Can a luxury brands be too luxurious? Gucci believes so. The Italian brand blamed its rare sales decline in the first quarter on too ritzy advertising and plans to market lower-priced goods going forward.
Gucci faced tough conditions in the U.S. and Europe and the impact of currency exchange. Sales rose 2.4 percent at constant exchange rates but fell 3.3 percent in the quarter to 513 million euros, or $769.5 million at average exchange. The brand also suffered from a slowdown in tourist traffic in Europe and soft business in Hawaii.
But Jean-François Palus, chief financial officer of PPR, Gucci's parent, said one of the potential causes for the fall was Gucci overemphasizing the "top-end of the pyramid" with its leather goods while taking its eye off midrange products.
"[The midrange] is the segment dragging on Gucci's numbers," Mr. Palus told Women's Wear Daily. "We are looking to correct this."
The CFO said the brand would make more of a statement with its popular double-G logo fabric, with more emphasis on the motif on the fashion runway as well as in advertisements.
More specifically, Mr. Palus told The Wall Street Journal that the brand was focusing too much of its advertising on its priciest products in it range, such as the Pelle Guccissima all-leather bag costing 1,880 euros ($2,939). In emphasizing higher-price goods, Mr. Palus Guccio said Gucci overlooked more-accessible products, such as the double-G logoed canvas tote, which costs 540 euros ($844).
The move comes as some of Gucci's competitors, such as Louis Vuitton and Cartier, posted robust first quarter revenues.
The Journal also noted that Gucci's down market move would run contrary to the common strategy of luxury goods purveyors. In tough economic times, most tend to target even wealthier consumers immune to bothers such as rising gas and food prices and currency fluctuations.
Discussion Questions: What do you think of Gucci's move to market more accessible, or lower-priced brands, in its advertisements? What are the risks to the long-term cachet of the luxury brand?