This is the image that Gucci would like to project. Gucci doesn't belong in a mall. It belongs in a museum. ♪ I could have my Gucci on ♪ ♪ With your Gucci bag crew ♪ ♪ Gucci, Gucci, Gucci, please ♪ ♪ Gucci, Gucci, please ♪ Gucci is that brand
that makes people think they wanna live larger than life, and be sexy, and be adventurous,
and be unconventional. But behind the scenes, things have been a bit less glamorous. Still in shock from
Gucci's dramatic slowdown. Gucci sales falling 20% in Asia. A steep drop in sales at
its flagship Gucci brand. Clearly, Gucci isn't
at the top of its game. So how did Gucci and the $50 billion
conglomerate that owns it fall from high fashion
to the discount rack? While Gucci is an icon of Italian fashion, it's been owned by the
French company Kering for the past two decades. Kering is a luxury conglomerate that is controlled by the Pinault family. Even though it is an established
multi-brand luxury group. They have other storied brands
like Yves Saint Laurent, and Bottega Veneta, and Balenciaga. Gucci is really the
mothership for the company. Kering was founded by Francois Pinault, who built the company through acquisitions over several decades. He's now 87. And his son, Francois-Henri,
has taken over. He's well known because he hangs out quite a lot on the red carpets. His wife is Salma Hayek,
the actress and producer. Now Kering's big rival is LVMH, the owner of Louis Vuitton and
Christian Dior, among others. That company is run by Bernard Arnault. So there's a duopoly in
the French fashion world, with LVMH under Arnault on one side, and Kering under Pinault on the other. That rivalry really came
to a head in the late '90s, when Arnault had set his sights on acquiring Gucci for LVMH. And that was the point when Tom Ford and Domenico de Sole were running
Gucci as a public company. And they didn't want
Mr. Arnault to have it. And they ended up signing an agreement with Francois Pinault, the father, who was the white knight who came in. So initially, they bought
a 40% stake in Gucci. And eventually they bought the rest of it after a lot of acrimonious
moves against LVMH. During that era, Kering was about the same size as LVMH. In the years since, they've
had different trajectories. With savvy deal making and management, LVMH's value has soared to 450 billion. While Kering's hasn't LVMH's market cap nowadays is about 10 times bigger than Kering's. Kering is very dependent on Gucci. Basically, about 50% of
its sales come from Gucci, but more than 2/3 of operating
profit come from Gucci. So when Gucci is suffering, the whole company is suffering. At LVMH, it's slightly different. Louis Vuitton generates about
a quarter of total sales, but it's about half of
total profitability. The fact that LVMH is less
dependent on one single brand provides more stability. Even so, Gucci and therefore Kering, has had a few successful years. And that was largely down to
one man, Alessandro Michele. In the years that followed the nomination of Alessandro Michele as
creative director at Gucci, in 2015, the label did
really, really well. They kept putting out hit products. There was the Marmont bag in 2016, for instance, and the Dionysus bag. And the Princetown
slippers a year earlier. The furry slippers really
became a hit product. They really resonated well
with the younger generations. They were bohemian, they were maximalist, and they were chic. And during that time, the market cap of Kering actually quadrupled. Sales at Gucci more than tripled. But being a top fashion brand comes with problems. Finding that right balance
in the fashion industry to stay on top, and yet
have your products be fresh, it's very difficult to hit. And it's very difficult to
maintain over the long term. The fashion retail Lyst publishes rankings on the
world's most fashionable brands. And Gucci has fallen down the rankings. Since 2022, the performance at Gucci, and therefore Kering, has really suffered. Sales have missed a number of times, and the stock price has really tumbled. The success of Louis Vuitton has meanwhile helped turn Bernard Arnault into, at times, the richest
person in the world. And his was a very different strategy. So I mean, in some ways Louis Vuitton has a more classic image and positioning. LVMH has been at this longer. They are really total pros in this game. There's a difference
between luxury and fashion. In fashion, for instance,
you're relying on trends. Whereas in luxury, you rely on timeless, on heritage products that basically stand the test of time. That's what differentiates top tier luxury brands such as
Louis Vuitton and Hermes. A typical luxury product, for instance, is the Birkin bag by Hermes,
which was created in the 1980s. And that is still very much sought after. You know, one single bag can
cost more than 10,000 euros. With some of Michele's products, Gucci may have missed an opportunity. According to company insiders, these products like the furry
slippers, or the Marmont, or the Dionysus, they could have become one of those heritage, timeless products. But they didn't. And the mistake was that
basically they created many variations of these products. They were overexposed somehow. This was a reflection of
the short-termism at Kering, basically trying to maximize sales and profits in the short term. This is reflected in the
company's share price. For every dollar of profit
that LVMH is expected to make, investors give it about $24 of value. For every dollar of profit at Kering, they only give it about $15. That's because they're
more optimistic about LVMH's future business prospects, because it isn't quite as vulnerable to the whims of fashion. So Pinault knows that
Gucci basically needs to play more in the most
exclusive luxury space. So in February, at the annual results, he says they're trying to
basically lift the brand, and put it in the same category as some of its peers, like
Hermes, Chanel, or Louis Vuitton. But the thing is, he's been
saying that since 2006. Some observers place the blame on Pinault himself. At LVMH, for the most critical and most important decisions, they're taken by Bernard Arnault himself. At Kering, the management
style is slightly different. People have described
him being more hands off, as being a little bit more laissez faire, and as giving the brands more autonomy. Critics cite the 2022 Balenciaga scandal as evidence of this. The brand had to apologize
after one of its ad campaigns was accused of sexualizing children. Still, in 2023, Pinault found
another reason to lose focus. In 2023, the Pinault family
bought a majority stake in Creative Artist Agency. According to some luxury observers, that was seen as a distraction
for Francois-Henri Pinault. Gucci parted ways with Michele in 2022 over a difference in creative vision. And a few months later, in early 2023, they named a new
designer, Sabato De Sarno. He was a relatively unknown
figure from Valentino. At first, his designs seemed more staid than Michele's, playing
into Pinault's plan to elevate the brand. So Pinault wants Gucci basically to become a true luxury player. However, making that pivot takes time. It's a marathon, at the end of the day. It's not a sprint.
