April 29, 2008
Gucci Shifts Down Market
By Tom Ryan
Can a luxury brands be too luxurious? Gucci believes so. The Italian brand blamed its rare sales decline in the first quarter on too ritzy advertising and plans to market lower-priced goods going forward.
Gucci faced tough conditions in the U.S. and Europe and the impact of currency exchange. Sales rose 2.4 percent at constant exchange rates but fell 3.3 percent in the quarter to 513 million euros, or $769.5 million at average exchange. The brand also suffered from a slowdown in tourist traffic in Europe and soft business in Hawaii.
But Jean-François Palus, chief financial officer of PPR, Gucci’s parent, said one of the potential causes for the fall was Gucci overemphasizing the “top-end of the pyramid” with its leather goods while taking its eye off midrange products.
“[The midrange] is the segment dragging on Gucci’s numbers,” Mr. Palus told Women’s Wear Daily. “We are looking to correct this.”
The CFO said the brand would make more of a statement with its popular double-G logo fabric, with more emphasis on the motif on the fashion runway as well as in advertisements.
More specifically, Mr. Palus told The Wall Street Journal that the brand was focusing too much of its advertising on its priciest products in it range, such as the Pelle Guccissima all-leather bag costing 1,880 euros ($2,939). In emphasizing higher-price goods, Mr. Palus Guccio said Gucci overlooked more-accessible products, such as the double-G logoed canvas tote, which costs 540 euros ($844).
The move comes as some of Gucci’s competitors, such as Louis Vuitton and Cartier, posted robust first quarter revenues.
The Journal also noted that Gucci’s down market move would run contrary to the common strategy of luxury goods purveyors. In tough economic times, most tend to target even wealthier consumers immune to bothers such as rising gas and food prices and currency fluctuations.
Discussion Questions: What do you think of Gucci’s move to market more accessible, or lower-priced brands, in its advertisements? What are the risks to the long-term cachet of the luxury brand?
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Gucci runs the risk of becoming what “Calvin Klein” represents amongst fashion brands through this approach.
Has Gucci maximized its marketing in emerging Asian and Indian markets? The market in India for fashion product is growing daily, there are literally millions of Indians who can afford Luxury goods, this is a market relatively untapped.
Offering a down market version of the exclusive Gucci product line could lead to a perception that the brand isn’t nearly as exclusive as it was. This may in turn alienate your most important customer base who will move away from Gucci towards those brands and products out of reach of the masses. All this will depend upon how successfully they limit their risk.
It is an interesting approach, and must be handled very carefully with a definite “bottom” identified so as to avoid “stinking up” the brand.
Luxury brands often expand downward. Porsche and BMW did it without hurting themselves. Chanel is sold in high-end stores and J.C. Penney, too. Gucci’s biggest problems: their design just hasn’t been exciting lately, and their publicity hasn’t been very sexy. They need to fix at least 1 or the other. If they fix both, it’ll be a home run.
I think Don has it right. There is luxury and then there is aspirational luxury. I can’t imagine a brand that has already established luxury status wanting to move down to aspirational as this segment would have a strong correlation to the economy.
If Gucci is dependent on its US stores, this would seem like an ill-timed move. If, on the other hand, Gucci wants to build new customers in the growing economies of the world this strategy might make sense, at least in the short term.
In the long term, however, such a move does not bode well for the brand and in 10 years time Gucci will most likely call up Tom Ford for another revitalization project.
I am not clear on exactly what will be changing, other than perhaps management focus. The items noted do not really meet the definition of “down market” to me, but were rather the entry point for the aspirational Gucci customer.
Down-market, to me, implies changing channels of distribution, creating new merchandise with a different price point structure, and perhaps altering product development to allow that to happen. I don’t read any of that in this article.
Focusing on aspirational shoppers is probably not the best ROI from a marketing perspective in the environment we will be facing. Aspirational marketing works best when incomes are rising, disposable income is increasing, and consumers are looking to experience some of the trappings of a higher standard of living. None of that is true in today’s economy.
By contrast, the luxury and ultra-luxury markets tend to have a completely different psycho-graphic twist. The high end affluent (generalizing), have, over time, shown that in similar economic times many will actively display lifestyle aspects of their wealth. Gucci and other luxury brands remain lifestyle standards for this consumer segment. I would argue that despite a flat market, Gucci might be better off reinforcing the luxury brand affect which motivates those with the disposable income to associate with the brand positioning. Marketing emphasis on entry-point product will probably NOT increase the luxury identification for the truly affluent.
I seem to recall that in the late 1980s, early 1990s, Gucci went through another perhaps similar phase of experimentation with going down market to emphasize “greater consumer accessibility” to its brand. It involved many smaller sizes and the increased use of canvasized logo material for their bags, which were still trimmed in Gucci leather finishings. That was a period of time where there were indeed Guccis on every arm, (but many of them were fake.) And the non-leather linings Gucci used in the manufacture of the authentic ones of that time cracked and flaked and did not wear well, which I know from personal experience.
