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.

The analyst noted that advertising costs, for example, are often viewed as a quick fix to stem losses, but that firms including Bulgari and Hermès have recently announced plans to up their advertising spend this year.

Losses at YSL — fueled partly by a communication spend at 18 percent of sales — widened to $91.7 million, or 76.4 million euros, for the full year. Losses at Gucci’s other brands, which span Boucheron, Bottega Veneta, Sergio Rossi, Bedat & Co. and the emerging fashion houses Alexander McQueen, Balenciaga and Stella McCartney, totaled $75.1 million, or 62.6 million euros, for the year. Dollar figures have been converted from euros at current exchange.

Despite extravagant fashion shows and other tales of excess — including Tom Ford’s penchant for making thousands of samples to put only a few dozen on the runway — the Tom and Dom era is not viewed as one of waste among financial types.

Colonna, for one, said he detects little fat — and that ongoing investments in the core Gucci brand are assured. He also said Bottega Veneta, while generating heavy losses last year as it expanded its store network, appears to be “on track” and does not require scaling back.

However, management is likely to slow retail rollouts for YSL and Boucheron, and to shutter money-losing locations, analysts agreed. One potential target for closure or reformatting, according to some, could be the YSL flagship on 57th Street in New York.

Gucci took a $12 million, or 10 million euro, restructuring charge in the fourth quarter for store closings, mostly related to Boucheron. Losses at the jewelry, watch and fragrance firm are believed to have ballooned to at least $30 million, or 25 million euros, last year.

“I think the market would like them first to sell Boucheron,” said Nathalie Schneider, analyst at HSBC in Paris. “Nobody in the financial community sees PPR or Gucci Group being able to run such a business profitably. It will be very hard to break even.”

Its brand portfolio could also be trimmed of underperforming emerging names — Alexander McQueen, Stella McCartney and Balenciaga — while Bottega Veneta is “far ahead of expectations” and the leather goods firm Sergio Rossi “deserves another try,” Schneider said.

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