June 7, 2018 / 9:47 AM / 3 months ago

Kering's Gucci aims to steal luxury crown from Louis Vuitton

FLORENCE, Italy (Reuters) - Italian fashion house Gucci said on Thursday it aims to reach 10 billion euros (£8.8 billion) in annual sales and replace LVMH’s (LVMH.PA) Louis Vuitton as the world’s biggest luxury label.

FILE PHOTO: A Gucci sign is seen outside a shop in Paris, France, December 18, 2017. REUTERS/Charles Platiau

The Gucci brand is reaping the benefits of a radical makeover under designer Alessandro Michele, with a flamboyant style that has won over fashion fans and helped sales surge.

Gucci, part of the Kering (PRTP.PA) conglomerate that includes other labels like Saint Laurent, expects eventually to overtake all of its peers including mega-brand Vuitton, owned by Kering’s French rival LVMH.

“We’re in the same league ... The question is not if, but when,” Gucci Chief Executive Marco Bizzarri told journalists at a strategy update on Thursday.

Last year Gucci, with 6.2 billion euros in sales, came in behind Vuitton - estimated by analysts to bring in over 8 billion euros - as the luxury industry’s number two, in close contention with a few others like Hermes (HRMS.PA).

It did not set a precise timeline for hitting 10 billion euros in revenue, but said it expected sales to grow at twice the market rate in the coming years as it enjoys a renaissance.

The luxury industry, fuelled by Chinese demand, is expected to pick up pace in 2018, with global revenues forecast to expand by 6 to 8 percent at constant currencies, according to a report by consultancy Bain on Thursday.

Kering shares however, up more than 35 percent so far this year, closed down 4.15 percent following the strategy update, with other luxury stocks like LVMH or Hermes also falling.

Analysts at HSBC said Gucci’s punchy sales targets were achievable. Others said that kind of revenue growth was already priced into the stock and some had concerns about the broader economic backdrop that drives upturns and downturns in the sector.

“Today’s performance is possibly a sign that the market is starting to price in more muted growth in the second half of 2018,” BNP Paribas Exane analyst Luca Solca said in emailed comments, pointing to gaming data in Macau that was lower-than-expected in May and slowing growth in Germany’s services sector.

NOT A FASHION MOMENT

In a notoriously fickle industry, where tastes can change rapidly and ever more so with the influence of social media, brands are battling it out to capture buyers’ attention with eye-catching designs or events like spectacular catwalk shows.

Gucci’s Bizzarri and Michele, who both came on board in 2015, gave the brand a top-to-bottom makeover, from new product ranges to stores redesigned to make them more welcoming, in vivid hues and draped in velvet.

So far, the brand has defied any expectations of a slowdown or of a fading buzz around Michele’s creations.

Gucci’s latest mid-season “Cruise” collection presented last month in a Roman necropolis in France featured models in an intricate array of colourful prints making their way down a flamed-filled runway by night.

“This is not a fashion moment,” Bizzarri said, adding that there had been no slowdown in the pace of sales in the second quarter. “Alessandro created a unique style and lexicon, which to me is something that is going to last.”

Revenue expanded by 49 percent from a year earlier at constant currencies in the first three months of the year.

Bizzarri said that thanks to further store facelifts, Gucci aims to further boost sales densities - a measure of profitability in stores.

These could eventually reach 45,000 euros per square metre on an annual basis, from just over 30,000 euros in 2017.

Gucci also targets an operating margin of more than 40 percent, compared to around 34 percent in 2017.

The brand plans to triple sales made on its e-commerce sites to around 10 percent of revenue - though it did not give a timeline - as it rolls out new shoppable platforms from New Zealand to Mexico.

Additional reporting by Sudip Kar-Gupta; Editing by Elaine Hardcastle

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