MILAN, Nov 24 (Reuters Breakingviews) - The abrupt departure of star Gucci designer Alessandro Michele on Wednesday is putting French luxury boss François-Henri Pinault on the spot. The Italian brand, Kering’s (PRTP.PA) largest, has been a money-spinner for the 68 billion euro French conglomerate. Finding a new creative genius won’t be easy. The move both highlights, and complicates, Pinault’s need to do more M&A.
Michele’s departure leaves Pinault with a Gucci headache. The Rome-born stylist, who joined the brand two decades ago and became its chief designer in January 2015, was instrumental in fuelling a phenomenal sales growth thanks to his colourful and gender-fluid style. Gucci revenue nearly trebled to 9.6 billion euros between 2014 and 2019. But a big push to woo young Chinese shoppers meant sales struggled to recover as fast as other luxury brands after the pandemic, triggering a share slide that has depressed Kering’s valuation.
Gucci may have been in need of a change. But Pinault needs to find a successor to Michele quickly. Kering, which also owns brands including Bottega Veneta and Yves Saint Laurent, derived just over half of its sales and about three-quarters of its operating profit from Gucci in 2021. But top designers don’t come in droves. And a change of hand can be tricky: Burberry (BRBY.L), which had pinned its hopes of revival on former designer Riccardo Tisci, failed to wow customers and recently replaced him.
Pinault’s best hope is to accelerate his search for new brands to reduce his dependence on Gucci. But, while LVMH’s (LVMH.PA) Bernard Arnault has splashed out billions of euros to buy jewel maker Tiffany and hotel owner Belmond since 2018, big deals have so far eluded Kering. The group held talks with Richemont (CFR.S), according to the Swiss group’s boss Johann Rupert, has been in contact with Moncler (MONC.MI) and recently lost out in the race to clinch the U.S. brand of ex-Gucci designer Tom Ford, which went to cosmetics group Estée Lauder (EL.N).
Finding the right target will not be easy. Many fashion brands are too small to move the needle, like Tod’s (TOD.MI). Or they are controlled by founders unwilling to sell, like Prada. And there is always the risk that 350 billion euro LVMH may outbid Pinault. The fact Kering’s stock now trades at a lowly 16 times forward earnings, a discount to LVMH’s 24, doesn’t help. Pinault’s greater need of a deal, meanwhile, risks making potential sellers more likely to drive a hard bargain.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are her own. Updates to add graphic.)
Kering’s top brand Gucci said on Nov. 23 Creative Director Alessandro Michele had stepped down.
Rome-born Michele had joined Gucci in 2002 and had been its chief designer since Jan. 21, 2015.
Under Michele’s creative leadership, Gucci sales grew nearly three times from 2014 to 9.6 billion euros in 2019, one of the best performing brands in the luxury world. However, it slumped during the pandemic and has struggled to recover as fast as rivals.
Kering, a 68 billion euro conglomerate which also owns brands such as Bottega Veneta and Yves Saint Laurent, derived half of its 17.7 billion euros revenue and three-quarters of its operating profit from Gucci in 2021.
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