Blackface Incident Has Peaked Gucci, It's All Downhill From Here

The Wall Street Journal is reporting that the Gucci blackface sweater incident in February has likely peaked the luxury brand's sales and social media influence.

Data from Tribe Dynamics shows Gucci has been displaced as the top luxury company for social-media engagement in March, and by mid-summer, its quarterly sales plunged in North America.

In response, Gucci decreased its U.S. marketing last quarter to asses the fallout after the blackface incident that led to a social media backlash.

"We wanted to assess the evolution of the U.S. market, the reaction of the consumers after the issue we had in the U.S.," said Jean-Marc Duplaix, the chief financial officer at Kering/Gucci.

Gucci contributes 60% of Kering's revenue and 80% of the profit.

Investors started dumping Kering's shares in April after the fallout. By late July, the company reported a 2% decline in North American sales, which extended the selloff into a bear market by late August.

Gucci was quick to pull the sweater from shelves and online stores earlier in the year, led to the company hiring a chief diversity officer. The brand has taken a massive beating on social media, and celebrities posted videos of themselves burning Gucci clothing. Rapper T.I. even told his followers on social media to boycott the luxury brand.

Some in the fashion world are questioning whether Gucci and its star designer Alessandro Michele have peaked.

"As innovative as Michele is, his style is becoming a little bit stagnant," said Nicole Fischelis, who held positions as fashion director and creative director at Saks Fifth Avenue and Macy's before starting her own consulting firm.

Gucci sells overpriced products to millennials, such as $300 wallets, $1,590 sneakers and $5,000 dresses. Millennials are susceptible to the company's marketing thanks to social media and celebrity advertisement. Morgan Stanley estimates than nearly two-thirds of Gucci sales come from millennials.

Gucci has blamed some of its North American sales declines on a tourism slump in the U.S., where it derives at least 20% of its sales.

The Journal said Tribe Dynamics has warned that Gucci's social media buzz and quarterly earned media value is in rapid decay:

"Gucci was overtaken in March by Chanel in the Tribe Dynamics ranking, which uses a proprietary metric, known as earned media value, to quantify the influencer content and consumer engagement a brand gets on social media. Chanel benefited from the social-media buzz surrounding the death in February of its longtime designer, Karl Lagerfeld.

Gucci's earned media value fell by one-third in March from the previous month to $30.7 million. Chanel, which had an earned media value of $33.8 million in March, held the top spot again in April, lost it in May to Gucci and then won it back again in June with the two companies almost tied.

The drop in Gucci's North American sales comes on the heels of four quarters of declining growth and tracks the brand's waning social-media strength. Gucci in September 2017 hit an earned media value of $82.5 million, triple the $27 million it reached in July of this year, according to Tribe Dynamics. In the September 2017 quarter, Gucci sales rose 49% in North America."

The demise of Gucci has been quick and swift thanks to the power of social media. The trend in quarterly sales in North America is expected to plunge even further as larger macroeconomic deterioration in the global economy gains momentum and wanes on consumer sentiment.