Good morning to all of you. Welcome to Kering Capital Markets Day. I hope the morning so far have enabled you to better understand the new engine of Gucci's revolution. For this day, we have decided to bundle together 2 different parts of our business, Gucci and Kering Eyewear. There was, of course, an element of convenience and opportunity for Grucci specifically since they have exceeded their 2016 targets.
And so they were ripe to benefit from an update. Also, as you know, Kering Eyewear is an entity that we have developed from scratch and which is now up and running. And it is time, right time to shed some more light on this activity. Of course, both of them are specifically and fundamentally Italian. But beyond expediency, this pairing illustrates 2 different but complementary paragons of what Kering brings to its brands.
Indeed, what is Kering's role visavis its brands? Actually, we are much more than a business sparring partner. We encourage our brands to do better, to go faster, to go beyond their limits even though they can sometimes be conservative or risk averse. Conversely, we bring them back to reality when their ideas are too wide. We help them stay focused and disciplined, partly by taking the responsibility for functions they can't or don't need to carry out independently.
We also support them when they are struggling and protect them when necessary. We instill the set of values that are at the core of Kering and maintain their integrity and coherence over time and across geographies. We represent and enforce the search for a better good for the whole group. We arbitrage decisions and investments and we make sure synergies are attained. The boldness and swiftness of Gucci's relaunch is a case in a point.
Gucci was and will remain the anchor of Kering Group. Still, we thought that its rebirth couldn't be achieved through incrementalism. So we helped Gucci to step out of its comfort zone. Others would have gone for the safety of an established outside artistic director instead of Alessandro, who lived and breathed the brand from within. Others would have gone for small steps instead of going for bold and radical.
Others would have followed instead of becoming leaders. We assessed Gucci's strength and potential and set about to turn them into reality. We gave it our full managerial support, relocating managers from all parts of the group, 1st and foremost, Marco and hiring some of the best people in the industry. We also give it our full financial support to transform its store network, transform its sourcing and logistics, transform its production capacity, partly through integration of parts of it, in order to make sure that Gucci is ready for the huge transformation and the huge change of scale that we foresaw. Today, Gucci has regained its absolute status as the ultimate fashion authority, faster and with more Brio than even we anticipated.
So where do we go from here? This is the story that Marco and his team will tell you. But believe me, it's only the beginning of a fantastic journey. What I can tell you is that we will continue to support Gucci's growth, to provide it with the talents and tools it will require and to make sure it benefits from the lessons that we learn from Gucci itself, but also from all the other parts of the Kering Group. Prior to Marco's presentation, I will invite you to watch the new Gucci video.
Thank you very much.
Good morning. Now I read all the disclaimer. Please don't take any picture of the slide. Today, we're going to divide the presentation in 3 parts approximately in the sense that we're going to talk about the principle that inspired us to reach where we are today. The second part is going to be a kind of a progress report of all the functions and the tools and network of Vucchi, distribution products, sales and operation planning, communication and people.
So where we are today, what we plan to do in the future. And the last one is which are the new initiatives that we are going to take. And finally, the figures that I think you're all interested in. So the reason why we are here today, first, because I mean, Kering asked me to be As Jean Francois told us before that we reached the 2016 target. Since in reality, the 2017 target 2016 target, we are a little bit more advanced than 2017.
So we are here for 2 main reasons. The first one is to share with you the new ambitions. That doesn't mean that it's a full potential. And the second one is to talk finally about the longevity of Gucci because everybody is talking about that. And my time show you how much I'm worried about the longevity of Gucci.
It's kind of interesting to see the different questions that comes around in the different moments of the lifestyle of Cologucca. In the beginning, competition in 2015, they were telling everybody, what happened to Gucci, such a pity, such a beautiful brand, what did these two guys did to this brand? In 2016, when the first results came out and we're showing some good double digit, they were saying it's not going to last. In 2017, they said, now we have a problem because they were sleeping. And now the only thing that they could say is the longevity about the brand, how it's going to last this brand.
And my opinion is so different from the one that I read today in the papers or listening from the competition. And the reason why that I'm going to do the presentation afterwards is that Gucci and Alessandro created a demand, a new luxury that is very far away from a fashion moment and created a styling lexicon that is unique and is going to be the reason why I believe that together with the use of digital that is very much the center of any activity that Alessandro is doing, is going to create a longevity for the brand that is going to be more interesting than the other the longevity for brands that are more so called established in the industry. So starting from the beginning. From the very beginning, there is when we started with Alessandro, we didn't look at focus groups. We didn't look at consumers.
We just did exactly what we wanted to do. That was our passion. These values, shared values of respect, joy, empowering creativity through that was the key that brought us to change the positioning of Gucci. Of course, at the beginning, one of the most risky thing and more important things to do was to protect the creativity of Alessandro because in the 1st 12 months, of course, nobody was really seeing what is going to happen for many reasons because the shops were exactly the same or before, the products were exactly the same or before. So we want to we discussed it.
We spoke a lot at that time. But of course, there was no tangible impact on the market. So one of the most important things that we did, myself and Kering, especially, was to protect and to believe in a turnaround that otherwise would not happen if we were looking just at the short term. So from that moment on, and here, I would like to mention the what Alessandro said at the beginning, The fashion is not about product. Fashion is about an idea that people cannot resist to buy into it.
And that to me is key. If we refer to Gucci just as a product, we miss completely the point. If you think to Gucci today, you don't think about the product. You think about a world. You think about something that you want to buy into it and you want to belong to it.
So and the way in which Alessandro speaks about it, to me is very relevant and is very unique as well. It's all about self expression because you can really create your individuality through Gucci wardrobe, but also there's a huge pride in belonging. And the huge use of symbols and signs of Gucci used by Alessandro are the way in which millennials recognize themselves. And that is part of the fact that it creates a lot of sense of belonging. So I want to go through with you to these 5 points.
But as you can see, we have the points where we started, and none of them mention figures. Figures we always consider in Gucci as a consequence of choices. We never start from that. And The reason why I wanted to show this article is not because of my ego, that is still very important, But to show you that in January 22, 2015, that was my first interview where I was officializing the appointment of Alessandro's Creative Director after the main show that was happened like a week before. If you go through these points, you realize that nothing happened by chance.
While we were staying here, and that was of absolutely sharp Zales Alessandro, we wanted to restore the Gucci one time position as a major force in directional fashion. Gucci should become again a brand that is in the mind of opinion leaders of fashion people. They should feel the need to go into a Gucci shop. You invest in a logo for so many years and then you are going to be shamed of it because there is a different trend outside. And that, you remember 3.5 years ago, everybody was ashamed of showing logo products.
And today, most of the competition as well is going this direction. Legacy cannot hold your hostage over history. Emotions versus simple rationality, and that was one of the reason why I went for Alessandro, Jean Francois was mentioning. That was a bet, a big bet. Willingness to take risks.
Brand and industry need to take risks, otherwise boring and we lose traction as a brand and as an industry. In many cases, new and newness are perceived as a risk. To me, in today's world, it's more risky to be boring and to do exactly the same thing in the past than not putting newness. So the brand ambition that is to me is very important. Alessandro is bringing you in a dream, as we said.
Luxury is bringing you in a dream. And I think that the way in which Alessandro was capitalizing a lot on archives, using signs and symbols and mixing them together in a very contemporary way brought Gucci back to a very modern attitude. The code that he invented in today's world to me are very relevant. And the most important thing, there's the reference to the past, not just in terms of Simon's Guccino, also in terms of times of the past, are never seen by LESTRO in a nostalgic way, but are always projected into the future. The fact that and to me, that's something that I'm going to stress a lot throughout the presentation.
Alessandro created the new world, a creative, stunning lexicon that really resonates with all the ages. Because we talk a lot about millennials in Gucci. Sure, we will see some figures afterwards. But all the age brackets in Gucci grew in the last 3 years, all of them. So we didn't lose any customers.
Instead, we brought back to Gucci the one that they were shopping in town for They disappeared throughout the previous year. Self expression is a mantra for Gucci as a whole and for Alessandro. If you look at the casting, for example, of the shows, these are not the usual beauties, to say the least. The point is the reason why Sandoz goes for that is that everybody can be beautiful according to his own individuality, and finding his own way is the way forward. And everybody in his own way can be beautiful.
So the way of expressing self expression and creating individuality is what today is changing the world. This is a mega trend that is going around the world, together with the fact that of sense of belonging to Gucci creates the unique power and asset that Gucci has. If you look at the shows, you understand, I think, that from the very first show to the last one in AUR, the way in which Alessandro if you look at the 2 show together, they're very, very different. But it's like Alessandro is writing a book. Every single show is a different chapter.
So the chapter is different from the previous one, but is linked to the previous one, creating a lifetime possibility for people to wear it. The fact that it is reinforcing the message is a very strong point for me. Of course, the storytelling that is part of all the activities of Alessandro is paramount. Rationality is something that doesn't give added value. Today, what is give added value, especially in our industry, is all related to emotions.
And emotions are related to storytelling that is linked to what you see. And everything that is story told is very much linked to the Russo Gucci. This slide, I think, give you a full picture on how many activities and how much they are coherent. If you go through all the activities that we do in terms of artworks, the collaboration with what Alessandro called the creative pioneers more than celebrities. How many of them have been discovered in the digital world by Alessandro and brought to fame?
The windows that are became a very important part in the last 3 years for Gucci. Advertising campaign that are really surprising is a new language. If you think about a luxury brand that was able to put audience in his advertising campaign, if you go back 3 years ago, I think you will be quite astonished, but we did it. We created a surprise, and that resonates a lot with the values of Gucci still. And that creates an engagement that show you that the reality today outside is very different from the previous past.
So what is the risk, the associated risk? Through the company that are risking and changing and moving the bars all the time or the one that are tending to continue to do what was successful in the past. To me, I don't have a doubt. The world outside changed. Gucci created a world that is speaking to consumers that are really engaged with that in a very authentic and passionate way.
If you go to the stores as well, I will go through it a little bit later, But the stores that are, at the very end, very different from city to city in maintaining the same aesthetic. The reason why we went through it at the very beginning with Alessandro and Jacopo was very clear. We wanted to break the barriers between customers and shop. Going back to what the shops at the beginning of fashion. If you go back to the beginning of fashion, we had multi brand shops.