It took some time and effort for Gucci to regain its elite image and reputation for top leather goods after that, and I am quite surprised they are going down that path again.
Perhaps Gucci’s problem is more with style than price, or a combination of the two. Just because something is high priced does not mean that consumers of luxury goods will buy it. Even luxury goods are subject to the whims of style.
Is Gucci planning to keep the ultra-luxury items and incorporate a line extension of “more affordable” luxury items or is the whole line going to become “more affordable” luxury items? Either choice has some dangers.
A line extension makes the Gucci name more accessible to consumers who want the luxury and status but can’t afford the ultra-luxury items. Will the distinction between the products be enough to leave those consumers purchasing the ultra-luxury items feeling as though they still have the status they desired? Or, will those consumers feel as though their status is diminished and desert the line?
If the whole line goes toward “more affordable” then the brand does lose status so, while they may be more consumers who can afford to buy, the cache no longer is strong enough to provide an incentive to purchase.
Gucci needs a good understanding of the consumers so that a successful strategy can be developed.
I’m not sure whether Gucci is aiming “down-market” or simply marketing more affordable goods already in its assortment. They need to walk a fine line between advertising the sort of high-end goods that drive brand image more than top line sales, and appealing to aspirational customers who want the brand to be within reach. Interesting quandary: How high-end is too high-end?
Generally speaking, I would say it’s tempting for any established company experiencing a sales decline to want to look at other markets. In this case, Gucci has obviously seen greener pastures within the lower priced product segments.
Initially I would say this is a bad idea. Any high end luxury brand that tries to be everything to anyone will end up being nothing to everyone (i.e. Jaguar cars). But in this case, I think the fact the Gucci has chosen to stay in the higher end markets while becoming more “affordable” will not hurt them. It will be interesting to see how their marketing message will change.
Gucci may envision space on Wal-Mart’s shelves someday but I doubt you will find Coach riding in that direction. The upscale market will remain upscale even in a recession. Perhaps Gucci should reconsider what it is doing.
I agree with several opinions and also Mr. Lilien. It is a MISTAKE for Gucci to move downmarket. The assortment should be made more desirable, whatever that requires to be accomplished.
Moving downmarket will never work. I actually support the OPPOSITE–move MORE Upscale–there are “more affordable” pieces and, for someone who wants Gucci, they will save or do what is necessary to obtain it. Making even more affordable pieces risks losing the very high end customers and there is a lot of competition in the high end. They should protect their hard earned elite status and not actively conduct change that could potentially damage that status.
The middle is no place to be near and the high end brands should avoid the potential to be labeled “everyday” by any means. If lessor pieces are focused upon then the high end items will lose their cache and perception is too important in this business model. Aspirational customers will buy the more moderate offerings if the high end is out of reach but the high end should be the standard and should be the emphasis.
Gucci had to restore itself in the last twenty years and was successful. Look at all the work to restore the cachet of Lord and Taylor and look at all the hard work to restore Burberry. I really feel that this is a poor decision.
In response to Mr. Lilien, Luxury brands do not “successfully” expand downward. BMW has always been an expensive, but not a luxury, sporty brand. That’s why they bought Rolls Royce on the luxury end and Mini on the other. Porsche expanded its product line but did no way go down in price. The Cayenne is similar in price to the Boxter. Finally, I highly doubt that Chanel apparel and accessories are sold at J.C. Penney. Bringing a luxury brand down in price is a short term gimmick to appease Wall Street but is troublesome in the long term.
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Gucci runs the risk of becoming what “Calvin Klein” represents amongst fashion brands through this approach.
Has Gucci maximized its marketing in emerging Asian and Indian markets? The market in India for fashion product is growing daily, there are literally millions of Indians who can afford Luxury goods, this is a market relatively untapped.
Offering a down market version of the exclusive Gucci product line could lead to a perception that the brand isn’t nearly as exclusive as it was. This may in turn alienate your most important customer base who will move away from Gucci towards those brands and products out of reach of the masses. All this will depend upon how successfully they limit their risk.
It is an interesting approach, and must be handled very carefully with a definite “bottom” identified so as to avoid “stinking up” the brand.
Luxury brands often expand downward. Porsche and BMW did it without hurting themselves. Chanel is sold in high-end stores and J.C. Penney, too. Gucci’s biggest problems: their design just hasn’t been exciting lately, and their publicity hasn’t been very sexy. They need to fix at least 1 or the other. If they fix both, it’ll be a home run.
I think Don has it right. There is luxury and then there is aspirational luxury. I can’t imagine a brand that has already established luxury status wanting to move down to aspirational as this segment would have a strong correlation to the economy.
If Gucci is dependent on its US stores, this would seem like an ill-timed move. If, on the other hand, Gucci wants to build new customers in the growing economies of the world this strategy might make sense, at least in the short term.
In the long term, however, such a move does not bode well for the brand and in 10 years time Gucci will most likely call up Tom Ford for another revitalization project.
