Gucci

Gucci sells leather goods, shoes and ready-to-wear through a network it controls almost completely: 92% of 2025 revenue came from directly operated stores and e-commerce, with wholesale reduced to a rounding error the group is still actively shrinking. That structure is deliberate. Owning the store means owning the price, the markdown calendar and the customer file — and it means the house never has to watch a department store discount its handbag next to a competitor's.

The cost of that control is operating leverage in both directions. A Gucci boutique on Via Montenapoleone or Fifth Avenue carries rent and payroll whether or not anyone walks in. When revenue rises, margin explodes; when revenue falls 19% on a comparable basis, as it did in 2025, margin collapses faster than sales. Gucci's recurring operating margin fell from 21.0% to 16.1% in a single year while revenue fell 22% — the entire delta is fixed cost sitting in stores that were sized for a €10 billion business.

Beauty and eyewear are handled differently: Gucci licenses them. Eyewear runs through Kering Eyewear, and in 2025 Gucci signed a 50-year exclusive beauty licence with L'Oréal as part of Kering's €4 billion disposal of Kering Beauté. That is a return to the licensing model that nearly destroyed the house in the 1980s — this time with one counterparty instead of hundreds, which is the whole lesson.

Gucci's moat is a hundred years of Florentine leather association plus a distribution network no challenger can afford to replicate. Both are real. Neither is currently working.

The brand asset is genuinely deep: the bamboo handle improvised in 1947 under raw-material rationing, the horsebit loafer of 1953, the Flora scarf drawn for Grace Kelly in 1966. That vocabulary is legally protected, culturally legible, and impossible to invent. The distribution asset is deeper still — roughly five hundred directly operated stores in locations that took decades of lease negotiation to assemble, and which a new entrant cannot buy at any price.

What has eroded is the thing the moat was supposed to protect: the assumption that a Gucci bag means something specific. Between 2015 and 2019 Alessandro Michele made Gucci mean maximalism, and revenue went from under €4 billion to €9.6 billion. When maximalism went out of fashion, the house discovered it had rented its identity from one designer rather than owning it. Sabato De Sarno's quiet minimalism did not replace it and he left after two years. Demna, appointed in 2025, is the third attempt in a decade.

A brand moat that requires a correct creative-director hire every five years is not a moat. It is an option that has to be exercised repeatedly, and Kering has missed twice.

Kering's allocation record over the past five years is the reason Gucci's operational problem became a balance-sheet problem. The group paid roughly €1.7 billion for 30% of Valentino in 2023 — with a put option attached that obliges it to buy the rest — and spent billions more on trophy real estate in Paris, New York and Tokyo, all while Gucci's revenue was rolling over. Buying the buildings you already lease is defensible at the bottom of a rate cycle; doing it with borrowed money while your profit engine shrinks 20% a year is a sequencing error.

Luca de Meo, who arrived in September 2025 from Renault, has reversed the direction: sell Kering Beauté to L'Oréal for €4 billion, cut net debt by €2.5 billion, return €1.00 per share as an exceptional dividend from the proceeds, and stop buying things. That is the right allocation policy. It arrived about three years late.

The generalisable point: a conglomerate's job is to move cash from the mature house to the emerging one. Kering moved cash into real estate and minority stakes instead, and now has neither a second engine nor a clean balance sheet.