In case you need anymore proof that Gucci is the current star of the luxury industry, here it is: The brand hasn’t had to markdown a single item so far this year.
Kering announced its first half results for 2017 on Thursday, and the standout brand saw revenues rise 43 percent year over year, to $3.3 billion. Overall, Kering revenues spiked 27 percent, to $8.5 billion.
At Gucci, there’s a clear-cut strategy at work that’s uplifting the brand’s fan-favorite designs by creative director Alessandro Michele to record-breaking levels of profitability. In addition to eliminating brand markdowns, the brand has shifted its nearly full attention to direct retail, with only 15 percent of sales coming from its carefully considered wholesale partners. It’s refurbished more than 100 of its over 500 physical retail stores and rolled out its new in-store concept to 23 locations, a concept that highlights events, cross-channel customer service and the most recently released runway collection.
Online, a newly relaunched e-commerce site and a newly launched Chinese version raised sales for the channel by 60 percent, while mobile traffic grew by 100 percent. Gucci also teamed up with e-commerce partners: It launched a menswear collection with Mr. Porter and rolled out a 90-minute delivery option with Farfetch for customers in select cities.
“Our largest house is unparalleled in the luxury industry,” said Jean-François Palus, Kering’s managing director, on a call with investors. “We’ve achieved strong growth with no contribution from in-store markdowns, and we can’t stress the importance of e-commerce at Gucci: We’re reinvesting the brand’s profit in keeping that channel up to date.”
While Gucci is by far Kering’s largest and highest-performing brand, it’s not Kering’s only golden goose. At Saint Laurent, revenues spiked 30 percent; across its other brands, which include Balenciaga, Alexander McQueen and Stella McCartney, revenues rose 11 percent.
Each brand has its unique set of strengths and challenges, Palus said, but he emphasized that the company is drawing on the strategies that have propelled Gucci in order to boost the rest of its brands. Across the board, it’s minimizing markdowns while revamping product selection in stores and online, relying on a direct retail strategy over wholesale.
“We are confident we have taken the right steps to lay the groundwork for all our house bands, not just Gucci, by undergoing a radical reset in retail with a great digital component,” said Palus. “The online and in-store experience has to be fully supportive of our brand image to attract new customers, particularly younger.”
Gucci’s laying the groundwork for turning younger customers — as in, millennials — onto high luxury. The brand’s millennial demographic has increased from 40 percent in 2016 to above 50 percent, and they’re coming back, too.
“Millennials are very important to us because they’re considered to be promoters of the brand,” said Palus. “We have a retention that’s quite strong, too. And these customers are the prime audience of our digital efforts: social media, online visibility, e-commerce. That then spreads to more demographics when it resonates with millennials.”
The company is cautious going into the second half of the year, considering it has strong, basically staggering momentum to match at Gucci. But part of its strategy is to make sure that the other brands in the portfolio don’t fall behind, especially when it comes to attracting new customers. Earlier this year, Kering CEO François-Henri Pinault announced that 40 percent of the company’s marketing spend across brands would go to digital channels, and that Balenciaga planned to triple its overall marketing spend.
“Gucci, and to a certain extent, Saint Laurent, have demonstrated how a luxury company can be relevant online,” said Jian DeLeon, editorial director at Highsnobiety. “Kering has always excelled at balancing online and offline well, and that’s going to be a big boost for all its brands in the coming years.”