In the multi brand shops, there was this possibility that most of the case owned by founders of touching the product, of interacting with the shop directors. To do that, we didn't want we wanted to reduce the distance between product, people and customers. We wanted to create an inclusive ambiance. There was something very different from the so called perceived exclusivity that everybody now is promoting that, to me, is a complete fake. The megatrend today is not about exclusivity.
The exclusivity can be about a product, but the exclusivity of a brand is something very different. Today, what is going to win is the inclusivity of the brand in all the aspects: shops, advertising, communication and people especially. It's the structure that we created. And then going forward, I mean, we're talking about website, we go through it, we're taking prices all the time, the engagement we have in social media, and again, we go through it. But if you look at the complete picture of this slide, you can see that the impact and the coherence of the message is striking and is very consistent.
Because I've been through I read sometimes the fact that there's some comparison between us and other brands, big brands, where an approach and a strategy that conceive a capsule or pop ups is the one winning because it's a more prudent approach to business and to industry. To me, it's completely the reverse. You do a pop up with a capsule, with a collaboration, with a different aesthetic when you are afraid of blending it together with your own network. When you are afraid, you do exactly that. You test.
But then to me, you dilute the message because the setting that you present is so different from the one that you have on the normal network that the final message is completely incoherent. 1 of the biggest brands that we normally mention, the one that we started targeting from 16 to become at least this is size, French, did last year 88 pop ups. To me, it's exactly what the company today should not do. The fact that we have 1 and only creative director allows us to take decision very quick in a speedway, giving the possibility to express its aesthetic in our network in a complete way, either capsule or collaboration or the normal collection in a unique way. But first and foremost, the fact that we have 1 and only creative director and we have a merchandising team led by Jacopo that is enhancing the creativity of Alessandro instead of just creating basis pieces and is buying for the shops.
The creativity of Alessandro is exactly what we need to do. The reason why we were so successful is so quick. It's because we bet at the very beginning for all the 5 100 shops that we have, for all the products that Alessandro did across the board. So was it the biggest bet ever? It was even more important than the one of appointing Alessandro because we put on the table billions because we wanted to reach the message immediately.
Because in today's world, if you don't know that, it means that you're risk adverse. You cannot be risk adverse in this business. So compared to other models, the 2 creative directors with the marketing, most of the case, deciding what the shop should have, So not showing the creativity of the creative directors in the shops, to me, is exactly the way in which the future will not pay off. I'm being subtle. In terms of values, you know how much I care about people and culture.
Everything, even before the strategy, started from the culture. The reason why I decided to go for Alessandro with the blessing of Francois Henri was because he's a nice person, he's a noble person that respects people, he has very strong values. To me, it was the most important thing. Then it happened to me that I saw a little bit of talent. So we decided to go for him.
Then, of course, he became what he became because, I mean, the talent was much bigger than the one that I was expecting, luckily. But everything starts from here. We created from the beginning a culture of respect, of joy, of empowerment, of risk taking across the organization that we are far away from being perfect because with 13,000 people, of course, I will always be someone that is not going in the same direction because it's a huge amount of people. But this way, we are able to empower Alessandro to foster his creativity for him for all his team that is, as you can imagine, is very, very important in terms of numbers that is supporting him in all the decision making process. But also, in the company, changing the process, changing the organization, fostering a decision making company that is faster than anybody else is due to the fact that we don't have layers.
We are people that decide. And if it's true that at the beginning, when I started in January 'fifteen, the mantra was not democracy in the sense that if I wanted to be quick, we couldn't look for consensus because we would have waited too long. Now is the moment where we need to empower, because we want to keep on running and we want to keep on running. That is the way in which we can really empower people, because it's clear now what is Gucci. That was not the case at the beginning of the journey.
Innovation is the last point of the first part. Innovation goes across everything. For me, it's a mantra in the company. It's a mantra in all the functions that you see here. And we can mention everything and everything was after that I will see I will go through it in detail later.
But the idea is very much we don't like the status quo. And nobody in the company needs to like the status quo because today's world and today's behavior is changing. Quick, humankind has never seen a change as we are seeing today. And the company, the bureaucratic company that look like Dinersauce, they're going to lose going forward. So as long until I will be in Gucci, for sure that is not going to change.
And the reason that we can run is to be complacent. When you grow 45%, 50% per quarter, you say everything is going to be fine, everything is going to happen, exactly what you cannot do. You need to remain agile, very agile in decision making process and making sure that something happens, you're able to intervene quick. That is the mantra that we want to maintain in Gucci. And I'm willing to take any kind of decision to change it in the case in which it's not happening.
So I really believe that the journey of Gucci is just at the beginning. We just crushed the surface. What we are creating is something unique that, of course, I don't have any crystal ball. I cannot tell you we are going to grow 40%, 50%, 10%, 15%, that is not the point. The point that if we are able to maintain these values and these activities going forward in a consistent way as we did in the last 2 years, there's no doubt the competition will be following.
I don't see anybody in the industry today that is doing a 360 approach as we are doing. And that to me again is due to the organization that we put in place. We will go to it later, but the organization we have today is made by people and by creative director that are able to work together and to take decision at the fastest pace in the industry. And on that, I don't have any doubt. So Gucci has been always typical, I think, in its value for this constant capacity for reinvention and regeneration.
And the fact that digital came out in the recent past, thanks to the fact that we were able and we were in the situation to change it and to embrace it at the fullest was a way to speed up the message in a way that was impossible in the past. So I think that the situation of today is that, as I was mentioning before, if we are able to maintain this kind of decision making process and this kind of agile company, agile organization and placing all this creativity at the center and staying away from becoming so called commercial, that has never been the case or will never be the case in Gucci, I don't think that there's going to be a slowdown in the process of growing in the future. I'm too much positive, Marc. No? Okay.
Sorry. This is the second part. I'm going to give you a little bit of flavor where we are in some of the most important areas of the company. Just to who was here in 2016, amongst you? So as it was mentioned earlier, 2015 was really the year to recreate the dream.
We talked about the dream because we want to emphasize the fact that emotions are key. Creativity is key. It's not about rationality. It's never about rationality in fashion. And then together with that, we did so many activities to clean the past.
If you may remember, we went in Markdown much earlier than anybody else. We cleaned all the inventory. We did an activity in order to have enough cash flow to reinvest in the brand in terms of shops, in terms of people, in terms of advertising and all the rest. From 2016, we started having some touch points like products or new shops or new communication in the network. So we were able to set ambition.
And the ambition are the ones that are listed here, that are still the one that we want to push forward because there's still untapped potential in most of them. And we see that any single day in Gucci in the figures and in traveling around the world and talking to people. So these are the 5 points that I want to share with you in terms of where we are today and some hints on where we want to go before the presentation of the figures. Distribution, a little bit of analysis. We went from an 82% share in retail and e commerce from a 15% to 85% in 2017.
Wholesale decreased 2 points to 14%. And I want to give you a little bit of flavor about wholesale. I'm going to touch it later, but I think it's important for you to know it now. I hear sometimes that we pushed a lot in terms of wholesale. In reality, we closed many doors.
We closed 10% net, meaning we closed approximately 25% of the old doors. We are the good ones in the past. So we reduced the numbers. And when the customer comes in the showroom, they have a capped budget. Everybody is complaining.
They want to buy more. But if I wanted to push commercially art, I would have leave it open. That's not the case. I want them to be healthy, sound, have a good sit through and being happy. But don't want to have too much product during in the structure that cannot be sold.
You never know. Especially now that we push the no markdown strategy, it's important for me that they sell properly. So when a year we push too much commercially, I mean, it will say for sure not because we lose the number of dough, we cap the budget. In retail, either I close the shops at 3 in the afternoon or I need to sell. I don't know what to do.
In terms of royalty, we will see. New store concept. The idea about the store concept was, as I told you before, to enhance the inclusivity aspect. That goes through the choice of color, choice of materials and choice of people. We wanted to have people that are passionately genuinely passionate about the customers and trying to have the better experience possible.
The fact is that the number of people, the number of the traffic that we have is so enormous in the last 2 years. Now despite the fact that we have last year net in the retail network, 1200 people. We're still people that are not served. We're still we are still products that are sold out in the shops. So despite that, we are experiencing this kind of growth.
The reason why we wanted to go for exclusivity is because it's the way in which we are, Alessandro and myself. I was tired about this distance in luxury where people looks at you at distance, they or this army opened the door. I want people to touch it to feel the product, to have to the people that are selling with a proper and genuine smile. Because again, this creates innovation and creativity even at shop level. And I think it's time to finish to talk about exclusivity in our industry.
We touch we have multiple access points to every customer, all our brands. It could be silk for someone, it could be beauty for someone else. And the size that we have today cannot talk about exclusivity or perceived exclusivity. If you want to have an exclusivity of product, you come to us. I'll prepare for you once something for measure or something DIY, not a problem.
That is going to it's just been just your own. It's fine. But all the rest today, especially with the new generation, is all about inclusivity, is all about engagement in a genuine way. This is what we experiencing with the new concept. The new concept, the new aesthetic concept that's been launched in July 15, the first time, I think in Montano, right, gave is giving us amazing results in all the KPIs.
But if you compare before and after the refurbishment, the increase in sales has been between 20% 30%. As of today, end of Q1, 42% of the sales are made by the new concept. So you do the math. The only KPI that is not exceptional is conversion. But we were able to maintain conversion at least slightly above the level of the past.
That means that with the increasing traffic that we had is an exceptional performance. And the reason why we're hiring and we hired in 'seventeen so many people is because we wanted to have the best training them, having them the possibility to serve the people properly. And even if tomorrow, we're going to have a slowdown or maturity of the traffic, I'm sure that with this move, the conversion rate will increase sharply. And our target in these figures is that we are going to increase the conversion rate in the period, 4 basis points. 1 basis point, for your information, is 8% of the sales.
This is the picture, geography of the refurbished products, the refurbished shops. At the end of the year, we have 165 shops refurbished. So the sales represented by the refurbished is, of course, is higher than the other because we started from the more visible and the flagship instead of moving to the 2nd tier cities. That again is another huge opportunity because normally when we do this kind of turnaround, you have a lot of impact and improvement in the bigger cities. And the effect on the 2nd and third years is going to come later.
