Gucci posts sales increase; cachet still in peril

Gucci, the biggest money maker for Paris-based retailer PPR SA, may report a 5.8 percent increase in second-quarter sales today after losing customers in the first three months of this year to luxury rivals it had outperformed for three years.

The return of momentum doesn't necessarily mean a revival in the label's cachet. Rita Clifton, chairman of London-based Interbrand consulting company, said Gucci may be squandering its high-end credentials for more mainstream growth.

“There's a real danger zone at Gucci at this moment,” Clifton said. “It's easy in these high-pressure times to drive growth by keeping your foot on the accelerator, but they've got to make sure they keep reinvesting in top-end luxury.”

Gucci, the industry's “it” brand in the 1990s under designer Tom Ford and former Chief Executive Officer Domenico De Sole, increased sales by 46 percent from 2004 to 2007, even after the departure of the high-profile leaders.

Since then, Gucci has been “coasting on good will,” Washington Post fashion critic Robin Givhan said in an interview.

With the slowdown in U.S. consumption, Gucci's flaws are beginning to show, Givhan said, adding that the label has “lost its personality.” Gucci's first-quarter sales growth slowed to 2.5 percent from 11 percent in the fourth quarter.

Since February, sales at U.S. luxury department stores had an average monthly decline of 2.7 percent compared with the previous year, according to a July 10 report from the International Council of Shopping Centers. In 2007, luxury sales rose 6.3 percent.

Gucci competitor LVMH Moet Hennessy Louis Vuitton SA, on the other hand, benefited from having a third of its sales in Asia, where spending on luxury goods in countries excluding Japan is increasing 20 percent to 30 percent, according to Armando Branchini, vice president of Interbrand in Milan. PPR generates two-thirds of its revenue in Europe. It has 16 stores in China and plans to open more.

“There is no proverbial milking of the cow,” Gucci brand chief Mark Lee said in an interview. “The dream of Gucci is very much alive.” Lee said Gucci is pursuing the same luxury strategy it has for 13 years.

A big question about Gucci centers on whether PPR was right in promoting Frida Giannini, a former Fendi accessories designer who replaced Tom Ford, said industry consultant David Wolfe of the Doneger Group. “Gucci's fashion leadership quotient has slowly, but surely diminished,” Wolfe said.