New report shows that Gucci, Louis Vuitton, and Chanel are the luxury brands that are hot, while Prada and Giorgio Armani are growing cold.
The rating from the financial services firm is based on the ratio between the editorial coverage a brand receives in print and the amount it spends on print advertising. A brand is ranked “hot” if magazines give it more editorial space than advertising pages. And right now, based on that metric, Gucci is extremely hot.
Largely thanks to its turnaround under creative director Alessandro Michele, Gucci has in the first six months of the year posted a 15 percent gain in editorial value over last year. Italian competitor Prada, on the other hand, has seen its editorial value shrink by double digits. Partly due to weakening demand in China, the company has failed to meet its earnings forecasts in 11 of the last 12 quarters, and that financial trouble is beginning to seep into its public perception.
Gucci’s current design superstar, creative director Alessandro Michele.
But what makes the rise of Gucci and fall of Prada so compelling isn’t that they’re two iconic Italian luxury brands. It’s that they’re two iconic houses with a sordid history of intense rivalry—one that dates back to the late ’90s.
In January of 1999, with reported sales of around $1 billion, Gucci was in the midst of a financial turnaround that had stunned not only the fashion world, but the financial community at large. A mere six years before, thanks to a mix of mismanagement, unending litigation, and the unrealistic ambition of then-chairman and majority shareholder Maurizio Gucci, the last Gucci ever to control the company, Gucci was in a tailspin. In 1993 the company was in such bad shape that it was rumored to be suffering eight-figure losses, with worldwide sales down to a paltry $200 million.
Maurizio Gucci, grandson of Gucci founder Guccio Gucci, and the last Gucci ever to control the company.
But by 1999, thanks largely to the dynamic duo of visionary designer Tom Ford and steely CEO Domenico DeSole, the now publicly traded company was posting record earnings, exploding its value to nearly $8 billion. The only dark cloud overhead was that, thanks to Gucci’s earlier struggles, and the hope that someone would swoop in to save the company, its corporate structure left it vulnerable to a takeover. Enter Prada.
Tom Ford (L), Domenico DeSole (R).
A year earlier, Prada had stunned the fashion industry when it announced that it had acquired a 9.5 percent stake in Gucci, making it the company’s largest single shareholder. Though Prada had been around since 1913, it had only recently risen to global prominence, thanks both to the design vision of founder Mario Prada’s daughter Miuccia Prada, and the business acumen of her husband, Patrizio Bertelli.
Patrizio Bertelli and Miuccia Prada.
It was Bertelli who fired the first public shots at Gucci, initially by criticizing Tom Ford’s forerunner Dawn Mello as arrogant, and then, once Ford took over, accusing him of “aping his wife’s designs.” But snarky comments weren’t what worried the brass at Gucci. It was Bertelli’s admiration for the man they considered public enemy number one: Bernard Arnault.
Once Gucci had started rolling, both financially and creatively, there were rumblings that Arnault, chairman and CEO of LVMH, the largest luxury conglomerate on earth, was looking to buy the brand. Only he wasn’t looking to buy the company lock, stock, and barrel—a move that would cost him close to $8 billion dollars. Rather, he would hoover up shares until LVMH had a majority—and thus controlling—stake, all for a significantly reduced sum.
Head of LVMH Bernard Arnault.
So when Prada suddenly jumped in and bought up that 9.5 percent of Gucci in the summer of ’98, there was fear among those at Gucci that the move was an advance run on Gucci’s stock, one orchestrated by way of collusion between Bertelli and Arnault. And that fear turned out to be justified. In mid-January 1999, when it was clear that Arnauld was preparing for an all-out crusade to acquire Gucci, Bertelli sold his 9.5 percent stake to LVMH for $140 million.
The move was a double hit for Gucci, as it not only gave Arnault a massive bump in his Gucci holdings, but also gave Prada the capital to start its own luxury conglomerate. Ultimately it took some creative corporate maneuvering in the form of a strategically timed employee stock option (ESOP) for Gucci to buy enough time to find its white knight. Which it did, in the form of PPR, a company owned by French businessman François Pinault. In an eleventh-hour deal in March of 1999, Gucci and Pinault agreed to a merger that would join Gucci, YSL, and several other luxury brands into an LVMH-style conglomerate called Gucci Group, thus foiling the takeover attempt of Bernard Arnault.
And while Gucci ultimately came out on top, Prada and LVMH still had another arrow in their quiver. Though neither would end up owning Gucci, they were able to steal a jewel right out from under the Florentine brand—Fendi. Domenico DeSole had been eyeing the Italian leather goods company for some time, and when the chance to buy it came around, Gucci outbid several other companies with an offer of $680 million. But just when it seemed the sale was in the bag, Patrizio Bertelli swooped in with an $840 million bid. DeSole countered with $870 million, but then Bertelli dropped a bomb. Teaming up with LVMH, Bertelli and Arnault together bid $900 million for the company, 33 times Fendi’s bottom line. Gucci was out and Prada and LVMH had won.
Since those battles of the late ’90s, both Prada and Gucci have settled into their roles as competing fashion powerhouses. In this PR-controlled world, it’s hard to say how much enmity still exists between them—but suffice it to say, it’s probably not too much of a stretch to think that the folks at Gucci are relishing their current advantage over their Milanese competitor.
As for what comes next, who knows? But the smart money says that Prada won’t be down for long.