So that to me is another opportunity to improve. In terms of customer experience, we have a lot to do, a lot to do. We started 3 years ago, changing dramatically the way which the approach of sales and sales with customers. We recently, together with the new structure, created a new store profiling in order to go in more granularity, shop by shop to create the proper assortment according to the customers, according to brand adjacencies. Staffing the store has been one of the most important activities that we did in 2017 because we hired 1200 net people.
That is a lot considering the size of Gucci, so 10% of the entire company. We continue using the retail constant monitoring that's kind of mystery shopping using external agencies to give us a full picture of what's happening according to some framework shop by shop in all the regions. And that creates that is not a control method. It creates a lot of emulation across the shops and immediately created uplift of the service in any shop worldwide. And what we're trying to do is that in any shop, especially in the biggest one, we tend to have all the function of the company, So visual merchandising, merchandising, retail people, etcetera.
So we tend to see the shop director as someone that is managing a business unit. So people that to me is key because it's a way to attract people in the shops. One of the weaknesses that the retail network has that the retail is not seen anymore as a place where you want to work. But if you see the shop, a place where you can interact with different functions, it's not just retail, that change completely perspective, and that's what we are experiencing. So we are taking action to improve all the KPIs.
Of course, hiring is key. Clienteling, the retention rate that we are having is growing day after day in a very interesting way. Store operation is absolutely key. We are able to change completely the back of house of the shops in order to make sure that it's much easier to find the product, I mean, all the usual things that I want to bore. But absolutely key.
Many people that we have in the shops, the so called runners, just people going and taking product to bring it to the in order to avoid to lose time with the clients. Training, of course, is absolutely key, and we are working as well especially in the cross training and cross selling activities because one of the potential upside that we have for sure is about the UPT. That is growing, but we can grow much more, considering the fact that the traffic builders that you will see later are absolutely stunning today and they are in acceleration. And as I told you before, clustering the shops is bringing us to have an assortment of product per shop that is becoming more and more key. As I told you before, traffic is crazy, as you can see from a few business shops around the world of Gucci.
Our attention is growing. That is a very good thing. It means that the loyalty of any age bracket is growing. And the average ticket as well, that is a potential. Conversion, what I told you before, we were able to keep it positive versus the past, but can be much, much bigger.
And the fact that we hire so many people will bring us this conversion rate because of their training, because of their presence, higher in the future. So in 'seventeen, we reached approximately €30,000 per square meter, but that is an average. There are many, many shops that are below that, and that is the challenge of the next few years. And there is no reason why they should not raise that in the coming years, a little bit because of the shop refurbishment, a little bit because of the training and activity in the shops. So we are still far away from the best in class.
So we have a lot of opportunities ahead of us. Just to give you an idea, many times I've made people ask me, especially Francois Henri Penaud that told that we are going to be the size of Louis Vuitton soon. This year, according to the current trend, we are going to reach €9,000,000,000 retail. Meaning, when I say €9,000,000,000 retail to compare apple and apple, converting wholesale at a sell through that is in the lower bracket of the structure because, I mean, it's more healthier and the same for royalties. So if I put all the revenues that we have at retail value, discounting, of course, the wholesale one and the royalties one with the sell through percentage target, this year, we're going to be €9,000,000,000 So the point to me is not if we are going to overcome return, but when.
Allstate channel, as I told you, the wholesale channel for us is a choice. It's not something that happened. We want to be in the wholesale channel. I think it's important. And we have an amazing exchange of experiences and collaboration.
It's a great market indicator. But when you are in a multi brand shop, you are there to get space. You get space if you are better than others, if you have the best product, the best functionality, the best brand. And it's very much a sign on the market. If you are just in the U.
S, you don't have that. And again, I'm not saying that our business model is better than others. I really care. There are business models that are working better as well. So everybody needs to follow his own path.
But to say that wholesale is going to dilute the brand, to me, is a mistake for a brand like Gucci. It's always been a great partner for us. It's going to help us in becoming even better in the future. The other channel. We started defining a business unit that is completely focused on private retail, a dedicated organization that has been just put together with a new structure.
So we are going to open but not many doors, just in the right location. And in certain cases, we're going to buy back and retailize some of the doors in order to control them better. But it certainly is one of the driver of the growth in the following in the coming years. E commerce has been impressive. In Q1, 2018 grew triple digit versus the previous quarter, doubled the business in between 'fifteen and 'seventeen from 1000000 to 270,000,000.
The traffic growth is exponential from €100,000,000 to €224,000,000 But first and foremost, the e commerce is our center of communication as well. It's not any catalog. We use a lot this site to communicate content in a different way and to engage customers, especially the new generation. We have a progressive launch of new markets. And we want to have in the short, medium term a conversion of some of the most of the retailers from a wholesale to retail to control more the way in which it's going to be presented and sold.
China. Gucci China in terms of e commerce is fundamental for us. We are using external agencies to support us, and the team there is super strong because, as you know, it's a country completely apart. So we use that to reinforce the image of the brand in a very natural way. And of course, using store locators of Baidu integrated with store, which we will be working very actively.
That is the one more important for us now. As far as we talk about Alibaba or JD, we are in a situation of wait and see. We are not taking any stance for the moment. I think it's too early. It's too kind of dilutive what they're presenting today.
So we don't want to be for sure the first comer there. So we see what's happening in the future. Whilst we stand stand, we are an active partnership. The experience that we are trying to deliver is in the e commerce has been always paramount. We're getting prices from L2 give us the price as the best digital company in the last 2 years.
But certainly, the way in which we approach the e commerce has been very heavy in the last few years centralization of buying, in terms of exclusive product. We approach different markets with different languages and a lot of investment in technology. Technology that, by the way, 3 years ago, which was certainly and still is today, lagging behind in terms of system and information technology, but Kering started 2 years ago, a huge investment for the entire group, Buch included, in terms of changing the entire system. And consider that we caught up later, we're going to get the best technology. So I'm very confident that processing the system in the near future will be an added value Gucci as well.
That is not the case today because we have too many system interfacing 1 to the other, so slowing down the process. So the one of the activities that we are working on a lot is about the client service, how we create it. We are working on creating a very important customer app where we are going to channel all the requests or answers to the clients for anything in terms of both e commerce and brick and mortar. That is going to elevate dramatically the level of service and perceived service that the clients are going to have with us at Gucci, but today is not perfect. And that's the reason why we are investing quite heavily in terms of people, in terms of system.
And that's the reason why the investment that Keryck is doing in terms of infrastructure is key because in that case, we need to have full view of the inventory across the board and the full view of the clients in the entire funnel in the entire history. Outlet. Outlet is a part of our distribution strategy. It was absolutely important, especially in 2015, when we got rid off of all the previous inventory of the previous aesthetic. But it's still very important today because with the choice of not having Maranhao in our shops, we need to have a channel to sell this the unsold product.
And the overlapping of this channel that's the full price of the clients is 2%. So we see that as an entry point for the full price. Frankly, I don't see that as a trivialization channel because it's a way for us to control what we sell, it's a way for us of not destroying what we produce, that because of the corporate for the cultural purpose that we set together, it's something that is against our principle and values. And the fact that other big brands don't have the channel doesn't mean that the product is not sold everywhere because the so called family sales that we see certain other brands with the queue in the back of house of the shops. The point is the definition of family.
In Italy, we have familia, familia, brother. The point is everybody is familiar in Italy. So the point is how you to define familia. So it's the large definition of familia that creates the problem of distribution instead of the channel low outlets. In any case, we reduced the number of outlets in the last 3 years.
At the beginning, we opened pop ups in order to get rid of all the inventory, in order to create cash flow. We are closing them. So we closed 10% of the number of outlets in the last few years because we want to be in the right places with the right control and we created a business unit that is following it in order to give the right service with the right presentation because to us, it's a channel that is part of the company. It's not by chance there. Product, where everything started.
As I said before, Alessandro create a unique styling lexicon. It really create a new luxury. It's not at all a fashion moment. If you talk to people, if you talk to kids, if you talk to any ace Bracken, the fact of buying into Gucci, there is a sense of pride that is related to emotions. Is not about simple about aesthetic.
If you look at the you can argue the fact that, I mean, many people are buying Gucci. It can be visible or not. But let's compare it. The new Gucci started 2 years ago, okay? Very successful, yes.
Most of the other brands established, they are doing the same thing in the last 20 years. So let's do your math. How many same products you have in the world today of this brand that are there from a long time compared to the 2 years of Gucci. So there's no comparison. There's absolutely no comparison.
So if the longevity is supposed to come from the fact that we are selling a lot today, We're selling a lot in the last 2 years. So the last if the other brands have been there for like 15, 20 years, selling the same thing in the same logo, in the same product, the same bank, etcetera. Can you give us 15, 20 years going forward? I will be fine with that. In talking on creative inspiration, I want to stress especially the second part that I'm going to read it out with you.
I love Couture, but the other side of me love the street, and I think the mix of these 2 can create something new. When I go to New York and London, I love to see how very brave the young people are. They have no rules. Alessandro always stressed that. And that is the reason why it's created a unique styling lexicon because it's blending streetwear that is a structural trend.
You like it or not, it's like the sneakers. Sneakers are a structural trend that everybody is wearing, even the most fashionable, stylish person. So staying away for sneakers or for streetwear today is not luxury. It's stupid. This one is something that I showed you already before, the fact that Alessandro is able to create a mix of product even in the most audacious look.
And Tom Ford said about these looks that if you look at this exit of the show, in a superficial way, it seems that it's something very strange. But then if you break it down piece by piece, you see that anything can be sold at a very high level. And this is coming from Transform Tonfa that is one of the most biggest supporter of the new era Gucci. As well in the advertising campaign, the product is mixed between street and tailored in this case with this campaign of Harry Styles that just came out 3 days ago, 4 days ago. And this picture reached 1,000,000 likes.
That is the record of Gucci in terms of engagement in Instagram. Here, you have all the categories. As you can see, all the categories have fully transitioned, of course, after 3 years in the new aesthetic. If we take the average price from 15% to today, it increased 20%, but not because we increased prices. We just increased prices once in September, October last year, 5%, because we changed completely the collection.
So it's just a matter of both offering, but especially buying from customers and perceived value of the brand and the product from the customers. I was making a kind of a test today to look at the past. From 201020 17, the average price increase of 50% means that the perceived value of the brand throughout these years went up dramatically. It is not just a matter of offering, it's what is around. Collection development, that is absolutely one of the key success factors of Gucci.
