When will Gucci get its house in order? Fashion giant needs a new savior to cope with the decline in profits and turnover

In the fall of 1994, American designer Tom Ford arrived at the controversial Italian fashion house Gucci. He produced elegant and sexy collections that transformed the company’s image from frumpy to funky, a makeover chronicled in the House Of Gucci film.

Come spring 2024, Gucci – now the main division of £35bn French luxury conglomerate Kering – will once again need a savior to halt a slump in profits and sales.

But it is said that a predator rather than a savior could emerge. Gucci is one of the two brands most coveted by Bernard Arnault, boss of LVMH, the £350 billion Tiffany and Dior empire. The other is jeweler Cartier, a division of Swiss conglomerate Richemont.

A year ago, Arnault tried to buy Richemont. Could he now be keeping an eye on Kering, whose shares have fallen 20 percent in the past year due to Gucci’s woes?

There is also speculation that Gucci’s troubles could dethrone Kering boss Francois-Henri Pinault, husband of actress Salma Hayek. The Pinault dynasty owns 42 percent of Kering and 59 percent of the voting rights through their vehicle Groupe Artémis, which also includes auctioneer Christie’s.

Nevertheless, some are wondering whether Pinault should cede control to his deputy and Yves St Laurent boss Francesca Bellettini.

Swetha Ramachandran of Artemis’s unrelated fund managers sums up the debate in the £300bn-a-year personal luxury goods sector: ‘The question for Kering is whether this cut is the deepest.’

JP Morgan and Morgan Stanley have lowered their price targets for Kering, which now expects a profit drop of 40 to 45 percent in the first half of the year. This is worse than initially predicted and bad news for investors including Scottish Mortgage, Britain’s largest investment company, which remained tight-lipped over the weekend about Gucci’s latest turmoil.

But analysts at Barclays and elsewhere still rate Kering as a buy, suggesting bidding activity could develop in a sector that is becoming more polarized as the high growth of the post-lockdown era slows.

The sector is divided between the clamor for timeless and very expensive ‘investment’ accessories, such as Hermes Birkin bags – whose sales rose 17 percent year-on-year in the first quarter – and the much lower interest in fashionable items among the ambitious but not exactly wealthy shoppers Gucci courted.

Deeply discounted clothing lines designed by former Gucci designer Alessandro Michele are now available for purchase through an outlet store.

Armelle Poulou, Kering’s chief financial officer, says that “Gucci is not in a good position for positioning” because it is neither high-end nor affordable enough. But she says, “This context can change quickly.”

Ramachandran says Gucci is trying to improve its brand by charging higher prices. But she says the 40 to 50 percent growth Gucci enjoyed with Michele’s flamboyant aesthetic may not soon be matched by spending on the “quiet luxury” creations of his replacement Sabato de Sarno.

Much depends on the return of the Chinese, who make up 35 percent of buyers of luxury clothing, jewelry and watches.

At 62, Pinault hopes time is on his side. Others will wonder who could play him in a House Of Gucci sequel.