“Kering” (Kering) is going through a bad moment. Even its president Francois-Henri Pinault admits it. The French luxury goods empire, one of the biggest companies in the sector, said its sales in the first quarter of the year were 10 percent lower than forecast several months ago.
The series of bad numbers is not new and is mainly due to the negative results of its flagship brand “Gucci” (Gucci) in the Asian region, especially in China. In addition to the Italian brand, Kering’s portfolio also includes Saint-Laurent, Bottega Veneta and Balenciaga.
The bad moment the company is going through has also affected the quotations of its shares on the stock exchange. On March 20, a day after the luxury fashion empire warned of unfavorable quarterly data, its shares fell 12 percent during a tough day in which the company posted one of its worst trading sessions in its history and lost more than 6 billion euro from its market capitalization. Kering is one of the main drivers of the SAC 40, the main index of the Paris Stock Exchange, along with L’Oreal, L’Oreal and Hermes. Its shares have lost 35 percent of their value over the past 12 months.
The group’s earnings figures for the first quarter of 2024 will be published on April 23 after a year that Pinault, Kering’s president since 2005, himself described as “difficult”. Although the company’s turnover reached €19.566 billion in 2023, it was down 4 percent (2 percent on a comparable basis) from 2022, when revenue was €20.351 billion. Last year’s net profit decreased by 17 percent and was around 2.980 billion euros.
The figures outline the difficulties the French company is going through in the Chinese market – one of the main drivers of growth for luxury brands. In China, the economy has yet to fully recover from the end of the draconian measures introduced during the COVID-19 pandemic. The Asian giant is looking to revive growth amid a subdued real estate market, weak domestic demand and high youth unemployment. Fears of an economic slowdown among Chinese shoppers have weighed heavily on the Gucci brand, which accounts for more than half of Kering’s sales and more than two-thirds of its profits. The Asian region (excluding Japan) provides 39 percent of the Italian brand’s turnover and 35 percent of Kering’s total revenue.
The situation raises concerns. In 2023, Gucci’s turnover decreased by 6 percent compared to the previous year, reaching 9.873 billion euros. The luxury goods company predicted that for the first quarter of 2024, sales of the Florentine fashion house, founded in 1921, would be 20 percent lower than last year in comparable terms. However, she had a reassuring message: “The new collection has been very well received.”
“Kering” has been reorganizing for several months around its leading brand, notes the Spanish publication “Pais”. “Our priority is to get Gucci back on the right track, although this cannot happen from today to tomorrow,” admits Pino after the presentation of the annual results. The changes have already begun. In July 2023, the multimillionaire appointed his then right-hand man, Jean-Francois Pallues, as the new president of the Italian company. The French luxury giant has also decided to part ways with iconic Gucci creative director Alessandro Michele, replacing him with Sabato de Sarno.
De Sarno’s first collection, Ancora, was presented at Milan Fashion Week in September, focusing on more classic models. In March, this new line arrived in major Chinese cities, trying to woo local consumers with pop-up stores (which allow products or collections to be displayed for a set period of time) and events with local influencers.
The coming months will be crucial in determining whether Kering’s managers have made the right move. “The market still doesn’t know if the Chinese will like Sabato de Sarno’s ‘quiet luxury,'” according to Bernstein analysts. “The bad news from Kering is a good reminder that consumer confidence and discretionary spending in China are weak,” they said. Consulting firm “Bain and Company” (Bain and Company) warned that “after the general recovery last year, expectations are that the Chinese luxury goods market will grow at a mid-single-digit rate in 2024.”
Betting on a hen that lays golden eggs has its risks, notes Pais. Over the years, the French company has reduced – albeit minimally – its dependence on Gucci. However, other brands have not filled this space enough to compensate for the Italian company’s smaller contribution. Saint Laurent, the luxury giant’s second-largest brand, which accounts for about 16 percent of Kering’s turnover, reported a 4 percent drop in revenue last year. The revenues of the third most important brand in Kering’s portfolio – Bottega Veneta – have decreased by 5 percent.
The “other fashion houses” category, which includes Spanish brand Balenciaga, whose image was tarnished by a controversial marketing campaign, also saw revenue fall by 9 percent last year. The only division of the company with good results is Kering Eyewear, which reported a record increase in revenue of 38 percent.
In addition to the changes at Gucci, the French luxury giant is also launching a beauty division that it will look to grow in the coming years, taking the first step in that direction with the acquisition of high-end perfume maker Creed. . Kering announced last summer that it was buying a 30 percent stake in the famous fashion house Valentino for 1.7 billion euros. The goal is for the conglomerate to continue with its strategy of investing in its various fashion houses. The impact of this strategy, as Pinault himself acknowledged, will affect short-term results.