The offer is built through the equilibrium between creativity and market needs, which are developed in order to further enhance the creativity of the collection and not to create just basic pieces, the so called commercial pieces. That is not the case. The collection is 1 and only. And the communication is balanced between fashion image and volume driven. We want to support icon, volume driven, together.
And altogether because the message is so consistent that there is no reason of not supporting 1 or the other. Famous question about carryover and the rest. We have a balanced mist about carryover. Today, we reached finally, after 3 years of changing completely the collection because we need to remember that, we have 70% of collections in this carryover, very dynamic carryover in the sense that especially for the last few months, we inject in any season 30% of the collection about newness, newness that is fashion driven or functionality driven. Some of this newness, according to the product, can become a carryover afterwards.
And some of the carryover that are more slow can go out. So this way of managing very active and proactive is, to me, a big asset of the way in which merchandising is managed
today.
So this is the handbag offer. I will go very quick because I think you know all of them. But anyway, the structure is we have an iconic leather handbag, CV, that is coming from the course of the past, reinvented in a very contemporary way. We have the GG Marmont, the soft chain handbags with the double G, fashion logo handbags, Dionysus, a contemporary logo combining the outskirts and then 2 new lines, the padlock less new than the previous one. But overall, Lofidia, there is a new line that is more an entry price point that is always capitalizing on the longer and the calls of the past.
The bracket of the pricing, you can see that on the bottom. Luggage offer. Again, very clear definition of the presentation of the offer. There's a logo offer, the LULINE, 1 in Neo Vintels and the Gigi Black. You can see the pictures.
The animation of the logo, the Gucci Courier and the Knight Courier, featuring symbols related to the concept of traveling, the first one, a more masculine fashion clientele, the second one. And then the latter offer, the Gucci print and the Gigi Marmont as well. What is to me striking is the clarity of the message and the clarity of the offer that we have in our shop and the clarity of the merchandising grid. Women shoes. Sneakers, as I said to you before, is a structural trend.
It's definitely a structural trend. So it's the way in which Alessandro defined aesthetic, as we read together before, I think it's paramount that we keep on having a good sneaker offer as we do and of course is as well successful. But as you can see, the balance between sneakers and the rest is quite balanced in the sense that if you look at the women's shoes, the staple function, the low versus the sneakers, overall, the slides are the same. Men's shoes, sneakers are a little bit more important. But again, as well the loafers and the drivers are playing an important part of the business.
Rail to wear. As you can see, where streetwear is playing an important role. Then afterwards, we will see together how much streetwear is impacting the business of Gucci and how many people are just buying streetwear. But again, I think the offer and the buying very balanced as well in all the categories, both streetwear, staple fashion for women and tailored in fashion and prepayment streetwear for men and to wear. Talking about streetwear.
If we define streetwear like sneakers, wheelchair, T shirt, denim, jersey and outerwear, 85% of the sales are associated to non streetwear categories. And just 10% of the Gucci client base are exclusively purchasing streetwear categories. So despite any image that someone could have from outside, the Gucci business is very different from the one that can be perceived. And to me, it's very, very solid. Traffic builders have a huge upside.
We started later on these traffic builders to build on the categories and then on the product and the collection because we wanted to focus at the beginning on the most important ones, like ready to wear, handbags and shoes. So we started earlier. So the growth of this category started earlier. So now we are at full speed. So these are, of course, an entry price point for the more aspirational customer but are as well a huge opportunity to increase the cross selling, the multiple selling in a normal sale.
As you can see from the pictures, the coherence of the message and the aesthetic is quite striking. Fragrance and Eyewear. Biguchi went through a perfect storm. Both in eyewear and in fragrance, we changed the licensee. So because Kering eyewear took over from Safilo, Coty took over from Procter and GEMU.
So what happened in the moment of transition, business went down. And today, we are not yet at the level of the previous year of the last year of the previous licensee. So means that the opportunity we have here, Roberto will explain to you, I think, in the afternoon about carrying out. So don't want to overlap, especially to say something that is not matching. But we'll talk about fragrance and beauty, the opportunity that we have because of the aesthetic of Gucci to become one of the leader of the industry to me is there.
And the fact that the size that we have today and the position that we have today, especially in travel retail, is the one that we have, show us the possibility that we are going forward, not just in terms of business, but also to attract a client team that is not purchasing Gucci today. So to me, that is a huge, huge leverage for both things, business and image. Communication. Communication has been paramount to deliver this message together with the product of the change and the way in which Alessandro approaches the interaction with customers. So the creativity is the one that has been the base and the pillar to touch from and to enlarge the message at communication level.
Digital has been the one that speed up this communication in a way that was not even thinkable years ago. And thanks to this and to the number of people that are giving us data or they're coming into our shop through e commerce and through all the digital activities, we are able today with new technology to give a seamless and even more unique experience to any customer that is approaching us. But going through some of the activities in different areas, talking about communication, collaboration has been absolutely paramount and key in Gucci in the past and still now. I think it's been maybe for the first time that I created Dareto give the possibility to other artists, other designers to read and to interpret the business and the brand from outside and including this completing the static of Gucci and pushing them in our shops, even in our communication campaigns. So if you think about it, this crowd creativity give us enormous possibilities, enormous opportunities to leverage going forward the creativity of Alessandro because we don't talk about 1 single person, but we talk about 1 creative director that is able to interact and to be loved by these digital creative people that can work with them.
In most of the cases, they were brought to fame, thanks to him. So this crowd creativity to me has been absolutely key as of today to push Gucci where we are, but it will be even more important because we create a credibility in the industry that nobody else has. And though the collaboration are not fake collaboration to sell more, that doesn't make sense together, but are very much linked to the company, to the brand. And the fact that we're putting them in our shops, in our communication campaign, give us the same signal, the same message that is coherence. And to me, again, it's an important asset.
So yes, this is a true person. 2 of them coming straight from the digital world, Ignacio Morelli, a skilled worker. And Up and Down that has been the story of Upwardhan is quite impressive. I hope you know it. I don't want to bother you.
But it's going to be is absolutely key the way which they interact and they become friends of Alessandro as a person. That is something, again, quite unique. In terms of connection, we did many, many things. The Gucci app that engaged with our branded content in new innovative ways and using this well built to a reality in most of the cases. The art wall in New York but in many other cities across the world and again, utilizing as well augmented reality through the app.
And the Gucci places, the place that Alessandro loves that becomes the place where the Gucci community can go and explore. It can be Chatsworth, it can be Sonino, it can be LACMA, it can be Liberty Angelica that we saw before. And it's growing. It's a way to create a world of people interacting that they share the same values in terms of aesthetic or in terms of value ethical values. And that are the places where they could come and see and live and breathe the Gucci world.
So digital has been, from the very beginning, at the center of our strategy through, of course, the site where we had a global rollout. We changed the site in July 2015, if I remember what. And again, it become the key for our content. We strongly saw the content that we have that is fulfilling every day this narrative. With Digital Media, we do as everybody test and learn approach, but we are not afraid of taking full risk.
And if we believe something makes sense, we'll go for it. Connection is again, is a man in our world and should be very natural. We'll try to be more authentic possible because in today's world, what is not authentic is seen immediately. And if it's fake, it's canceled. These data are quite impressive.
Our digital audience, excluding vuja.com, is approximately 60,000,000 people. That is today, typically, this exceeds those of our publishing partners. So I mean, we are a media company by ourselves. And this is a complex ecosystem that create a long term value that is difficult to evaluate, but really create a base to build on the future in terms of content, in terms of engagement, in terms of grassrooting, in terms of crowd creativity. These are some of the data that reflect the engagement that we have in the digital world.
If you look at the Instagram growth, today is even higher than that. So 24.6%, I think. Facebook as well, the engagement growth grew dramatically. If you see the share of likes on the right bottom, you can see that there's any other competitor who are far away the best. And that, apart the number of followers that you have, the level of engagement is the one that makes the difference, of course, because you create real emotion and real engagement.
This is the AirMedia value in the last 12 months from February 18 to February 17. And again, here, what we create in terms of digital content is quite impressive and much bigger than anybody else, especially in 2018 where everybody showed kind of a slowdown. The query in Gucci, that is where another thing that we look at in order to understand if we are hot enough, we keep on having the same trend. It's a Google search that is, as you can see from the chart, it's quite impressive. The growth that we are experiencing is growing and growing.
And the way in which we keep on fostering it is through the continued innovation, the continued creativity, the continued surprise that Alessandro team and Alessandro are doing on a regular basis. And to do so, we put together all the effort and all the tools to allow him to be as creative as possible and to make sure that this kind of creativity, through him or through the crowd creativity that we said before, through collaboration always exceed expectation. And that to me is a great asset that can be sustained only if you have the right people. That's the reason why the culture remain the key asset of Gucci. People in the creative team, they need feel the support of the businessman.
We need to go very much along. They need to feel that they can experiment, that they can take risks, they can make mistakes, And then you can surprise, then you can raise the bar all the time. And that's what happened in the last 2 years, and I think it's going to happen again because there's no reason why with this culture that we put together, it's not going to happen again. Digital Media investment is going to in 2018, it's going to be the most important part of the investment. It's going to reach 55%.
But it doesn't mean that we cut the print. Print was not cut at all. We have no reduction. We just allocated a new investment year after year on digital first. China is again, is a country on itself because of the different counterparts.
It's very much close in terms of connection, etcetera. We have a very strong local team that is helping us in understanding what is good, what is not good. And supporting agencies is very much helping us in the digital ecosystem in China to interact with people and the younger generation of Chinese that are very much technologically savvy. Again, if you look at the WeChat focus, that is, as I told you before, is the only one with whom we are really interacting. I think we are doing amazing things to the team, to Robert team and to the people in China.
If you look at the post of the views, we are the only brand that overcome the 100,000 views. Anyway, I think it's a good sign of the productivity and rapidity of what we are doing with WeChat. And so creativity, digital and data. We have a lot of data. We have many data about everybody that are, of course, signed every any privacy agreement.
But that allows us to use the best technology in the market in terms of artificial intelligence, machine learning, everything that is possible to use to guarantee a unique customer journey to any customer. We just started. We are just at the beginning. I see that as a huge opportunity in order to not we want to avoid to become mechanical. We want to maintain this emotional side, and we are working on it.
