saint Laurent and Balenciaga.

An argument could also be made for Bottega Veneta, which gained its prestige and success while Bizzarri was at the helm. Under his leadership, Bottega’s sales went from 35 million euros to more than one billion euros in the span of 10 years. The leather goods brand is currently waning, despite the recent change of designer. Bizzarri, however, will not give a strong signal whether the brand will see an upturn in the near future.

It has become clear to not only market analysts, but the general public, that for Kering’s sake, the group should stop overworking Gucci, and focus on other golden opportunities within the group.

This article was originally written for FashionUnited.fr. Translated and edited by Kelly Press

photo: www.gucci.com, dr