After the company’s negative earnings update last month, it is not surprising that Kering Group results of the first quarter of 2024 are worrisome.
The reported revenue comprises of €4,504 million, which is a decline of 11% as reported and 10% on a comparable basis. Overall, the Group has experienced an 11% and 7% decrease in the revenue from the directly operated retail network and wholesale respectively. Further, the Group has reported that it anticipates a decline of 40 to 45 percent in first-half recurring operating income compared with the same period in 2023.
“Kering’s performance worsened considerably in the first quarter,” François-Henri Pinault, chairman and Chief Executive Officer of Kering, said in a statement. “While we had anticipated a challenging start to the year, sluggish market conditions, notably in China, and the strategic repositioning of certain of our Houses, starting with Gucci, exacerbated downward pressures on our topline. In view of this revenue decline, together with our firm determination to continue investing selectively in the long-term appeal and distinctiveness of our brands, we now expect to deliver sharply lower operating profit in the first half of this year.”
Although the Kering Eyewear and Corporate segment, including its Beauté division reported revenue of €536 million, up 24%, the results of other brands were not as positive.
Yves Saint Laurent’s revenue was down by 6%, mainly due to the tough market conditions in Asia-Pacific and decrease in the wholesale revenue. Similarly, Bottega Veneta saw also a decrease of 2% in its sales, while the revenue from the group’s other houses declined by 6% on a comparable basis due to the tough market conditions in Asia-Pacific and decline in the wholesale revenue.
However, the downturn in the Kering Group’s revenue is mainly driven by the declining sales of Gucci – the company’s biggest brand, which share of revenue at Kering consists of more than 50%. According to the first-quarter results, Gucci’s revenue was down by 18% on a comparable basis, mainly due to the sharp decline in Asia-Pacific, especially China.
Gucci’s Continued Appeal in China
Despite disappointing sales this quarter, Gucci remains a dominant force in China, being the top luxury brand in Shanghai and the second most popular on Chinese social media, according to RTG Consulting and Re-Hub. Specifically, the brand’s Ancora pop-ups in major Chinese cities drew significant attention, particularly the bold red Spring 2024 collection by Sabato De Sarno. Other than that, the Weibo campaigns for “Gucci Ancora” and “Ancora Red” have received 1.44 billion and 530 million views respectively, largely led by endorsements from key opinion leaders and celebrities.In fact, Kering noted that the sales slump was mainly in leather goods, with new collections, accounting for less than 7% of sales, receiving positive feedback and expected to boost future sales by 25%.
Ancora Pop Up in Gucci
Challenges Faced by Gucci
However, having strong ready-to-wear products is unsufficient to surmount wider challenges the brand faces.
One of the primary challenges facing Gucci is its focus on fleeting fashion trends rather than timeless classics, which makes the brand susceptible to broader economic fluctuations. In contrast, competitors like Hermès and Chanel emphasize the creation of enduring classics and strategically limit product availability to enhance their desirability. This approach not only makes them less vulnerable to market shifts but also aligns with the current trend for “quiet luxury” in China.
On top of that, Gucci faces significant challenges that stem from management and creative transitions within its parent company, Kering. Recent management changes, including a complex restructuring of leadership roles, have failed to alleviate concerns among analysts and investors about the brand’s direction and governance. Historically, Gucci’s success has depended heavily on strong partnerships between its designers and top executives, such as during the Tom Ford era. However, recent leadership under creative director Michele, despite a period of significant sales growth, is viewed as a tough act to follow. This has been compounded by doubts about the effectiveness of the latest management, with the new appointments not reassuring the market of a clear and effective leadership vision for Gucci.
Sabato De Sarno’s Fall 2024 collection looks.
Conclusion
In its report, Kering states that it will continue to execute on its strategy and vision, which is to maintain a profitable growth and remain one of the most influential groups in the luxury industry. However, this would require the implementation of changes in the perception of the Gucci brand and its leadership.
By Maryia Talyka
Sources:
Du Luxe, J. (2024, March 13). Ancora, ou la reconquête chinoise de Gucci. Journal De Luxe. https://www.journalduluxe.fr/fr/mode/ancora-reconquete-chinoise-gucci-pop-up
Kering. (2024, April 23). First quarter 2024 revenue. Kering. https://www.kering.com/en/news/first-quarter-2024-revenue/
Statista. (2024a, February 20). Global revenue share of the Kering Group in 2023, by brand. https://www.statista.com/statistics/267494/global-revenue-share-of-the-kering-groups-luxury-division-by-brand/
Statista. (2024b, February 20). Global revenue share of the Kering Group in 2023, by brand. https://www.statista.com/statistics/267494/global-revenue-share-of-the-kering-groups-luxury-division-by-brand/ Unang, B. (2023, October 10). Milan Fashion Week SS24: Sabato de Sarno heralds a new chapter for Gucci with Ancora. BURO. https://www.buro247.my/fashion/collections/mfw-ss24-sabato-de-sarno-debut-gucci-collection.html