Think we are on the right track. And the change in the organization that we did 3 months ago was as well to maintain this kind of direction. What is absolutely important? We never target an age. We didn't want to target the millennials.
We didn't want to target a specific bracket age. We always wanted to target a state of mind. And that's the reason why all the ICE bracket are growing, some of them quicker than others in between 18, 24 and in the millennials as well. That is the higher part. But it's very much it's cross generational appeal.
And that, to me, is the one that is creating a difference versus anybody else in the industry. In terms of customer base, if you look at the generation, 56% are millennials in terms of sales. We will go we will deep dive on them afterwards in the next slide. Baby boomers, less than that, 8% and Generation X, 34%. If you look at the breakdown by gender, they are very consistent versus 2015, 77% 67% in terms of female sales wise, very much similar to the one in 2015.
Same case for local client base, 60 6% of the sales are local based, same of 2015 more or less. And across nationalities, Chinese, of course, they're playing the more important role in terms of customer by nationality, 34%. But again, it didn't change much versus 'fifteen. It's very consistent. If you talk about millennials, this is the growth that we are experiencing.
60% of the clients are millennials today with 56% of the sales. As you can see, you do your math, the average ticket is a slightly lower versus the average, but it's growing faster. So that as well is going against the myth that millennials are spending less. And also in terms of retention rate, retention rate is very much similar to the retention rate Gucci. So they are loyal.
It depends how you engage them. It's not a matter of generation. And also millennials are getting older because we started talking about millennials 5 years ago now, and the millennials are so the available income is growing. Sales and Operation Planning. For the ones that were with us in June 2016, I don't know if you remember, I told you that the system, especially in allocation of product and SKUs, we were very much lagging behind to anybody.
It was very much a push model of the product in the showroom to the shops and waiting for the sales. Today, we dramatically changed and reversed this approach. The inventory is mainly kept in the central warehouse and sent to the shops according to the initial consideration. But then the replenishment and allocation is based on sales on the week of coverage, all based on system, all based on algorithm, artificial intelligence, etcetera. That brought us to improve dramatically the sales per SKU, reducing the inventory because the level of inventory that we need to keep now at a shop level is much, much lower, and we are just at the beginning.
So now I think that the team that we put in place that were completely absent in the past is taking care just above that. So now 100 percent of the carryover is managed through the system as well the newness will be allocated after the first initial location takes to the sales. It could look something simple, but it was not the case. So when I joined, I saw that as a huge opportunity. Maybe we are just catching up because, of course, the system that we are experiencing are the ones that are best breed of the market.
So we are able to optimize the inventory of the working capital in a way that was unthinkable before, so less leftover. And also thanks to the fact that we use the system, we are able to allocate the time of the bias in the region in a different way more qualitative, so less allocating and less more thinking to understand what's happening in the market, what kind of brands are working well, etcetera, etcetera, traveling and talking to these shops to have better and better buying throughout the showrooms. And again, here we're just catching up to me. This area is something that's going to give us very good surprise going forward. You saw Art Lab and all the activity that we are doing, the exceptional work made by Masimo team to catch up with the explosion of sales.
Because if you think that in 2 years, the production capacity doubled, There's something unheard in the business in maintaining the quality and maintaining the lead time. So for this reason, when we moved Massimo from DAS Shoes Director, Shoes Business Unit Director to as well Leather Goods Director, that's the reason why then Art Lab is merging both shoes and leather goods together is because of BIM managing the 2 together. We started thinking about the future because the idea is to reduce the lead time as we are doing for the shoe. We wanted to do the same for leather goods. So the target that we have going forward for the leather goods is to reduce the lead time of 50%.
That is due to investing a lot in internalizing production or have a strategic partnership through joint venture or long term contract exclusive with partners that are already working with us. Today, between internal and strategic partner, we are 25%. The target is going to be 65% in the coming years. We already beat 10 M and A acquisition in the last few months, and we are targeting even 10 more in the last few months. We doubled the headcount in these areas in the last year.
So as you can see, we are investing heavily into the future that thanks to the fact that we have a lot of operating leverage that is not impacting dramatically the profit and loss, actually not. People and culture is the most important area that I told you before. Today, I have a long list of CVs on my desk. That was not the case 3 years ago. And that to me is the most important success that we achieved.
Everybody wants to work for Gucci and nobody is leaving. And that to me is a great asset. It's a great asset because the more we grow, the more we give opportunity to the people working the company to grow as well and to take bigger opportunities, but as well to attract the one that can bring us something different from our side. So we changed many things and we want to keep to maintain it to remain super agile. That to me is absolutely key, as I told you before.
We are doing many different things. One that I just want to mention is Gucci University that we set up in the U. S, where everybody that is joining Gucci is going to spend time in this Gucci University with people teaching and to have an induction program that is able to bring them at speed immediately as soon as they go back to the shops. So future, finally. The future is putting at speed a new organization that has been changing February, February 2018 this year, right?
And the reason why we decided to change this is that first of all, everybody told me that I'm crazy because when you grow 45%, 50%, you're going to change the organization as you're working so well. The point that what I saw is that at a certain point you tend to be complacent. When you grow so much, you tend to sit down a little bit, you tend to become control freak. And you need to understand that in today's world, with all the information that we have, you cannot become control freak. Because the more you become control freak, you want to control everything, you don't control anything.
You just slow down the process. So that's the reason why I decided to change, to blend different activities. So the previous omni channel structure has been broken down. And Jacobo became, together with the merchandising role, market leader. So we blended market regions.
And merchandise together, I think, is the first experiment in the fashion industry. But again, we don't we like to take risks, but we like especially to do that if we have the right people. The organization cannot be something set in the stone. You can change organization according to the people that you have. And we thought that was the right thing to do.
We increased the responsibility of Robert, becoming branded customer engagement, giving him the possibility to fully implement the content with the clients that is not the one in carrying
bought.
So we are, of course, at early stage, but we are counting a lot on that in order to enhance the customer journey of our customers. Digital business innovation that is being created and is managed by Nicolas, where we put everything together in terms of innovation, in terms of technology, e commerce. And we try really strategic planning. And we try to make sure that all the things that are happening outside are learned and known and inside the company and then spread out throughout the company as well. Then we created a new structure called indirect channel, outer and target detail with Spiro that we wanted to give a focus on certain channels and business units that we see there's a lot of opportunity.
We're not managed with the right dedication in the past. So we think that now creating the structure and proper following growth from a corporate standpoint, a regional standpoint, we can achieve the best results both in terms of business and in terms of image. So at the very end, there are 3 pillars. We want to be Gucci 25.025 because it's a number that Alessandro loves. Just to you.
The quantum leap is not just by numbers. Excellence in execution is just doing the journey of desire in the best possible way. The culture is the way in which we change our ways of working. We keep on pushing people and innovate and not staying complacent or relaxed. I don't like that.
And the next one is what is going to happen next, what is going to happen outside. We need to be very careful what's happening outside. There are many possibility of disruption of this industry. If you talk about 3 d printing, if you think about leather in vitro, they can really disrupt the supply chain of the industry, not just about us. So we are very active.
We are investing and working with startups that are on this field. So we are doing the best what we are doing. We are trying to do the best of what we are doing in terms of operational excellence through people that are able to understand that the status quo is not what we like. And then we are very much eyes open on the world outside in order to make sure that we don't miss the frame. Some things that we are doing in terms of the future, that doesn't mean that we're going to neglect our 500 shops.
We're going to keep on investing in our 520 shops in training, in people, in hiring, in activities and process because that is the bulk of the business. But in the spirit of innovation and trying to get as well ideas from different ways of working, we created this shop in SoHo in New York that is completely unique. It's been the idea behind it is low retail. So we have technology there, but it's low it's working in a very similar way. The point is in our positioning, technology needs to help us to give the best possible service, but without being the face of the customers.
If we want to be continue to be pushed at that level, it's the one to one connection that's going to create the difference. It's the person in the shop that is going to create the difference. We don't want to be fast fashion. We want to bet on people on the right one, on the right talent that are able to create a blend of emotion and connection with the customers. So to me, we are going to take all the possible technology that is going to help these people to give the best to the customers and not to sell through face recognition or this kind of thing.
It's not what we wanted to do. And this example show how much people are spending time where retail is about experience. All the sales staff is not called sales staff, but it's called connectors, right, Frigaro? Connectors. They have been hired by outdoor studios, visual effects companies.
There's not a single person coming from selling and retail, not a single one. So they are there to tell you a story, to help you in enjoying the moment. Then if you want to buy, you buy. And it happens that they buy a lot as well. I'm very happy.
Gucci Garden, some of you had the chance to visit it, I think, last night. Gucci Garden is, again, is a unique experience. You blend the history of Gucci, the journey of Gucci in the previous museum. Then you have a shop that is a kind of a bazaar where you can find unique pieces just produced just for that shop with an atmosphere and the color that really engage you. Then there's the food area, done with Massimo Batura that is something unique with a menu that is you cannot find anywhere else in the world.
So we blend the craziness of Masimo together with all the rest to give an experience that you cannot find anywhere else, I think. Art Lab, I mean, you visited, I spoke about it a lot. To us, it's a very important investment where the innovation will come in the year to come because all the principle about it is to increase synergies between the 2 product categories, push people in terms of expressing themselves and creating new ways of working in blending technology and software fair. I don't think there is not a single similar thing in the world because of this blending of between shoes and leather goods. So I think we are very much advanced.
In terms of people and talent, we are working on we already almost finalized a way to create the different ways of working, smart working, to be more collaborative and more close to what the new generation are asking. They don't want to work anymore from 9 to 5. They want to have some days off. They want to work from home. That is a fact.
So either you like it or not. So we need to make sure that we are flexible enough to get the best talent. If they want to work in a different way, we need to understand that and we need to work around it. We decided to empower employees to give them to give 1% of their time, working time, so meaning 4 days per year to NGOs aligned with the activity that we do in terms of Gucci equilibrium, in Gucci in terms of change change or anything else that makes sense with the activities of the group. And again, I think it's a way to share our ethical value throughout the company with with the 13,000 people.
If we are able to do so and they are engaged in that, the possibility in the grassroots with their friends is enormous. So we have an impact on the world as we want to have in terms of sustainability. And then we decided to have a Board of Inspiration. We took 5, 6 people around the world that because of their history, their way of talking, the values that we share together are going to be invited in our shops or the right things for us in order to enhance all the values that we put in front of us in terms of culture strategy, respect, joy, passion and all the rest. And these people are keen to do that.
