I went to the mall this past weekend to do some holiday shopping, and before escaping its overpopulated and underoxygenated confines, I noticed something strange. The Gucci store was absolutely overflowing with people, while the more affordable Zara next door had more salespeople than customers.
I believe that by achieving such widespread success, Gucci has inadvertently signed its own death certificate. That might sound counterintuitive but hear me out.
Gucci’s sales growth has increased by 44 percent just this year. The brand has skillfully marketed the wacky, flashy maximalist designs of its new creative director, Alessandro Michele, with social media campaigns, celebrities, and by increasing its presence on third-party e-commerce sites. The demand is so high for Gucci items that the company has recently made a large amount of its production in-house rather than continuing its past utilization of independent suppliers. Gucci has flooded the market with trendy, expensive items and essentially transitioned its brand from an elite fashion house into a hype-based brand similar to Supreme or Yeezy.
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All of this initially sounds great for Gucci, but a large part of the allure of designer items is their scarcity. The situation calls to mind the classic supply/demand dilemma many exclusive brands face: Can a brand built on limited distribution, social status and high prices generate long-lasting growth without diminishing its appeal? I think it’s nearly impossible.
This dilemma is why some designer brands will burn unsold merchandise rather than offer it at a discounted price. Considering that Gucci is ramping up production, in combination with the flashy (verging on tacky) look of its products, it’s hard to paint a picture of long-lasting growth and sustainability.
Hype brands, built on trends and status, are prime examples of the principle of conspicuous consumption developed by sociologist and economist Thorstein Veblen. Conspicuous consumption is the spending of money on luxury goods and services to publicly display economic power as a means to attaining or maintaining social status.
The problem with brands completely basing their identity and products around hype and conspicuous consumption is that it is by definition unsustainable. Every person who conspicuously consumes a product is lowering the value of the product by decreasing its rarity. Basically, the more people who have that fuchsia snakeskin Gucci bag, the lower the social status it equates to.
Interestingly, and even more damning for Gucci, researchers have recently found that conspicuous consumption is declining among the wealthy – the top 1 percent of consumers (based on income) are actually spending less on conspicuous consumption. Interestingly, the 60 to 89 percent are spending more on conspicuous consumption, and the 40 to 59 percent are spending almost 30 percent more on conspicuous consumption than the 60 to 89 percent.
These statistics further demonstrate the inevitable failure of hype-based brands: The 1 percent of people with the actual wealth and social status that these items are supposed to signify aren’t even buying the products themselves!
Is Gucci, in a way, liquidating its brand by milking its equity? If so, Gucci’s time as a high-end luxury brand may be limited.