Gucci: From the Runway to the Fairway
By: Hannalee Liu & Jason Yu
The Ivey Business Review is a student publication conceived, designed and managed by Honors Business Administration students at the Ivey Business School.
The House of Gucci
Since the house’s establishment in 1921, Gucci has become a ubiquitous name within luxury clothing, high fashion, and flex culture. Through selling a full suite of handbags, ready-to-wear clothing, footwear, and even home decor, Gucci’s chokehold on the luxury space has been difficult to challenge. However, every big name comes from humble beginnings. Emerging initially as a luxury leather luggage brand founded by Guccio Gucci in Florence, Italy, the brand found early success in high-quality leather products, such as gloves, wallets, and handbags. In 1999, Gucci underwent a major shift as it was acquired by fashion conglomerate Kering, becoming one of many houses under the brand. With this new direction, Gucci began to rapidly innovate and diversify its product offerings while retaining its initial poetic essence. Today, Gucci is indisputably one of the most influential brands in the world, positioning itself as a benchmark for timeless fashion.
The Luxury Market: A Shrinking Pond
The market for everyday luxury wear has stagnated. Inflation, work-from-home, and the rise of fast fashion have deteriorated the luxury market. The luxury pond in the West is less attractive now that there are increasingly more competitors, more brands, and more houses, all vying for smaller and smaller wallets. The luxury market grew by only 4 percent in 2023, a dramatic departure from the 20 percent growth seen just one year prior. This development is made worse by hindrances to the strategic direction most luxury firms have elected to pursue – an expansion into China. Once hailed as the “honey trap,” defined by an explosive taste for Western luxury, rapidly increasing incomes, and ballooning discretionary spending, China is now described as the luxury industry’s “sore spot.” Beyond rising nationalism through the guochao movement encouraging local buying and the increasingly tight wallets of China’s wealthy, China’s luxury scene is marred by the nation’s slowing economy and a gradual rebound to pre-COVID economic conditions. Needless to say, given a shrinking luxury pond in the West and China’s uncertain economic future, the luxury market is a tumultuous space indeed.
Despite a stagnating luxury market, Gucci’s rivals – Dior, Chanel, and Hermes – largely skirted the expected effects of these macroeconomic trends. One potential reason is the divergence within the luxury market that has occurred within the last decade: the duality between traditional luxury and aspirational luxury. Traditional luxury has been a timeless constant – through thick or thin, higher costs of living, or higher interest rates, these wealthy buyers do not falter. The same cannot be said about the nascent aspirational segment within the luxury retail space. Aspirational shoppers make a few transactions per year, focus on more affordable luxury products, treat luxury as an accessory, and are the first to cut back during financial downturns. This duality has produced clear winners and losers in the luxury space: brands with aspirational shoppers as a core target segment are losing. In response to increasing inflation, aspirational buyers, who were once 40 percent of worldwide luxury consumers, are those who are now hesitant to continue buying. Gucci has historically profited off of aspirational “hype” through trendy products and collaborations with non-luxury brands; this has, however, increasingly directed the brand’s target market away from the traditional luxury consumers that Dior, Chanel, or Hermes maintain.
Kering and Gucci’s Woes
Gucci recently ended its 2023 fiscal year with its third consecutive quarter of declining sales. Of the Kering Group’s three main brands–Gucci, Yves Saint Laurent, and Bottega Veneta – Gucci crashed the hardest, rounding out the quarter with a 6 percent decline in revenue. For what is widely regarded as Kering’s flagship fashion house, consistently representing over 50 percent of the multinational corporation’s annual revenue, Gucci’s performance creates concerns for the brand’s ability to compete in an industry that is suffering all around. As arguably the most recognizable and common name in the luxury industry, Gucci’s poor performance foreshadows Kering’s inability to maintain long-term growth. Kering’s stock price has nearly halved over the last year, decreasing from its 52-week high of €603 to €383.
Gucci’s specific issue lies in its past and present approach to branch positioning. In the past, Gucci grew revenue while keeping production scarce, reinforcing its luxurious status. This success was achieved by targeting high-income individuals with an appreciation for Gucci’s heritage. Today, however, Gucci’s brand position leans towards the premium, aspirational market rather than old luxury. Gucci began targeting a younger demographic and mass-producing its products. Today, the highest ownership of the brand is among Millennials aged 25-35 years old. Recent marketing campaigns and social media efforts have been similarly directed toward aspirational buyers, who are more likely to engage with the brand online. Gucci’s designs have also become increasingly ‘trendy’ rather than ‘timeless’, and have, in the process, compromised the company’s once cross-generational prestige. Indeed, it is because competitors like Chanel and Dior have refused to compromise their timeless motifs that they have not suffered the same challenges.
On the contrary, Dior experienced a 14 percent increase in revenue growth in 2023, and Chanel’s revenues increased over 17 percent leading into 2024. Chanel has maintained a consistent brand identity centred around classic Parisian elegance, enabling the company to open more brick-and-mortar stores and release new product lines in 2024. Dior – known for its sleek and sophisticated style – has similarly been targeting high-income women looking for the allure of French luxury, allowing the brand to grow organically amidst the luxury recession. Gucci’s failure in brand position has become apparent to the company itself: in 2023, Kering appointed new CEO, Jean-François Palus, and designer Sabato De Sarno, signalling a desperate need for change. However, the turnaround has not seen any progression, leaving Gucci at another expected revenue decline of nearly 20 percent in 2024. Gucci is in dire need of change, and re-directing the company’s brand positioning must be at the forefront of the charge.
