Kering, the French luxury group, reported a modest 1% increase in sales for the first quarter, which pales in comparison to its competitors. Luxury conglomerate LVMH experienced a significant 17% boost in sales, while Hermes, known for its popular Birkin bags, saw a remarkable 23% surge during the same period. The underperformance of Kering can be largely attributed to its star label, Gucci, which has failed to fully capitalize on China’s economic rebound and suffered a sharp revenue decline in the United States.
Despite the lackluster overall sales growth, Kering’s sales for the first quarter reached 5.08 billion euros ($5.58 billion), meeting analysts’ expectations. However, the pace of growth was notably lower than that of its rivals, especially considering that Kering’s sales slumped by 7% in the previous quarter of 2022.
According to Chairman and CEO François-Henri Pinault, there were some signs of improvement during the period. As lockdown restrictions eased in the Asia Pacific region, which accounts for a substantial portion of Kering’s sales, retail revenues grew by 10% as customers returned to stores. However, the United States saw retail sales decline by 18%, which can be attributed to factors such as inflation and decreased luxury spending among younger, less affluent consumers. The US market constituted 27% of Kering’s total sales in the previous year.
Gucci, once the fastest-growing brand in the luxury industry and a major revenue generator for Kering, has experienced a significant slowdown in recent years. The departure of its creative director, Alessandro Michele, in November has only made things more challenging. The brand’s successor, Sabato De Sarno, who is relatively unknown in the industry, is expected to join the group next month and will present his debut fashion show in September at Milan Fashion Week. However, his collections will only be available in stores the following year, potentially posing a threat to Gucci’s sales and margins in the upcoming months.
While Kering’s smaller brand, Yves Saint Laurent, reported 8% growth in the first quarter, the group’s other labels faced difficulties. Bottega Veneta’s sales remained stagnant, and the “other houses” division, which includes Balenciaga, experienced a 9% decline in revenues, partly due to backlash from consumers in the United States and Britain over controversial advertisements featuring children.
Acknowledging the challenges, finance chief Jean-Marc Duplaix admitted that regaining significant market share would not be an instant outcome. Instead, the group is focusing on repositioning Gucci as a more high-end brand, which includes the introduction of salons catering to the ultra-rich, where prices start at $40,000.
Looking ahead, it remains to be seen how Kering will navigate the competitive luxury landscape and revive the growth of its star label, Gucci. With new leadership and strategic initiatives in place, the group remains optimistic about future prospects. However, it is essential for Kering to adapt and innovate to maintain its position as a leading player in the luxury industry as consumer preferences continue to evolve.
Useful links:
1. China, Champagne and CF: Louis Vuitton Moët Hennessy’s Secret Sauce
2. Hermes: The Most Admired and Valuable Luxury Brand
