Gucci beauty, or Kering’s attempt to pretty up an ugly drop in profits
Gucci are launching cosmetics. The all-important “face” is Charlotte Casiraghi, the second child of Princess Caroline of Monaco – after Louis Vuitton’s weekend Cruise show down Monte Carlo way, there’s some kind of Monégasque fixation in fashion right now. Maybe it’s its proximity to Cannes. Or all the money floating around. There are few streets in Monaco not lined with mega-bucks boutiques, and few tax-free residences not stuffed with hyper-rich customers looking to spend. Those seem to be the customers every high-end brand is chasing.
Of course, that’s not who Gucci are after in launching cosmetics. Cosmetics are everyman – or, rather woman – product. To borrow industry parlance, they’re “entry-level”, or “accessible”.
In plain English, they’re cheap – at least when compared to a Gucci frock or handbag.
That’s nothing new – neither is the fact that the entry level is where the real money is made, both in volume of sales and in the fact that perfume and cosmetics are virtually recession-proof. In fact, often they soar during times of financial hardship, a low-price, heavily branded pick-me-up to replace splurging on high fashion.
Back in February, Gucci’s parent company, Kering, announced a drop of 95% in net profits for 2013: €50 million (£41 million), down from €1.05 billion in 2012. In addition, Gucci reported its slowest quarterly sales growth in four years for the final three months of 2013. Like-for-like sales were up just 0.2 per cent in the fourth quarter of 2013.
The label’s cosmetic line will launch in the fourth quarter of 2014. Coincidence?
When those 2013 figures were announced, Kering CEO Francois-Henri Pinault stated: “Of course, if I want to increase Gucci’s sales by 10 percent, I can just open the tap for entry-level price products and everything will fly off the shelf.” Sound eerily like a prediction for cosmetics launch figures.
That’s a bit unfair. Pinault’s comments related to low-level leather-goods and accessories – Gucci’s offering of such products was cut by 25-30 percent in said quarter of 2013, while sales of logo-free product was up from 44% in 2012, to 62%. That’s an odd figure to quote, but the tacit implication is that pieces rinsed of Gucci’s immediately-identifiable double-G logo are being sold to more discerning, more valuable customers.
It’s snobby – but probably makes for good business practice. The inference is that these “discerning” customers – exactly the kind of mega-rich who fill the multi-storied and starred hotels of Monaco – buy frequently and deeply, rather than pecking at Gucci’s stock for the pieces with the lowest price and the highest visual impact. Pinault insinuated such buyers were damaging to the exclusivity of the house. They’re the customers targeted by “accessible luxury” brands like Michael Kors. Gucci isn’t interested in selling them leather goods. They’ve raised prices and cut wholesale accounts, to prove just that.
What they are interested in selling them, evidently, are cosmetics. And, for Gucci, those are minimum input and maximum impact when it comes to sales figures. The mark-ups on cosmetics and perfumes are extraordinary – Gucci’s new lines will include Gucci Eye, Gucci Face, Gucci Lip, Gucci Nail together with brushes and skin products. Unlike leather goods, there is a considerable absence of cosmetics in the Kering roster. Compare and contrast with their fierce competitor, Bernard Arnault’s LVMH group. They have bumper beauty lines including Guerlain, Make Up Forever and Benefit, as well as the phenomenally successful Christian Dior and Givenchy cosmetic ranges.
Kering, by contrast, has only Yves Saint Laurent with a full beauty oferring – although there are a stable of fragrances from Bottega Veneta, Balenciaga, Stella McCartney, Alexander McQueen and of course Gucci. The latter is the one label in Kering’s stable, bar YSL, with the global clout to command a cosmetics empire. With a profit drop like 95% on the cards, I only wonder why they didn’t do it sooner.
Edit: Kering representatives contacted The Independent to clarify that this one-off, exceptional drop in profits was directly linked to the 2013 disposal of Kering’s retail assets (Fnac and La Redoute) and to the situation of Puma, without any relation to the luxury division. Revenue of Kering’s Luxury division was +7.2% in 2013 and recurring operating income for this same division was up 4.4%. As for Gucci specifically, profits increased in 2013. All details are available in Kering’s financial documents.Tagged in: Charlotte Casiraghi, Francois-Henri Pinault, Gucci, Kering, Monaco, Yves Saint Laurent
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