And the fact that they're outside gives us the possibility to really enhance our message. Gucci Equilibrium is this brand that has been recently created by the team of Antonella. The idea was very much to put under the same umbrella all the activities that we did and we are doing in terms of sustainability, in terms of environment, in terms of people, in terms of new models, because we realize that we are doing so many things and nobody know it. So we decided to especially for internal message and external message to create a brand about it, like an umbrella. People know that, I mean, they can go and scout through the site what is happening, what they want to do, how they want to spend their 1% of their time, etcetera, etcetera, etcetera.
So it's the last one, otherwise you didn't you will not follow me. Financial outlook. These are the magic figures. So our next ambition is going to be €10,000,000,000 40 percent plus EBIT. Why and how?
What I presented up to now is the base that we share with all the team, with all my management team in the last few months, and that becomes our target internally. When it's going to happen, I cannot tell you otherwise. Jean Francois is going to ask me the budget next year, so but it's going to happen. So the gross of €210,000,000,000 is going to be through license. As I told you, there's a huge opportunity.
It's completely underexploited. Organical sales, I think that is going to grow organically in terms of sales because of the sell through is completely amazing what we are doing there. Travel retail is growing faster than any other business unit that we're having. Space increase because what we are I forgot to tell you, we are going to increase where we can the space of certain flagship. So the idea in between that and between buying back some travel retail doors, we're going to increase in the period 10% of the square meter overall, 3% per annum approximately.
E commerce, the idea is to move from 4% today to 10% in the plan through organic growth, new markets as well and retailization of the wholesale retailer that we have today. The new store concept, the rollout in the period of all the shops with the new concepts I told you, on average, the sales increase of between 20% 30% from previous aesthetic and new aesthetic. So you know the I told you the figures, how much we are in terms of sales at the end of Q1 'eighteen, so you can do the math about the rest. Retail KPIs, all the KPIs, but mainly conversion, as I told you before. I think there is huge opportunity there in conversion to be increased even if it's positive.
So I think it's a great achievement that we did despite this traffic. But together with that as well, the cross selling, thanks to the traffic business that we created, the collection are amazing. So the all the people that we are in the last 12 months, they're going to give their full support to the growth in the coming months. So in the snapshot, the wait on side will be 80% between retail and retail excluding e commerce and the growth is the one that I just told you. The e commerce is going to become 10% of the business through conversion of key tailors and rollout of Gucci dotcom and organic growth.
Wholesale, I think the organic growth will increase because of the productivity. We are not planning to open new doors, not at all. And license, again, there's a huge opportunity, both in Iowa. We are not yet at the level of the last year of the previous licensee. So and especially if you think about beauty and fragrance, fragrance got all the prices possible with the only fragrance launched by Alessandro Bloom that has been one of the best launch everywhere in the world today.
But of course, in terms of visibility, we are still blending previous products with the new ones. So it's not easy to get the right positioning in the doors. But the plan that we have in the next 18 months from here to the end of 'nineteen is very aggressive, both in terms of fragrance, in terms of beauty. So I'm very confident that we'll become, again, I think, a leader in that industry as well. So in terms of sales density, the ambition is to go to 45,000, still below the best in class that are the usual suspects.
So you can see understand who they are. Of course, Q1 'eighteen is already higher than the 30,000 as you can imagine. I cannot tell you how much, but you can do the math. In terms of OpEx, despite all the investments that I told you in terms of people, personnel, investment in information technology and continuing investing in communication and digital, we expect a decrease of 5 basis points in OpEx. We want to maintain a level of CapEx below 5%.
70% of this in CapEx will be going to store related CapEx that we want to become fully refurbished by the end of 2021. As I told you, there's going to be important investment in information technology and industrial, okay, that is the under 30% of the bunch. In terms of inventory, because of the system and because the way which I told you before, allocation by pulling and not by pushing is going to create a reduction in days of coverage of approximately 1 month to free up cash flow. So these are the key driver. So the idea is to grow twice the market, having a gradual margin So we want to target the €10,000,000,000 and the 40% plus in terms of EBIT, maintaining the CapEx below the 5% and improving the working capital.
So this is to finish, but I want to read that with you. I think it's important. I'm not here to convince you. I've come to tell you the truth, my truth, because there is no other but one is own truth, and that's the truth. It's clear, right?
Thank you.
Thank you.
Thank you very much, Marco. Thank you very much for having accepted to organize this session. It's a huge work for you and for your team. But thanks to the agility of the organization, you have set up, you have been able to manage both the operations and the organization of this day. We had an amazing visit this morning and I think you made a very inspiring presentation.
So thank you for this. As we are now ready to start the Q and A sessions, as usual, I will be the back cop and I will remind some basic rules. First, I would like to ask you to focus your questions on this presentation on Gucci. Also as time is limited and as we want to take as many questions as possible before the hard stop at around half past 1. Please refrain from asking too many questions.
So you know what is the magic number you have generated in mind, 3 questions 2 or 3 questions and no more. And finally, please clearly state your name and your title before ask a question as a transcript of this session will be made available by the end of the afternoon. And on that note, I pass the floor now to Marco and to the team.
When is choosing the person? I am?
Hi. Can everyone hear me? It's Louise Singlehurst from Goldman Sachs. Thank you very much. I think firstly for such a comprehensive presentation pack this morning.
So that's very helpful indeed. One question. Just in terms of the online and the virtual concessions that you highlighted in terms of the distribution strategy, Marco, can you talk about where you are now, what kind of projects you have in mind? And perhaps how that will incrementally drive the online business? You clearly have a big chunk of your business coming from millennials, a tiny proportion which comes from online today.
You want to answer? Nicolas, can I answer? I'll try to allocate the question, if I can, to my team in order for you to know them as well.
So the online concession is not, at the beginning, a new business that we are going to create. It's very much following the same process that we followed in retail that is transferring some business we have with partners into a concession that we operate. So it starts from business that already exists because we have a huge business today with retailers such as Net A Porter, U. S. Department Stores, MyTeresa.
And the idea is to work with them to transfer this business into concession in a close partnership, of course. And we believe that by doing so, we can increase their business by bringing our expertise and also by bringing more fluidity in the inventory obviously. And the idea is that this should contribute to more or less half slightly more than half of the growth that we expect and that we presented.
Helen Brand from UBS. You gave us a growth for the pricing, up 20% over the last couple of years. When you think about the sales density uplift, how much do you think of coming from pricing over the long term? And maybe a little bit of a breakdown, obviously, we saw the 5
It It's very difficult to give you an answer on that. I mean, in 'eighteen, it will be very much volume driven. We don't expect to do any increase in price in 'eighteen because we did it already in September 'seventeen. So we're enjoying a lot of impact in terms of margin, of course. But I think there is a room for improvement on the pricing going forward, not necessarily this year because we don't want with the sale to wait and see.
In terms of the past, I think the increase has been driven approximately onethree from pricing in the last few years and twothree from volumes. But this year is going to be mainly volume driven. Did I answer it correctly, more or less? In the future the point is it's very difficult to give you an answer on that. And I can throw you numbers, but then it's you need to be in today's world, you need to be very flexible.
And also currency fluctuation will change, of course, and the decision making process. So I don't have a plan to tell you, I mean, for in 'nineteen, I'm going to increase 5%, and it's very difficult to say, frankly.
This is Thierry Cotter from Central. Three questions. First on sector growth. 2 years ago, you gave an indication of what you expected for the sector for the coming years. It turned out to be much better than expected.
What do you see coming forward after 2 years of strong growth in the sector? And secondly, on your EBIT margin guidance, are we to understand that the gross margin should remain broadly stable and the margin will rise essentially through leveraging OpEx? And secondly, I wanted to ask, you gave 2 targets, €10,000,000,000 sales and 40% margin. Do we consider that they should take place or happen at the same time or one before the other?
So which is the first one? I have to go the first one. Is it the first one? Set of growth. Set of growth.
What I learned in my experience that if I try to do a forecast on the growth, I'm going to make a mistake. There's no doubt. So everybody is saying, so I tell you what everybody is saying, like Baid, Baid, Baids Consulting, I mean, the expert of the industry growth that the growth will be continued even a little bit stronger than in the past because of many reasons, because of the available income millennials, because the Chinese middle class entering the market, etcetera. But I cannot tell you if it's going to happen. The point is that for me as a company, I need to really focus on what we do and which is the reaction of the customers always.
And remain agile enough, if there is any external shock that could happen, I'm very flexible to react. On the rest, if it grows 5%, 6%, 7%, to me, it changes all the time. If you look at any Vain presents the forecast twice a year, I think, right? All the time they're different. So okay, so fine.
I have an idea. I can tell you the 5%, 6% whatever it's going to be, but look at what happened in 2017. So it's very difficult. So I cannot bet my strategy on someone else's growth. I need to be very focused on what I do, on what I can control.
That I cannot control it. So that is my answer. Gross as Ulla look at, there's 3 questions, so I need to remember all of them. Gross margin, I think gross margin, we are experiencing, if I can say, and Mark instead, it's not just OpEx. So I didn't mention the gross margin, but I think gross margin is going to improve as well.
And you can see you will see that in at the end of this semester. By the way, they told me that I can say, we are not saying we're not seeing any sign of slowdown, just for your information, in this quarter, percentage wise? Last one is the same time, right? €10,000,000,000 at 40%. My guess is that 40% will be much quicker than the 10, not much, will be quicker.
Not much is can be misleading, quicker than the €10,000,000,000
Yes. Maybe sorry, just Tia, just on the point of the gross margin and about your question on aging. As you know, aging is managed successfully. So Marco cannot react on the aging point. What Marco says is that thanks to the work down on the supply chain plus the distribution mix and the fact that his online channel is accretive, we can expect additional improvement of the gross margin.
But as regards the aging, it's managed centrally at corporate level.
Thank you, Jean Marc. Thank you. I think Luca was there to ask a question.
Thank you very much. Luca Solca from Exane BNP Paribas. Marco, I found your point about inclusivity and exclusivity very intriguing. I wonder if you could elaborate on that. And if you do see that inclusivity is going to be far more relevant going forward versus the usual foundation of the luxury industry being based on providing exclusivity and status recognition.
