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.

She noted that she “wouldn’t be surprised” to see some reduction in head count at YSL or other loss-making brands. “For YSL, they have no choice but to try to optimize the cost structure,” she said. “For example, if they will not open more stores going forward, that would help.”

In her estimation, it is plausible that PPR could set new targets for loss-making divisions to reach profitability, or have them face disposal.

Andrea Paladini, an analyst with Centrosim in Milan, said he doesn’t think Gucci can really cut that much on smaller brands, as they are still in a growth phase and need investment. “Quarter after quarter they are going to have to evaluate each brand’s progress and continue to decide which brands are worth it,” he said.

“As for the Gucci division, there is some space for rationalizing the cost structure and it may be possible to analyze all the store locations and revisit the store-opening plan going forward,” he said, although he added that he didn’t feel the situation had reached a critical level. “There isn’t restructuring to do.”

On the smaller brands, like Boucheron, for example, Gucci may opt to limit the number of flagships these brands have to key cities for image-related reasons, and boost distribution through multibrand stores or other third parties.

Meanwhile, analysts agree on one point: They expect the new ceo to lavish attention on the cash-cow Gucci brand, which is prized for impressive profit margins in the 30 percent range.

Schneider said she expects the new ceo to concentrate on rallying and assuring the troops at Gucci, its key franchise. Others agreed motivating the staff would be a key function, along with assuring that the Gucci brand will continue to have a unified image under the three designers appointed to succeed Ford.

— With contributions from Amanda Kaiser

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