GUCCI’S $2,600 dragon-embroidered handbags and $1,400 crystal-studded pink sunglasses are leading the luxury industry’s revival as young shoppers get a taste for the high life.
Shares in Paris-based parent Kering SA rose to a record after Gucci reported third-quarter sales that jumped 49% on a comparable basis. The performance demonstrated designer Alessandro Michele’s “Midas touch,” Jefferies analyst Flavio Cereda said in a note.
Gucci is leading the way as global demand for pricey fashion expands to a generation that until recently seemed more interested in leisure activities than designer footwear. Bain & Co. on Wednesday upgraded its outlook for the industry, saying spending on personal luxury goods will rise 6% this year to €262 billion ($308 billion) excluding foreign-exchange effects, with consumers under 35 accounting for 85% of the increase.
“There had been a question mark on the fact that millennials could be as relevant for luxury as the Baby Boomers were,” Claudia D’Arpizio, the study’s lead author, said by phone. “We were seeing how brands were reinventing themselves a bit to cater to this generation, but the surprise was the magnitude of the response.”
Gucci has raced back to prominence since Michele took over in 2015. The brand has since then extended the designer’s rococo aesthetic to categories including watches and perfume, while efforts to hook younger consumers during the quarter included rolling out the brand’s first web outlet in China and a pop-up store at London’s Harrods where customers could personalize their handbags with butterfly and flower motifs.
“Gucci has been exemplary in the way it communicates with millennials,” Chief Financial Officer Jean-Marc Duplaix said in a call with reporters. The brand’s quarterly performance helped Kering post an overall sales increase of 28% on a comparable basis when it reported results late Tuesday.
As millennials catch the luxury bug, Bain has raised its spending forecast for the industry twice this year from an original range of 1% to 2%. The brands enjoying the most success are those that “keep a dialogue open” with consumers via social media, D’Arpizio said, and which have enlivened stores with exhibitions and changing displays that tell stories about the brand.
“The store has become like the theater where the brand’s creativity is living and taking place, where you come for the different stories that the brand is telling,” she said of Gucci. “You want to go there many times to see what’s next, what’s different.”
Kering’s shares have risen 84% this year as creative revivals at several brands backed up the growth at Gucci. Saint Laurent has had continued success with its monochromatic, nightlife-inspired aesthetic, while Balenciaga made its own play for young luxury consumers with oversize puffer jackets and logo hoodies.
Luxury rivals like French conglomerate LVMH and Italy’s Moncler SpA – which reported a 15% increase in third-quarter sales excluding foreign-exchange effects late Tuesday – are also sharing in the industry’s gains. LVMH cited its own efforts to hook millennials including the launch of a makeup brand by pop singer Rihanna when it reported sales that beat expectations last week.
Kering-controlled sportswear brand Puma AG reported its highest profit since 2012. The German brand is a “noncore” asset for Kering, which has progressively shifted its portfolio to high-end fashion, Duplaix said. But a disposal of Kering’s stake is not planned in the short term, he said, after reports that the company was considering a sale.
One drag on the Paris-based company’s results came from the buoyant euro, which weighed on tourist spending in Europe and reduced earnings from sales in other currencies when converted, Duplaix said. – Bloomberg