And is that, in your mind, going to be very different from saying that the codes and the reason why our fashion is in a way embracing also leather goods. And that the reason why one was buying, I don't know, Dolce and Gabbana or any other designer brand is now the reason why one is buying leather goods brands that are successful in hitting the spot of the current zeitgeist. 2nd question on The third one. Okay. Great question.
On how you see your position on multi brand digital retailers. I see that some of your competitors are securing ownership of multi brand digital retailers. Do you anticipate to have a few partnerships? Or do you anticipate to have a broad presence across multi brand digital retailers? And how you see that evolution?
Thank you.
In terms your question about inclusivity and exclusivity, as I try to touch briefly throughout the presentation, I think there's a meat of exclusivity in the industry today in the sense that everybody is talking about exclusivity, exclusivity. But the size of our companies in most of the cases is so big that talking about exclusivity to me is a kind of a misunderstanding. Then we moved in terms of definition to perceive the exclusivity. I understand what it means exactly, frankly, myself. And what I see happening outside is that, especially in the younger generation and millennials, the start of having something that is unique to you is important, but is not as big as the possibility of being part of a tribe or being recognized or part of a tribe, still showing your own individuality.
So and if you look at any megatrends for any scenario company, Inclusivity is the one winning over exclusivity in any kind of industry. So all the culture of the company of Gucci, despite this megatrend, has been set according to inclusivity in terms of approaching the shops, in terms of fostering the creativity, in terms of opening the brand to collaboration that were not normal to look at. So my impression is, especially in the younger generation that, by the way, are the one influencing the oldest one, I think the values of inclusivity in terms of having the possibility to touch having the product immediately, not waiting, having a closer connection with the product in the shop and the people in the shops, I think is going to win versus the think of being distant as it was in the past. So that's my take about that. In terms of back company, ready to wear company, I said the way which Alessandro structure, the image, the perception and the shows and the events and communication of Gucci brought the cause and the aesthetic of the ready to wear into the bags.
That is something quite unique. And the 2 together, they speak the same language. So it is true that historically, Gucci has been a bad company because the roots are clearly in the leather goods. But if you think today in your perception about Gucci, you have a completely different image. You have an image of a brand that is more umbrella, driven by the shows and the communication that is delivering very much not a product, but a lifestyle.
And that to me is again one of the reasons why we've been so successful so quickly. The third one is everything. The multi brand, etcetera. I think we are fine where we are. We are working with the best today in terms of multi brand.
Today, to me, is a liquid society in the sense that in the past, when digital was not present, the niche brand, they needed to have 2, 3 shops and you say, if you want to buy, you come in my shops. Today, even the smaller brands, they are so visible because of the digital, because of the social and the rest that this kind of supposed exclusivity again is not existing anymore. So the very the real differentiation is how much you can engage with the customers and how much you are able to create this kind of connection. That, to me, is different. So we are not expected to increase the number of multi brand online activities, Whilst we as Nicolas was saying, we are thinking of some of them, the biggest one especially, to transform them in concession in order to make sure that they have the right content, we can deliver the right product, the right inventory instead of them buying a little bit part and not satisfy the customers.
Hi, it's Antoine Belgya at HSBC. Two questions for once. The first one is relatively basic. Now when you look at your original profitabilities, are they significantly different? Because again, you're bullish on Chinese consumption.
And I guess you mentioned that you probably acknowledge that there will be volatility on where the shop. So that's my first question. And then on China, I'd like to know if you're happy with your current store network or if part of the 3% increase in the square footage will come also from China. And I think also maybe on more specifically on the e commerce in China, what's the strategy between your own capabilities on the sort of the one of 3rd parties?
Okay. Can you talk about it? In terms of profitability or sales density, put in this way, at a regional level, we are still the average that you showed, the 30,000, approximately 30,000 per square meter is very much scattered. We have regions where we are far away from being there and where we have the biggest potential. And the reason where we are below that are Japan, because it's the one that started later.
As you remember, Japan was the one because of the way we see fashion. They want to see if it's going to be consistency or throughout the time, they don't want to have fashion. So they look and see. And strange enough, the U. S, where we experienced a huge growth.
It means that the potential that we have in the U. S. Is enormous despite the growth that we are experiencing. In terms of China, I think overall, we are fine with the network. We are fine with the network.
So despite the fact we're going to maybe close one shop or the other, there are some places that we are doing important investments, especially in Shanghai to create a flagship. He's already signed the contract, so it's something that's going to happen. So we to give a better visibility in terms of branding at shop level. So overall, we're going to close some doors and open some doors at 3, 4. So it's not a major change.
What strategically, what we want to do is to create point of sales in terms of size and image that are better than in the past, mainly in Shanghai. And it's been signed already, so it's going to be open soon. Thank you.
So e commerce in China, we believe we are just in the beginning. We launched the site last year. We are locally. It's working very well. The first thing I think is that the primary role today for website in China is to drive people to the brand and drive people to stores and to educate consumer.
A big part of the e commerce in China happens through the platforms largely through a bit of there is a mix of counterfeit, resellers, etcetera. The portion that we capture on our website is, for the moment, tiny, but it's growing very, very fast. And so over time, we see a lot of potential and we don't see with the appetite for digital why it shouldn't be as big as our website and penetration in other regions. In terms of the external platforms, it's what Marco was saying. For the moment, we are not present and we have no short term plan to be present on Alibaba or JD.
We are partnering a lot with Tencent. We have a WeChat store integrated with our website, and we are growing a lot this partnership and the other. We are, of course, having relationship with them and wait and see when the environment improves to the present.
Arthur?
Yes. Thank you. Edouard Aubin from Morgan Stanley. Marco, just one operating leverage. If we look last year 2017, I think your EBIT margin expanded 5.50 basis points.
And if I recall, your organic growth was around 44%. So if we look at consensus this year, consensus is expecting only half of that expansion, I think around 230 basis points. Everything else, I'm not going to ask you for guidance, but everything else being equal, if you were able to post the same type of organic growth, and because you told us that there was no slowdown so far, would the operating leverage be similar this year as it was last year?
Let me check with the camera. So no, I cannot. Okay.
Sorry.
Marco, thanks very much for the comprehensive presentation. John Guy from MainFirst. Just a question, first of all, on CapEx. You highlighted that you were going to sustain the CapEx below 5% of sales. I think historically, in the last couple of years, Gucci has been generating free cash flow of over €1,000,000,000 It's been an incredible achievement, tripping the free cash in the last 2 years as a group.
Going forward, you say below 5%, are we talking 3%, 3.5%.
I mean, maybe can you give
us an idea over the next few years as to where CapEx will effectively play out? And what will you do with all the cash?
I don't know. I don't manage the cash. These two manage the cash.
My second question is on the internalization of production. On the Ready to Wear side, for example? Maybe you could share some thoughts there. And my final question, given the change in the organizational structure and the new pillars that you've put in place, what's been the biggest positive surprise for you so far? Of course.
The CapEx level, CapEx perspective?
I will address also the question on the EBIT margin expansion so that you can provide you some. You know that as clearly explained by Marco, we are still at Gucci in a phase of investments. And last year, we have recruited a lot of people in the organization. You mentioned the number of people in the stores. We absolutely needed to improve the quality of service.
So this year, we had a full year impact of this cost. We have decided also to anticipate some initiatives. You have mentioned all the work done about CRM, Business Intelligence, Data Mining and it's true that we have anticipated these initiatives. We could have waited what was initially planned and we have decided to expense sooner in the process to keep the advance that Gucci has gained on the market. So that's the reason why we are quite cautious in terms of reinvestments of the gain of the gross margin and as clearly stated and we will stick to that message, we want to gradually expand the EBIT margin.
And as mentioned by Marco, there is a mission to exceed 40%. As we mentioned also, it's true that already as during the presentation of Q1, during H2, the comp base will become tougher for Gucci in terms of sales. So we prefer to remain cautious, but we believe that we could deliver a very solid operating leverage this year. As regards the cash and the CapEx, you know that what has changed in the organization of the group is that many initiatives now are managed by caring as a corporate organization, thanks to the impulse and the support of the brands. So there are a lot of CapEx, in fact, which are now carried on by Kering as a corporate organization.
So the percentage of CapEx at Gucci and in the brands tend to decrease, but there are also massive investments at group level. So part of the cash generated by Gucci also is invested at corporate level to finance all the transformation programs we have, be it in terms of logistics, in terms of supply chain, in terms of information systems. You mentioned Salesforce, which is a group initiative, of course, with a big contribution of Gucci in terms of expertise. What we could say also is that despite what has been mentioned by Marco regarding the inventories, we have now cash generation at Gucci, which should remain very high if you compare the EBITDA and the cash, the free cash flow. So we are still keeping this ambition to deliver very solid cash conversion.
And I think that's exactly what we have agreed on. And it's not detrimental to the investments you have mentioned and the CapEx investments you have in mind.
I think I need to finish the question. In terms of looking at maybe internalization, ready to air or other categories, I mean, we are very careful to see if there is any opportunity, of course. But at the moment, there's nothing in the pipeline in terms of rate to air, especially that is perfectly managed by Clio, that is managed by Kering directly. So it's not under my direct responsibility in terms of the top line not the top line, the top people. But of course, we are there.
There are some suppliers that are doing 95% of their work with Gucci and they are critical and we're going to buy them, of course, but it's not the case today. And in terms of industrial organization, of course, we are scouting always in terms of accessories, in terms of tanneries. We were very in the market. In terms of what I saw, what realized in terms of organization, I think we in such a short period of time, we were able to improve the decision making process very quickly because now the regions have just one person to talk to, that is Jacobo, at the end. That's the one deciding both on the location of the merchandise and choose the buying and the retail streaming.
So there's no challenge anymore. And you can do that because of the person that is in charge that is more critical than anybody else. So it's no problem of not creating challenges in any case. And the second thing that I realized is when you do these kind of changes in a company that is growing 40%, 50% and you are bold enough to do these changes, the impact that you have from a mental standpoint on the organization is impressive. Because everybody is listening, is watching that.
He has the courage to do this kind of change. In this situation, I should do the same. So you create a kind of a virtuous circle in the organization that is something that is very intangible but will be realized. And also the third one, I think I created a team that was there before, a big part, Jacobo, that has been the addition, that is really working well together. And to me, is a unique asset in the industry.
It's not bureaucratic at all. And they work together and they're empowered to take decision and in a very seamless way. And to me, it's key for the success of Gucci today because of these people and the people below them.
