Gucci's Next CEO: The Toughest Job in Luxury

Gucci CEO departure prompts reflection on market strategy

by Nouman Rasool
Gucci's Next CEO: The Toughest Job in Luxury

Gucci, the iconic Italian fashion house, is about to embark on a significant transformation. On Tuesday, Kering, the French parent company of Gucci, made a noteworthy announcement: Marco Bizzarri, the current CEO of Gucci, will be stepping down from his position.

In his place, Jean-François Palus, the managing director of the Kering Group, will temporarily take the reins of the brand in Milan during a transitional period. The news of this leadership change sent positive ripples through the market, as Kering's Paris-listed shares surged by 6% on Wednesday.

The search for a permanent replacement for Marco Bizzarri is still underway, with investors showing keen interest in Roberto Eggs, who currently serves as the head of strategy and global markets at the renowned Italian peer, Moncler.

Whoever takes on this pivotal role will have their work cut out for them, as Gucci faced significant challenges during the pandemic and struggled to regain its footing afterwards. According to estimates gathered by Visible Alpha, the company's revenue is projected to grow by a mere 1.5% in 2023, in stark contrast to the impressive 10% and 15% increases that industry giants Louis Vuitton and Christian Dior are respectively expected to achieve.

This performance gap is reflected in the stock market, where Kering's shares trade at a price-to-earnings multiple of 17, while LVMH's stands at a more robust 30.

Addressing Gucci's Chinese Market Reliance

One of the most critical tasks for the incoming CEO will be to address Gucci's heavy reliance on the Chinese market, which accounts for over one-third of its sales.

In comparison, competitors like Hermès International rely on China for roughly one-quarter of their sales, according to estimates from Barclays. While this dependence on the Chinese market has been beneficial in the past, recent events such as prolonged pandemic lockdowns and a slow rebound in the People's Republic have exposed potential vulnerabilities in the company's strategy.

Looking ahead, there are limited alternatives to the Chinese market, making it essential for the next Gucci CEO to explore new growth avenues. Bain & Company projects a significant increase in middle- and high-income individuals in India between 2022 and 2030, potentially creating new opportunities for the luxury sector.

However, this projected growth in India is only a fraction of what China experienced between 2014 and 2022. In conclusion, the position of Gucci's next CEO is undoubtedly one of the most intriguing and challenging roles in the luxury sector.

Navigating the company through these complex market dynamics and finding innovative ways to reduce dependence on China while capitalizing on emerging markets will be key to securing Gucci's future success. As the fashion world awaits the announcement of the permanent CEO, the industry is abuzz with anticipation and curiosity. (By Karen Kwok)