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Cost Cuts Seen For Gucci

Careful cost-cutting is likely to be among the first fashion statements made by Gucci Group's new chief executive officer, according to analysts.

PARIS — Cutting costs — albeit carefully — is likely to be among the first fashion statements made by Gucci Group’s new chief executive officer.

That’s the expectation of the financial community as it awaits the imminent announcement of Domenico De Sole’s successor by Pinault-Printemps-Redoute, which controls the Italian luxury conglomerate. PPR has said it will announce De Sole’s replacement before the end of April.

“Any cost-cutting would likely be viewed as favorable,” said Antoine Colonna, luxury analyst at Merrill Lynch here. “But I would expect [the new ceo] to use a scalpel and not an ax.”

It’s an opinion shared by a Merrill Lynch colleague, London-based Aymeric Poulain, who wrote in a recent report on PPR that Gucci’s next ceo “is expected to be a cost-cutter in line with the group’s strategic focus on margins, cash flow and debt repayment.”

On Tuesday, a PPR spokesman declined to comment on the likelihood of any forthcoming cuts at Gucci Group. However, ceo Serge Weinberg has repeatedly denied any plans to trim its luxury portfolio and reiterated that PPR would not significantly change Gucci Group’s strategy once it assumes full management control.

But, if there are cuts, luxury analysts expect them to come primarily at Yves Saint Laurent and Boucheron, with the closure of unprofitable stores and some staff reduction considered possibilities. But some would also like to see PPR go further, and prune its portfolio of loss-making brands.

Any measures to narrow losses at YSL and its other fashion businesses are likely to improve investor perceptions and goose PPR’s stock, although Poulain questioned whether such a tactic “will command the same rating as a strong top-line grower.”

In fact, one London-based analyst, who requested anonymity, suggested it would be “a mistake” and “dangerous” for Gucci Group’s new ceo to cut costs, as it could stunt the growth of its brands and dampen prospects for future growth.

“On the whole, the group is quite lean,” the analyst said. “All the integrations that could be done have already been done. I don’t see any room for additional cuts.”

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