Thank you so much. Susanna Pusz from Berenberg. I have three questions, please. First of all, on your retail staff incentive system. So I guess you have a 10% e commerce target.
And given historically how the incentive system for the employees has been, let's say, on commissions, is there any change that you're introducing to because technically, I mean, what is the incentive for someone that the customer actually shops online? So guess it's one of the challenges the industry needs to address. Secondly, just to clarify on the number of directly operated stores. So you mentioned the 3% space growth and there will be some takeovers. But at the same time, are you going to close some more outlets?
So shall we expect the number of stores totals to stay flat or actually increase? And finally, well, this one can be maybe it's a bit cheeky, but you mentioned initially 10% space growth. And then you said it's actually around 3% per year, which means around 3 years.
And I
know you didn't give out a target for your initial. Does it mean that the €10,000,000,000 plus 40 percent EBIT margin, is it 3 year target? Or am I trying to read too much into it?
This is ahead. Okay. As for the commission, yes. One of the issue of giving the possibility to the people in the shops to being really omni channel is to give the possibility to find, I mean, products elsewhere or through the e commerce. So of course, they are incentivized to do it because of the commission.
So we are changing the commission scheme everywhere in the world in order to make sure that the experience is going to be seamless even from that point of view. That push at the beginning, it was certainly an obstacle in the development. I think overall is going to be remain the same. Then of course, if we buy back some private retail, they're going to be counted. They're going to be counted like doors, of course, they're going to increase.
The other thing that we say, the way in which we count doors in Gucci is that if you are in the department stores, you have 4 doors in the different 4, shoes, bags and retail, etcetera, 4 doors. So and say if you compare that with some other brands that have the same shot that goes across the floors, it's one door. So it's not exactly Apple versus Apple. In terms of the 3% to 10%, I think you are good in math, but I cannot give you an answer. We'll see again, what I before, it's very difficult to plan which is going to be the year because maybe tomorrow is going to be an established shop, we cannot forecast.
The currency situation is going to create a problem with the traffic flows. I don't know. I mean, overall, we are as you see as you saw in the last few years, we are very ambitious. We are not there to stay second. So by the way, so we try to push, of course, but I cannot tell you that it's going to be 3 years, 4 years, 5 years, I don't know.
The trajectory is the one that I told you. I think this is Basel. Secondly, please.
Good afternoon. Thomas Chauvet from Citi. Three questions. The first one, Marco, you spoke about this tribe of millennials that make we saw about 60% of your business. The 2 risks I see to your future growth is 1, a macro shock that would probably impact that group of clientele more than the other and 2, that rapidly, their taste and desire for the Gucci brand changes and they move to another brand, which is trying to capture that good luxury demand that we're seeing.
So how are you mitigating this risk on that particular group of clientele? Secondly, you showed us a slide on the outlet channel with which is a strategic channel, as you said. It's a channel, but it's an important one, I guess. From a profitability standpoint, could you just give us two numbers? How much does the outlet channel represent of your retail sales?
And 2, can you confirm that it is for the Gucci brand more profitable than your full price store business? And thirdly, as Gucci brand desirability is increasing, we're seeing your products being resold pre owned in the pre owned online market. I guess that's a good sign, but it's something difficult to control. We're seeing extremely good growth in that channel. How are you thinking about the development of that channel?
Is it something you would like control?
Which is a channel?
The pre owned resell market, the real real best year. Is it a channel you think you need to bear a closer eye to maybe to control more directly? How do you think about the resale of pre owned Gucci products? Thank you.
In terms of millennials and consumer taste changing behavior, I mean, the only thing that we can I can say to you that I think was through all the presentation I tried to outline? The way in which we Alessandro created the aesthetic that is completely unique, the way in which we engage any age bracket, millennials and not millennials, is I think is so strong and so consistent and so genuine and so authentic that the only way in which I can meet again that is continue to do exactly that. I continue to do that exactly with the company with the culture. If I'm able to maintain this kind of culture and able to give the possibility to anybody in the company, especially creative team and the product team to expand themselves in a very natural way using crowd creativity as we did in the past with very authentic collaboration. The possibility that we have in terms of creative aspect, the creative aesthetic going forward is endless, because everybody now recognize that Alessandro is someone that is putting these creative pioneers on the spot and give them fame.
So everybody wants to work with him, But inside the Gucci brand, I don't frankly, I think that the risk is always there for everybody. We are in fashion. We are not in something different, automotive or whatever. The point is, of course, the risk is there. But the way in which Alessandro created Gucci from aesthetic standpoint and from a product standpoint, I don't think it's a fashion moment.
It created a demand that was not existing before, impacting all the fashion industry. If you go back 3 years ago, the aesthetic of the industry was completely different. Everything now has been impacted. The point is that the way which has been conceived in Gucci is a 360 degree in any single asset due to the fact we are an agile organization where we take a decision, it goes from the beginning to the end. Shops, communication, social, everything is communicated and it goes across the board.
There's nobody no layer that is deciding in a different way, like in some competition aspects. So if I'm able to maintain that and setting the bar every time higher and using the huge and engagement talent at Alessandro together for him, the people within the team and the other people around the world pushing him in terms of new aesthetic, I don't think that is the only way in which I can see a mitigation. So I don't see change in aesthetic, not at all. I think what is doing with Alessandro is reinforcing the message. I think it's going to create even a more sustainable business.
In terms of the outlook, I don't think I can answer. Outlets? No? No? I cannot.
Just to reinforce what you were saying that I told before. I think it's a part of our strategy for many reasons because I mean deciding to stop the markdown in full price shops, I think, is an important outlet to get rid of it at the right price in controlling the sales. And also in terms of sustainability and ethical value, we don't want to destroy the product. So we want it to circulate. So I think as well in blending with Gucci equilibrium, I think is a good way to go forward.
In terms of number of shops, we are not planning to open more shops. More probably, we're going to close some of them. We're going to just keep the one that we want to we feel better. The third one is? 2nd line.
This is it's a big discussion about 2nd line rental today. We know that. I think it's going to be something that we're going to look at. I don't think we need to be the 1st comer in a sense. So we wait and see.
We discussed a lot as well with Kering about it because, of course, I mean, many brands, there's a possibility to manage directly or to blend. At the moment, we are not we are just looking from outside. Let's see what happens. I think you're right, I think something that is growing. But at the moment, we don't see any negative effect on us for the moment.
Maybe just regarding the profitability of the outlet. The rationale for keeping this channel is the one that has been presented by Marco. It's not a question of profitability, Because at the end of the day, with the end of the markdown activities in the full price stores, it has boosted the profitability of the full price stores. So that's the difference between the two channels is not significant at all. So that's not the rationale supporting the decision to keep an outlet channel.
What has been said by Marco is really the real reason behind
this. Yes.
Melanie Flutke at JPMorgan. I have two questions please. The first one is regarding production. Can we go back to production? And you mentioned a 50% cut in lead times.
I was wondering whether you share with us what your lead times are and how much of this minus 50% you've already achieved And linked also to production, sorry, an extension of it, what does the supervised production brings to you? How critical is it to the lead times, to the inventory management, to quality control? Share maybe a bit more on that side. My second question is a bit more strategic. You mentioned how important it was to have your eyes open to the outside world.
So I was wondering whether you could share with us what you're seeing as big opportunities or big risks to your business beyond the shocks to travel in the next 3 years that are coming from the outside that we might not anticipate? Thank you.
Thank you. In terms of the 5%, 50% reduction lead time is key, especially in the development cycle, but also in the production side. Of the 50%, we didn't achieve anything. It's just a target. It is coming from the fact that we just invested in MATLAB.
So when we sit down together with Massimo, we put all the money to do the investment. We sit down as well to set some targets. And what we are experiencing in the shoes business unit, that is the one that we control the most today, because we have 60% that is internalized in the way or the other, both of strategic partners are internal. We see that the lead time is much, much quicker than the one that we are experiencing with the suppliers, external suppliers. And also in that specific context, the cost of goods sold of our factories is even lower.
So the 2 together brought us to think that if we can apply the same methodology strategically because as well of the investment that we did here in Art Lab on the leather goods, we could expect a dramatically increase reduction in lead time and potentially, but it's not the main objective, a reduction of the cost of goods sold. That's what we are seeing on the other side. That was the show, the internal production. The one on the strategic oh, yes, the same. 1 of the main potential disruption that can happen to the industry is everything is related to the tanneries and the leather in vitro.
There are some startups that are working on that. The level of the leather today is very is not good at all. But considering the speed of technology, it could happen. So Kering is looking at it together with Gucci. Gucci is helping in terms of research and development.
Kering is investing actively. In order to make sure that if something happens, we are there to protect our business because that is going to create a potential disruption. But also a good way from a sustainability standpoint, of course, because we're going to pollute much less than in the past than what we do now. I think the other one is going to be 3 d printing, especially for the prototyping and on the rest. Again, we are still far away from having technology that is able to give the speed or the series that we need at our scale.
So and the cost that we expect. So but something's going to happen because the development there is quick as well. I see that these two things are in terms of industrial, that's the more impactful. Then there's all this world of artificial intelligence in terms of forecasting, in terms of customer journey, in terms of customer journey, in terms of buying and most in terms of following the e commerce and the site that we started experiencing 12 months ago with some good results and some bad results because we are not a repetitive business. And this change that we have in terms of consumer taste, of aesthetic or new product, etcetera, brings you to be very careful in applying blindly the artificial intelligence.
But of course, we are working on it with external companies, and Nicolas is the one leading internally. So we are keeping eye on this because, of course, that could help in many ways, especially in the allocation and the forecasting that we do for our shops.
Queerty Gifford. We're a long term shareholder. One question, you'd be pleased to hear. Clearly, a very rapid evolution success under your leadership. Your presentation is entitled Quantum Leap.
I was wondering what would you like to still be the same about Gucci in 25.0 years and why?
What I don't want to change is the kind of culture and the way which we work. Everything in Gucci started from the why, not from the how or from the what. So why we go to work in the morning, why you want to really do what you do on a daily basis. So to me, culture and people remain the most important asset of Gucci. That is going to be differentiation factor whatever happens.
We are able to maintain this team and the way with the team is working together and approaching the problems and approaching the activities and the processes, there's no way we can slow down, no way. So that's what I would like to people say in 25 years.