Kering's Gucci Overtakes Hermes on Designer Michele's Revamp

(Bloomberg) -- Gucci surged past rival Hermes as shoppers snapped up more of designer Alessandro Michele crystal- and sequin-coated creations over the holidays.

The Italian fashion label closed out the year with another quarter of runaway growth, with comparable sales rising 43 percent, parent Kering SA said in a statement Tuesday. Its revenue of 6.2 billion euros ($7.6 billion) last year surpassed the 5.5 billion euros posted by Hermes International.

Despite the strong performance, the company said the strength of the euro could hit its results over the coming year amid an “unsettled” economic and geopolitical environment. The shares fell as much as 4 percent Tuesday in Paris, though they’ve risen about 60 percent over the last year.

Kering brands ranging from Saint Laurent to Balenciaga joined Gucci in reaping the fruit of youth-focused reboots. Millennial shoppers have been leading the luxury industry’s rebound, with customers under the age of 35 making up 85 percent of growth last year, according to consultancy Bain & Co. Those labels have outperformed Kering’s Bottega Veneta brand.

The “inevitable growth normalization for Gucci, gradual pace of recovery for Bottega Veneta and relatively higher expectations than peers may cap the shares this year,” Rogerio Fujimori, an analyst at RBC Europe, wrote in a note.

Gucci’s efforts under designer Michele and Chief Executive Officer Marco Bizzarri have seen the Italian label roar back after years of sluggish sales. That’s pushed it past Hermes, which has ridden rising demand for its high-end handbags, into second place among fashion brands owned by listed companies. It now trails only Louis Vuitton, the LVMH-owned leather-goods maker that has sales of more than 9 billion euros, according to Exane BNP Paribas analyst Luca Solca.

“We have a new generation of designers who have a more global vision,” Chief Financial Officer Jean-Marc Duplaix said on a call with reporters. He said the creative chiefs worked on extending their aesthetic to everything from store decor to social media campaigns to events to offer clients an immersive experience.

Tom Ford

Under Michele, Gucci has regained the swagger it displayed with designer Tom Ford in the 1990s, while reaching out to a new generation of luxury fans. It has attracted young shoppers through collaborations with Instagram poets and pop-up events where they can personalize their handbags with butterfly and flower motifs, as well as by extending Michele’s look to new categories like watches and ad campaigns for perfumes produced by licensee Coty.

“When I meet with designers I’m less interested in their ideas for products than in the creative universe they propose,” Kering CEO Francois-Henri Pinault said at an investor presentation.

Balenciaga continued to push logo hoodies and luxury sock sneakers while Saint Laurent splashed out on a Paris Fashion Week spectacle, strutting out thigh-high feather boots and sparkly warm-up jackets in a nighttime show framed by the Eiffel Tower.

Last month Kering took a step toward fulfilling its aim of becoming a pure player in luxury fashion when it proposed spinning off a majority of shares in German sportswear brand Puma to its own investors. Duplaix said investors will get 1 Puma share for every 12 of Kering.

--With assistance from Albertina Torsoli

To contact the reporter on this story: Robert Williams in Paris at rwilliams323@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Lauerman

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