Kering Lags Luxury Peers

Kering reported third-quarter sales fell 9 percent at constant currency as the French luxury group struggled to cope with slowing global demand.

The drop in North America was particularly pronounced for the Gucci and Saint Laurent owner, with revenues falling 21 percent in the region. Sales fell 10 percent in Europe and rose 1 percent in Asia excluding Japan, the group said Thursday after Paris markets closed.

A post-pandemic boom in luxury sales has been winding down for players across the industry, but Kering is lagging peers. Sales at rival group LVMH’s fashion and leather goods division, which includes Louis Vuitton and Dior, grew 9 percent in the third quarter. Top-end handbag maker Hermès breezed past analyst expectations Thursday morning, reporting sales up 16 percent.

A series of brand-specific challenges are exacerbating the situation at Kering: Flagship label Gucci is navigating a choppy global market while onboarding a revamped leadership team, which includes a new creative director, CEO and marketing chief. Saint Laurent has leaned heavily into selling entry-priced luxury handbags, making it vulnerable to a slowdown among aspirational shoppers. Meanwhile, provocative, ugly-chic Balenciaga is struggling to restore momentum after a scandal late last year.

Despite the drop, Kering’s North America business remained 50 percent above pre-pandemic levels, CFO Jean-Marc Duplaix said. Japan offered a bright spot, with sales up 28 percent.

Worldwide, “the visibility we have is quite low and geopolitical concerns are mounting which could impact consumer sentiment,” Duplaix said. Aspirational clients remain “under pressure” in the US, while the macroeconomic environment in China “isn’t helping.” In Europe, locals and tourists alike are spending less, he added.

The Plan for Gucci

Looking ahead, Kering is hoping the rollout of a more stable, long-term identity for Gucci will lift organic growth in the coming quarters and court loyalty among a broader spectrum of shoppers than during former creative director Alessandro Michele’s kistchy, maximalist tenure.

The Italian brand (which accounts for roughly half the group’s sales) is working to align image investments with carry-over items that anchor its business — promoting iconic handbag shapes, loafers and luggage rather than going all-in on fashion novelties by new designer Sabato De Sarno.

“We need [communications] to be more selective and more efficient at building brand awareness and brand equity. We had some clients that were absolutely in love with Alessandro Michele’s vision, but the major part of clients are buying Gucci products, not Alessandro or Sabato De Sarno or Frida Giannini products,” Duplaix said. “That’s what we’re aiming at, that people come to buy Gucci products because they love the brand.”

While De Sarno’s September debut “opened a new chapter” and proposed a “clear silhouette,” Duplaix said, the collection was accessorised using longstanding lines like Jackie bags and horsebit loafers. Social media audiences and wholesale buyers responded favourably to the collection, he added. Still, some experts including Bernstein analyst (and BoF contributor) Luca Solca have voiced concern that the show didn’t offer a strong enough change to fuel the “fast and material re-acceleration” investors have been hoping for since 2020.

CEO Jean-François Palus, Kering’s former deputy managing director who was announced as Gucci’s interim chief in July, is likely to remain in place for some time.

“He has a good knowledge of what must be done and will be able to speed up execution,” Duplaix said. “The mission is to set up new foundations, to put the business back on track. Then the search for a new CEO can be contemplated.”

Balenciaga, Saint Laurent

In the third quarter, Kering’s “Other Luxury” division, which contains Balenciaga, saw its revenues fall 15 percent.

After keeping a low profile in many markets for nearly a year (since its late 2022 controversy), Balenciaga is getting ready to resume its communication investments at the start of 2024.

Celebrity faces including Nicole Kidman and Kim Kardashian wore Balenciaga gowns at a September charity event in New York: They’ve moved on from the crisis, and the group is hoping regular shoppers soon will, too.

A 12 percent drop at Yves Saint Laurent was more surprising. At the label generally seen as Kering’s most stable unit, weak quarterly sales underscored the brand’s dependence on aspirational customers, particularly in the US where rising interest rates and slowing economic growth are dragging down discretionary spending for all but the wealthiest customers.

Saint Laurent will stay the course on reducing its wholesale exposure, Kering said — another factor that has weighed on sales.