TOKYO — Despite a disappointing set of third-quarter sales figures, Gucci chief executive officer Patrizio di Marco maintains that the Italian luxury giant is on the right track in terms of its repositioning efforts and is working to boost its competitive edge over rivals, both established and emerging.
This story first appeared in the October 28, 2014 issue of WWD. Subscribe Today.
“Gucci is still a work in progress,” the executive said in an interview here as part of his trip to Japan to celebrate the 50th anniversary of the Italian’s company’s business in the country. Five years into his tenure at Gucci’s helm, di Marco stressed the importance of interpreting the company’s third-quarter sales drop within a difficult macroeconomic context that has hit the entire luxury goods industry and said that skeptics need to understand that the company’s efforts to shift the focus of its more than $4 billion-a-year business from entry-level logo products to higher-end goods takes time.
Citing a laundry list of volatile situations around the world, including the ongoing pro-democracy protests in Hong Kong, the threat of terrorist group ISIS, the Ukrainian crisis and China’s economic slowdown, di Marco said it’s a very challenging time to do business.
“We continue to do the things in the way we think they need to be done, but we are very much looking out the window to see what happens,” he said, declining to give a fourth-quarter forecast or estimate of when Gucci’s revenue will resume a growth trajectory. “The world is this way. Life is made up of ups and downs. If the analysts would also understand this as well, it would be better. But they don’t understand. Their ups and downs are three months, 90 days.”
Di Marco said it’s “debatable” whether Gucci’s repositioning is taking longer than originally anticipated given the shifting macroeconomic and geopolitical landscape over the past few years.
“Going back in time…Would I have liked to have done more [by now]? Yes, but because I always want to do more….I would have liked for things to have gone faster because that is the way I am. But honestly to say that it is has taken more time than we imagined, no,” he said.
Gucci’s third-quarter sales declined 1.6 percent to 851.0 million euros, its parent company Kering said Thursday. That represents an improvement over the first half of the year, when sales slid 3.2 percent in the first quarter and 5.7 percent in the second quarter.
Kering said third-quarter sales at Gucci’s own stores were in line with the second quarter. Di Marco said Gucci’s top line suffered on a contraction of its wholesale business as the company shutters wholesale accounts and shifts its emphasis to direct retailing. Gucci does about 80 percent of its business through its network of directly operated stores with wholesale accounting for the remaining 20 percent, a spokesman said. At the end of 2013, Gucci’s retail network totaled 474 units. Direct stores accounted for just more than 70 percent of the business in 2009.
Meanwhile, di Marco said it takes time for consumer mind-sets to adjust to Gucci’s shift to higher-end, more expensive products and for store sales staff to push higher-ticket items.
“The process can’t happen overnight,” he said, describing it as a “titanic” undertaking for a brand of Gucci’s size.
Frida Giannini, Gucci’s creative director and di Marco’s partner in life, made a similar comment about the long-term nature of the repositioning process but she is encouraged by customer reception of her collections. She said her fall offering has seen “excellent” results and she has received similarly positive feedback on her cruise collection so far.
“This process is very slow…losing the customers you had before, finding other ones. Overall these are undertakings that obviously can take time,” Giannini said.
Di Marco said Gucci is facing an increasingly competitive environment as new brands emerge. “It’s fundamental to be an established name but it can also be a weak point in certain circumstances,” he said, adding that the competitiveness of markets will only increase as they mature.
“The whole world, sooner or later, will be what we call a mature market. Mature, but the size of these pies are enormous, so you have to be better than the others,” he said.
One market where di Marco said Gucci needs to step up its efforts in reaching customers is in China, where it is one of the biggest luxury players with 66 stores at the end of last year. Gucci’s third-quarter sales in Asia Pacific fell 5 percent but disruptions of the Hong Kong protests also played a role in the brand’s performance.
“If it’s difficult to make a change in mind-set, if it’s difficult to talk about working with clients, if it’s difficult to really implement the so-called art of selling in mature market, a more-evolved market, think about how difficult this can be in a market like China,” he said.
Di Marco said the extremely high turnover rate for store staff in China is a complicating matter. Skilled sales people are in such high demand that it’s common for luxury goods companies to poach one another’s staff. The executive said a brand is lucky if its annual staff turnover is between 10 and 15 percent each year but that still means training 150 to 200 people each year.
“Just considering this fact alone, inevitably you understand the reason we are having…difficulties in China,” di Marco said.
Di Marco brushed aside suggestions that Gucci might be overexposed in China with too many stores. He said the brand has to keep up with the country’s fast-changing dynamics in terms of transportation links and the ups and downs of neighborhoods and real estate developments rather than think about store counts in sheer numeric terms.
“Now it has become a trend to say that if you have 30 stores, it’s the right number. If you have 60, it’s the wrong number…so by the same token one has to say why are there brands like us and [Louis] Vuitton and Chanel that have more than 100 sales points in America?” he said. “Am I wrong or is China the first country in the world in terms of GDP [growth]?”
Gucci has also seen some managerial changes in China over the past couple years. On Thursday, it revealed that former Gucci Taiwan general manager Merinda Yeung is taking over as president of Greater China. She succeeds former Estée Lauder executive Carol Shen, who left earlier this year after working in that role for less than 18 months.
Di Marco said these personnel changes were not at the root of Gucci’s China problems but they also did not help the situation. He said he is confident about Yeung, whose résumé includes experience at both Chanel and Louis Vuitton. Her first priorities are to improve sales techniques, liaising with clients and investing in staff training, di Marco said.
“Can she turn things around overnight? If there is a miracle, yes…[but] I generally give people time, the right amount of time to be able to do their job,” he said.
Relatively speaking, Japan is faring better for Gucci. Third-quarter sales at Gucci’s directly operated stores in Japan rose 7 percent. While April’s sales-tax hike did impact sales, di Marco said Gucci fared much better than its competitors. He said he’s still unsure how a second tax increase — a jump from 8 percent to 10 percent — planned for next year will play out.
“It’s a very psychological discussion. There you need to be good at getting into the minds of consumers and nobody is. It could be that the second hike is less dramatic than the first,” he said. “Maybe with the second, people are more used to it. I don’t know. Maybe not.”
One thing di Marco and Giannini seem to be getting used to are recurring rumors that the duo might be leaving Gucci. Both of them reiterated their denials that they plan to go anywhere soon — at least of their own volition.
“Honestly, I don’t know what else to say in that it’s a rumor that started a while ago. Honestly, what is the reason why? Because we have seen a slowdown in sales?” he said. “On the basis of just [financial results] there are companies that should be changing [management] every three minutes.”