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After Record Year in 2005, Gucci’s Lee Details Growth

The Gucci brand had a record year in 2005 and its president and chief executive officer, Mark Lee, is equally upbeat about 2006.

MILAN — The Gucci brand had a record year in 2005 and its president and chief executive officer, Mark Lee, is equally upbeat about 2006. The executive reiterated his support of creative director Frida Giannini and outlined plans to grow the brand, both through increased sales of ready-to-wear and flagships in Hong Kong and Tokyo.

“We had the best year in the history of the company, so we are quite proud and happy about that,” Lee told WWD in an interview.

PPR reported full-year 2005 results last week that showed a 14.7 percent jump in the Gucci brand’s recurring operating income to 485 million euros, or $606.3 million at average exchange, for the period, and a 13.6 percent leap in sales to 1.81 billion euros, or $2.3 billion. Lee clarified that sales would have grown 18 percent at constant currency rates.

The ceo said a 16 percent surge in sales of Gucci rtw in the fourth quarter illustrates the positive reception of Giannini’s cruise collection. Gucci women’s rtw sales for the full-year grew 7.6 percent on a comparable basis and at constant currency rates.

Growth at the Gucci brand is vital — Gucci Group ceo Robert Polet has set the goal of doubling the size of the brand within the next seven years while increasing group gross margins to 70 percent.

“There’s a lot of potential for growth,” said Lee. “I would really consider that both women’s and men’s ready-to-wear are underdeveloped and underpenetrated and they’ve been growing below the curve of Gucci.

“It’s unusual that your biggest categories are growing the fastest,” he said, referring to the accessories business. “Logically your less-developed categories should be able to grow even faster because it’s easier, obviously, on smaller numbers and from a smaller base of business.”

In a breakdown of major categories for 2005, rtw accounted for just 12.2 percent of Gucci brand revenue, or 221.2 million euros ($276.5 million); leather goods made up 54.3 percent of the business, or 981.8 million euros ($1.2 billion), and footwear comprised 12.7 percent, or 229.8 million euros ($287.3 million).

“All of our numbers are public, so it’s not a secret that, in the last several years, the ready-to-wear has been a little bit stagnant,” Lee said.

This story first appeared in the March 16, 2006 issue of WWD.  Subscribe Today.

He added that rtw sales improved quarter to quarter last year and he expects a further acceleration of rtw sales in 2006. Meanwhile, he spots untapped potential in men’s apparel, especially in categories like sportswear and knitwear. In the wake of men’s designer John Ray’s resignation earlier this year, Gucci is reorganizing its men’s design team and relocating its office from London to Florence, where Gucci has just built a centralized design studio (see sidebar).

“As Frida’s work got to the consumers, we definitely [saw] a big improvement and that should … continue this year. We are off to a good start,” he said, adding that he’s fully confident in Giannini’s ability to take over creative direction of the men’s collection, given her successful direction of men’s accessories over the last few years.

Overall, Gucci-branded leather goods saw 2005 sales growth of 26.5 percent at constant rates, while footwear advanced 20.1 percent last year. Last year’s launch of the Guccissima line of embossed leather accessories, conceived as a high-priced alternative to logoed canvas bags, helped boost sales, Lee said.

The ceo noted double-digit sales growth in every major geographic region on a constant currency basis. Sales in Japan advanced 11 percent, while those in Europe grew 14 percent. Sales in North America increased 24.9 percent, while those in Asia excluding Japan leaped 28.5 percent.

The ceo, who has worked at Gucci Group for close to a decade, said he’s “kind of amazed” at the press attention surrounding Giannini, who emerged from the much-trumpeted design trio that replaced Tom Ford. Originally in charge of accessories, her responsibilities have ballooned since the departures of women’s rtw designer Alessandra Facchinetti and Ray. Like Tom Ford, Giannini now oversees the creative direction of all Gucci brand products, a situation that works for Lee.

“The decision I took to put Frida in charge of women’s already a year ago, which, at that point, gave her 95 percent of the brand, was my own statement on [the team approach]. I definitely needed to have the women’s ready-to-wear linked to the women’s accessories,” Lee said, clarifying that Giannini emerged as a leader by virtue of both her design and organizational capabilities.

“She’s quite exceptional. It’s a creative job on the one side and it’s also a big management job. She has 40 people working for her; [she’s] not just someone living in the clouds,” Lee said.

The executive said he thinks the inevitable comparisons to the Ford years at Gucci have started to slip away as Giannini charts her own course for the brand. Acknowledging the importance of Ford’s and De Sole’s contributions to Gucci, he emphasized that the brand has an 85-year history and a vast archive that Giannini is reworking.

Lee brushed aside potential criticism that Giannini’s first two Gucci collections lacked continuity. Her debut effort of Forties-inspired butterfly prints and rugby shirts contrasted sharply with her disco-infused sophomore collection of pantsuits and vampishly low-cut dresses shown earlier this month.

“I see a lot of continuity in what she’s doing,” the ceo said, referencing Giannini’s treatment of color and print. “Everything has to be read as a first show and a second show … The story has to be told over the course of several seasons and several collections.”

Still, in business terms, it’s the accessories area that generates the big numbers at Gucci and there’s ample evidence Giannini has succeeded on that front through Flora and Guccissima and other archive revivals, such as the bamboo and the horsebit.

“Frida’s great talent is the way that she’s making those symbols always desirable, always fresh, always modern and dusting them off,” he said.

On the subject of dusting, Gucci also is preparing a new store concept, which will bow at The Landmark in Hong Kong in October. He declined to elaborate on the design elements of the four-story flagship, which will be the brand’s biggest store in the Asia-Pacific region to date.

Reinforcing Gucci’s presence in Asia, the brand will roll out another three stores in mainland China this year. Come November, Gucci will cut the ribbon on a new flagship in Tokyo’s Ginza district. The eight-level building will house four levels of retail space.

“We’re hard at work, that’s all I can tell you. It’s crunch time,” Lee quipped.