Gucci doesn't belong in a mall.

It belongs in a museum.

♪ I could have my Gucci on ♪

♪ With your Gucci bag crew ♪

♪ Gucci, Gucci, Gucci, please ♪

♪ Gucci, Gucci, please ♪

Gucci is that brand that makes people think they wanna live larger than life, and be sexy, and be adventurous, and be unconventional.

But behind the scenes, things have been a bit less glamorous.

Still in shock from Gucci's dramatic slowdown.

Gucci sales falling 20% in Asia.

A steep drop in sales at its flagship Gucci brand.

Clearly, Gucci isn't at the top of its game.

So how did Gucci and the $50 billion conglomerate that owns it fall from high fashion to the discount rack?

While Gucci is an icon of Italian fashion, it's been owned by the French company Kering for the past two decades.

Kering is a luxury conglomerate that is controlled by the Pinault family.

Even though it is an established multi-brand luxury group, they have other storied brands like Yves Saint Laurent, and Bottega Veneta, and Balenciaga,

Gucci is really the mothership for the company.

Kering was founded by Francois Pinault, who built the company through acquisitions over several decades.

He's now 87.

And his son, Francois-Henri, has taken over.

He's well-known because he hangs out quite a lot on the red carpets.

His wife is Salma Hayek, the actress and producer.

Now Kering's big rival is LVMH, the owner of Louis Vuitton and Christian Dior, among others.

That company is run by Bernard Arnault.

So there's a duopoly in the French fashion world, with LVMH under Arnault on one side, and Kering under Pinault on the other.

That rivalry really came to a head in the late '90s, when Arnault had set his sights on acquiring Gucci for LVMH.

And that was the point when Tom Ford and Domenico de Sole were running Gucci as a public company.

And they didn't want Mr. Arnault to have it.

And they ended up signing an agreement with Francois Pinault, the father, who was the white knight who came in.

So initially, they bought a 40% stake in Gucci.

And eventually, they bought the rest of it after a lot of acrimonious moves against LVMH.

During that era, Kering was about the same size as LVMH.

In the years since, they've had different trajectories.

With savvy deal making and management, LVMH's value has soared to 450 billion.

While Kering's hasn't.

LVMH's market cap nowadays is about 10 times bigger than Kering's.

Kering is very dependent on Gucci.

Basically, about 50% of its sales come from Gucci, but more than 2/3 of operating profit come from Gucci.

So when Gucci is suffering, the whole company is suffering.

At LVMH, it's slightly different.

Louis Vuitton generates about a quarter of total sales, but it's about half of total profitability.

The fact that LVMH is less dependent on one single brand provides more stability.

Even so, Gucci and therefore Kering, has had a few successful years.

And that was largely down to one man, Alessandro Michele.

In the years that followed the nomination of Alessandro Michele as creative director at Gucci, in 2015, the label did really, really well.

They kept putting out hit products.

There was the Marmont bag in 2016, for instance, and the Dionysus bag.

And the Princetown slippers a year earlier.

The furry slippers really became a hit product.

They really resonated well with the younger generations.

They were bohemian, they were maximalist, and they were chic.

And during that time, the market cap of Kering actually quadrupled.

Sales at Gucci more than tripled.

But being a top fashion brand comes with problems.

Finding that right balance in the fashion industry to stay on top, and yet have your products be fresh, it's very difficult to hit.

And it's very difficult to maintain over the long term.

The fashion retail Lyst publishes rankings on the world's most fashionable brands.

And Gucci has fallen down the rankings.

Since 2022, the performance at Gucci, and therefore Kering, has really suffered.

Sales have missed a number of times, and the stock price has really tumbled.

The success of Louis Vuitton has meanwhile helped turn Bernard Arnault into, at times, the richest person in the world.

And his was a very different strategy.

So I mean, in some ways Louis Vuitton has a more classic image and positioning.

LVMH has been at this longer.

They are really total pros in this game.

There's a difference between luxury and fashion.

In fashion, for instance, you're relying on trends.

Whereas in luxury, you rely on timeless, on heritage products that basically stand the test of time.

That's what differentiates top-tier luxury brands such as Louis Vuitton and Hermès.

A typical luxury product, for instance, is the Birkin bag by Hermès, which was created in the 1980s.

And that is still very much sought after.

You know, one single bag can cost more than 10,000 euros.

With some of Michele's products, Gucci may have missed an opportunity.

According to company insiders, these products like the furry slippers, or the Marmont, or the Dionysus, they could have become one of those heritage, timeless products.

But they didn't.

And the mistake was that basically they created many variations of these products.

They were overexposed somehow.

This was a reflection of the short-termism at Kering, basically trying to maximize sales and profits in the short term.

This is reflected in the company's share price.

For every dollar of profit that LVMH is expected to make, investors give it about $24 of value.

For every dollar of profit at Kering, they only give it about $15.

That's because they're more optimistic about LVMH's future business prospects, because it isn't quite as vulnerable to the whims of fashion.

So Pinault knows that Gucci basically needs to play more in the most exclusive luxury space.

So in February, at the annual results, he says they're trying to basically lift the brand, and put it in the same category as some of its peers, like Hermès, Chanel, or Louis Vuitton.

But the thing is, he's been saying that since 2006.

Some observers place the blame on Pinault himself.

At LVMH, for the most critical and most important decisions, they're taken by Bernard Arnault himself.

At Kering, the management style is slightly different.

People have described him being more hands off, as being a little bit more laissez faire, and as giving the brands more autonomy.

Critics cite the 2022 Balenciaga scandal as evidence of this.

The brand had to apologize after one of its ad campaigns was accused of sexualizing children.

Still, in 2023, Pinault found another reason to lose focus.

In 2023, the Pinault family bought a majority stake in Creative Artist Agency.

According to some luxury observers, that was seen as a distraction for Francois-Henri Pinault.

Gucci parted ways with Michele in 2022 over a difference in creative vision.

And a few months later, in early 2023, they named a new designer, Sabato De Sarno.

He was a relatively unknown figure from Valentino.

At first, his designs seemed more staid than Michele's, playing into Pinault's plan to elevate the brand.

So Pinault wants Gucci basically to become a true luxury player.

However, making that pivot takes time.

It's a marathon, at the end of the day.

It's not a sprint.