Sporting Goods Industry: Prestige Athleisure, Casualization and New Luxury
Economic challenges and global conflicts disrupting supply chains have affected all industries. However, the remarkable resilience of the sporting goods industry has endowed market leaders with optimism going into 2024. The global sportswear industry is expected to grow 7 percent by 2027, especially within Asia-Pacific and North America. The global sportswear market currently sits at $413 billion and is expected to grow to $749 billion by 2031 with a CAGR of 6.8 percent. The success of sportswear industry leaders like Nike, Puma, and Adidas does not hinge solely on one characteristic but has been driven by the global social trend of the casualization of fashion. With a wide-scale acceptance of casualization as a new normal, and backed by community-based engagement and structurally higher online penetration, sportswear companies like Nike continue to win.
In step with this trend, Moncler CEO Remo Ruffini recently predicted what he described as the emergence of “new luxury”: the blurring of the lines between luxury fashion, culture, music, and especially sports. This drove Moncler’s strategic decision to acquire Stone Island, signalling the luxury company’s commitment to embracing fashion that is more utilitarian and technical. Stone Island emphasizes “anti-fashion,” a prioritization of function over form. Anti-fashion can be observed as a broad trend given the rise of athleisure in recent years. Yet even within athleisure, fashion and luxury commentators have noted an increase in demand for something new and more minimalist: a “quieter luxury” within athleisure. This need in the market has been left unserved: pieces from Nike and Lululemon are all mostly affordable, non-luxury, “and in-your-face.” As consumer tastes follow the quiet luxury trend, athleisure and sportswear as we know it today cannot succeed forever; the unserved demand for prestige sportswear continues to grow.
For Gucci to turn its brand around, it must consider the normalization of casualization and demand for prestige athleisure driven by the rise of quiet and new luxury.
Case Study
Nike’s Adjacent Market
In 1982, Nike had a modest 18 percent market share in the sneaker industry. At the time Nike’s primary line of sneakers was directed solely towards running. The company needed to expand into an adjacent market outside its current product line quickly and efficiently to continue growing. Nike chose the basketball shoe market – a market which was, at the time, dominated by Converse, Adidas, and Reebok. Advertising was centred around key shoe endorsements from NBA players; with little budget to compete in the market, Nike needed a differentiation strategy.
Nike only had the budget to sign one NBA prospect to endorse their basketball shoe brand. The lucky player that year was Michael Jordan. Unlike its competitors – who focused on using players to market their brand – Nike chose to design a basketball shoe line for Michael Jordan. Nike even intentionally received a $5,000 fine per game for violating the NBA's uniform rules to market their unique designs and bright colours. Revolutionizing the market for basketball shoes, Air Jordan closed the gap between athletes and basketball enthusiasts through its fashionable design.
Today, Nike dominates 48 percent of the sneaker market, making basketball shoes more than just something to walk on, but a platform that connects sports, creativity, and fashion worldwide – akin to new luxury. By finding a similar gap between high-net-worth sports enthusiasts and athletes, Gucci’s fashion could bridge the gap between the two groups, leveraging the brand's luxury and prestige.
Fear of God’s Luxury Transition Success
Having now understood how a brand can successfully expand to an adjacent market, how can a luxury company like Gucci, which relies heavily on brand image, do the same without eroding customer perception?
In 2013, Jerry Lorenz launched the luxury brand Fear of God. Retailing at premium prices of $2,000 to $5,000 per piece, Fear of God established itself and ratified the notion of streetwear through its premium timeless designs. Later, in 2018, Lorenzo launched Essentials Fear of God as a competitively priced sister label, specializing as a basic collection. Many wonder how the Fear of God brand did not erode after launching Essentials at a cheaper price point and with a brand perception of comfort.
The answer can be found within the company’s strategy: positioning Essentials Fear of God as a subsidiary of the brand was the key. By retailing at stores such as Nordstrom, Holt Renfrew, and PacSun, Essentials was able to market itself alongside Fear of God without brand dilution. Furthermore, through balancing availability and exclusivity, Essentials made their products available enough to build a strong customer base, but scarce enough to retain an exclusive status. Gucci should adopt a similar marketing strategy as Fear of God to expand into sportswear.
Recommendation: Vincita Gucci
Gucci must adapt to the unpredictable direction of luxury spending habits. With inspiration from successful expansions like Nike and Fear of God, and with the emerging social trends of clothing casualization and new luxury, Gucci should roll out Vincita Gucci, a novel Gucci-affiliated line of premium sportswear that fills the luxury gap in prestige sports. As a prestige sportswear line, Vincita Gucci would be a line of high-end apparel for sports such as golf, lacrosse, polo, fencing, and tennis. This enables Gucci to capitalize on rising trends relating to the recent new fashion intersection of luxury and function. As Fear of God did with Essentials and Moncler did with Stone Island, Vincita Gucci would fill a gap in the sportswear market while retaining a timeless and luxurious essence.
Vincita Gucci should aim to achieve a brand perception that balances being both “new” and affiliated with the Gucci name. Vincita Gucci should not be sold in Gucci stores, but utilize e-commerce and prestige department stores as primary channels for distribution instead. The brand should thus be distributed through luxury retailers and department stores that have both substantial brick-and-mortar operations and a strong e-commerce presence – stores such as Holt Renfrew and SSENSE in Canada, Bergdorf Goodman and Nordstrom in the US, and Harrods in the UK. This expansion strategy enables Vincita Gucci to gain wide distribution, which is conducive to high sales, to gain the prestige associated with being catalogued in luxury retail outlets and ultimately enables Gucci to expand into premium athleisure without diluting its core brand.
Vincita Gucci can turn the house of Gucci around. What is the go-to brand for golfers? What luxury line is renowned for high-quality lacrosse wear? What clothing can one flex with while playing tennis? The answer to each of these questions ought to be Vincita Gucci.