I am not clear on exactly what will be changing, other than perhaps management focus. The items noted do not really meet the definition of “down market” to me, but were rather the entry point for the aspirational Gucci customer.
Down-market, to me, implies changing channels of distribution, creating new merchandise with a different price point structure, and perhaps altering product development to allow that to happen. I don’t read any of that in this article.
Focusing on aspirational shoppers is probably not the best ROI from a marketing perspective in the environment we will be facing. Aspirational marketing works best when incomes are rising, disposable income is increasing, and consumers are looking to experience some of the trappings of a higher standard of living. None of that is true in today’s economy.
By contrast, the luxury and ultra-luxury markets tend to have a completely different psycho-graphic twist. The high end affluent (generalizing), have, over time, shown that in similar economic times many will actively display lifestyle aspects of their wealth. Gucci and other luxury brands remain lifestyle standards for this consumer segment. I would argue that despite a flat market, Gucci might be better off reinforcing the luxury brand affect which motivates those with the disposable income to associate with the brand positioning. Marketing emphasis on entry-point product will probably NOT increase the luxury identification for the truly affluent.
I seem to recall that in the late 1980s, early 1990s, Gucci went through another perhaps similar phase of experimentation with going down market to emphasize “greater consumer accessibility” to its brand. It involved many smaller sizes and the increased use of canvasized logo material for their bags, which were still trimmed in Gucci leather finishings. That was a period of time where there were indeed Guccis on every arm, (but many of them were fake.) And the non-leather linings Gucci used in the manufacture of the authentic ones of that time cracked and flaked and did not wear well, which I know from personal experience.
It took some time and effort for Gucci to regain its elite image and reputation for top leather goods after that, and I am quite surprised they are going down that path again.
Perhaps Gucci’s problem is more with style than price, or a combination of the two. Just because something is high priced does not mean that consumers of luxury goods will buy it. Even luxury goods are subject to the whims of style.
Is Gucci planning to keep the ultra-luxury items and incorporate a line extension of “more affordable” luxury items or is the whole line going to become “more affordable” luxury items? Either choice has some dangers.
A line extension makes the Gucci name more accessible to consumers who want the luxury and status but can’t afford the ultra-luxury items. Will the distinction between the products be enough to leave those consumers purchasing the ultra-luxury items feeling as though they still have the status they desired? Or, will those consumers feel as though their status is diminished and desert the line?
If the whole line goes toward “more affordable” then the brand does lose status so, while they may be more consumers who can afford to buy, the cache no longer is strong enough to provide an incentive to purchase.
Gucci needs a good understanding of the consumers so that a successful strategy can be developed.
I’m not sure whether Gucci is aiming “down-market” or simply marketing more affordable goods already in its assortment. They need to walk a fine line between advertising the sort of high-end goods that drive brand image more than top line sales, and appealing to aspirational customers who want the brand to be within reach. Interesting quandary: How high-end is too high-end?
Generally speaking, I would say it’s tempting for any established company experiencing a sales decline to want to look at other markets. In this case, Gucci has obviously seen greener pastures within the lower priced product segments.
Initially I would say this is a bad idea. Any high end luxury brand that tries to be everything to anyone will end up being nothing to everyone (i.e. Jaguar cars). But in this case, I think the fact the Gucci has chosen to stay in the higher end markets while becoming more “affordable” will not hurt them. It will be interesting to see how their marketing message will change.
Gucci may envision space on Wal-Mart’s shelves someday but I doubt you will find Coach riding in that direction. The upscale market will remain upscale even in a recession. Perhaps Gucci should reconsider what it is doing.
I agree with several opinions and also Mr. Lilien. It is a MISTAKE for Gucci to move downmarket. The assortment should be made more desirable, whatever that requires to be accomplished.
Moving downmarket will never work. I actually support the OPPOSITE–move MORE Upscale–there are “more affordable” pieces and, for someone who wants Gucci, they will save or do what is necessary to obtain it. Making even more affordable pieces risks losing the very high end customers and there is a lot of competition in the high end. They should protect their hard earned elite status and not actively conduct change that could potentially damage that status.
The middle is no place to be near and the high end brands should avoid the potential to be labeled “everyday” by any means. If lessor pieces are focused upon then the high end items will lose their cache and perception is too important in this business model. Aspirational customers will buy the more moderate offerings if the high end is out of reach but the high end should be the standard and should be the emphasis.
Gucci had to restore itself in the last twenty years and was successful. Look at all the work to restore the cachet of Lord and Taylor and look at all the hard work to restore Burberry. I really feel that this is a poor decision.
In response to Mr. Lilien, Luxury brands do not “successfully” expand downward. BMW has always been an expensive, but not a luxury, sporty brand. That’s why they bought Rolls Royce on the luxury end and Mini on the other. Porsche expanded its product line but did no way go down in price. The Cayenne is similar in price to the Boxter. Finally, I highly doubt that Chanel apparel and accessories are sold at J.C. Penney. Bringing a luxury brand down in price is a short term gimmick to appease Wall Street but is troublesome in the long term.