Gucci review leaves group intact, growth in focus

LONDON - Gucci Group has unveiled a strategic review that will leave the structure of the world's third-largest luxury house intact and could see the Gucci brand double in size in the next seven years.

At a London presentation, Gucci Chief Executive Robert Polet said his drive for growth and improved profitability would not lead to the axing of brands like Alexander McQueen, or Stella McCartney from the Florentine luxury stable.

"We have made fundamental choices. This means we won't be acquiring new brands and we won't be disposing of any brands in the three year period (of the strategy plan)," Polet said.

Growth drivers for the global luxury market - which Gucci believes will be worth 134 billion euros (NZ$251 billion) this year - will include rapidly increasing wealth in Asia, a broader consumer base and steady economic growth, Polet said.

There will also be a renewed focus on the Gucci brand, which Polet aims to double in size over the coming seven years.

The gross margin for the iconic brand is now targeted at "toward 70 per cent" as a 20 per cent increase in marketing and brand communications spending over the coming three years raises the Gucci profile, Polet said.

"We're very confident we can actually do this with our current positioning at the high end of luxury distribution," he said. "You can't just double the size of the brand relying on mark-downs and sell-throughs."

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Thus, the Gucci brand will be targeted on high-growth categories such as jewelry, watches and men's ready-to-wear fashions. Priority regions will include Hong Kong, mainland China and Taiwan, with a projected entry into India in 2006.

Gucci's Italian heritage will also be emphasized, while at French Yves Saint Laurent - which has arguably lost some of its lustre in recent years - there will be a repositioning as "desirable luxury" in a drive further upmarket.

Even so, the fashion division of YSL was not expected to break even over the course of the plan, Polet said.

A previous break-even target for revenues of 300-350 million euros (NZ$560-655 million) for YSL Couture still stood, Polet confirmed. The unit recorded revenues of 154 million euros in 2003.

While specific financial targets for the brand portfolio were few, Gucci did say it aimed to increase revenues at leather goods marque Bottega Veneta to 200 million euros from its 2003 level of 73 million.

This would be achieved through evolution of the product range and a focus on the retail channel that was intended to return the unit to profitability within two years, Gucci said.

Other small brands such as McQueen, Balenciaga and McCartney will take longer to "fix," Polet said, and are not expected to break even until the end of the three-year plan. Gucci does not plan to take any exceptional write-downs on assets during the life of the strategy.

Gucci was fully acquired by PPR in April following a prolonged and bitter ownership battle with global luxury leader LVMH.

Polet took over management of the Gucci brand in October after the unexpected ousting of Giacomo Santucci - the fourth brand CEO to leave since PPR took full control.

Gucci's revenues amounted to 2.59 billion euros in 2003, at which time the group had in excess of 11,000 employees.

- REUTERS