Can Kering sparkle anew
Kering's share price has been suffering from a prolonged downturn since late 2022, mainly due to Gucci losing appeal and Balenciaga dealing with a marketing scandal. These issues were compounded by a weaker global consumer environment in the second half of 2023.
To rejuvenate the Gucci brand, Kering has hired a new designer and assembled a new management team over the past year. Additionally, Kering is optimizing the wholesale distribution of its other brands to enhance their luxury identity. The creation of Kering Beauté aims to expand the group's presence in the fast-growing beauty and fragrance market.
While the turnaround of Gucci is taking longer than expected and increased investment during a tough consumer environment are projected to cause a 40%-45% drop in profits for the H1 2024, we believe the worst is already reflected in the current share price which may be close to bottoming out.
Despite the downturn, Kering is using this period to overhaul its business.
Leadership reshuffle
Kering views Gucci's turnaround as a journey rather than a race. That is wise. This began with a leadership reshuffle: in January, Italian designer Sabato De Sarno was appointed Creative Director of Gucci, while Jean-François Palus and Stefani Cantino were named Co-CEOs, replacing the team of Alessandro Michele and Marco Bizzarri.
In parallel, Francesca Bellettini and Jean-Marc Duplaix were appointed Co-CEOs of Kering Group, separating the roles of Chairman and CEO from François-Henri Pinault. Armelle Poulou was named CFO last July, completing the leadership reorganization. This new structure streamlined decision-making and concentrated responsibilities on individual expertise.
Be more patient with Gucci
Sabato De Sarno launched a highly-anticipated collection last September in Milan, which received an enthusiastic reception. However, the rollout has been slower than expected, with the collection only becoming widely available from mid-February and gradually increasing to 25% of the product line by the end of Q2 24. It is expected to reach 100% of the seasonal offers by Q3 24, or one-third of the total line.
Optimization of the portfolio and business
Luxury products are defined by scarcity and experience. Kering's brands other than Gucci have higher exposure to wholesale (22% of group sales). To increase retail exposure, Kering is accelerating wholesale rationalization, aiming for 85% retail sales. This will continue to cause short-term pain for YSL, Bottega Veneta and the other houses.
The group is also diversifying by acquiring Creed, a luxury niche perfume brand, to tap into the booming beauty market, following its success in the eyewear business. According to Bain & Co., the global beauty market grew by 5% to €72bn in 2023, driven by strong momentum in skincare and a promising fragrance market.
Earlier mover in luxury eCommerce
China's second-largest e-commerce shopping festival, held on June 18, saw its weakest performance to date, reflecting continued weakness in consumer sentiment and shifting market dynamics in the post-pandemic era. Year-round discounting driven by live streaming has made shopping festival events less attractive, with AI-led customization, premium consumer experiences and multi-channel engagement emerging as the latest fads.
Despite a broader consumer slowdown, luxury goods continue to grow strongly, with an increasing number of Chinese consumers purchasing luxury goods online. The market expects luxury e-commerce sales in China to reach $35bn, accounting for more than 40% of the overall luxury market. Alongside JD.com, Pinduoduo, and social e-commerce platform Xiaohongshu, Tmall's luxury pavilion remains a major contributor. This year, Tmall shifted away from traditional festival discounts, offering over 100,000 exclusive new products directly to consumers, including brands from LVMH, Kering, Chanel, Hermès, and Richemont.
Sacrificing the short-term margin
Kering posted a double-digit top-line contraction in April, primarily due to continued weakness in Asia impacting Gucci's performance. The company has warned of a 40%-45% drop in operating profit due to slower sales growth and increased investments for ongoing brand revitalization.
To dive deep into this teaser, reach out to us at sales@alphavalue.eu
To rejuvenate the Gucci brand, Kering has hired a new designer and assembled a new management team over the past year. Additionally, Kering is optimizing the wholesale distribution of its other brands to enhance their luxury identity. The creation of Kering Beauté aims to expand the group's presence in the fast-growing beauty and fragrance market.
While the turnaround of Gucci is taking longer than expected and increased investment during a tough consumer environment are projected to cause a 40%-45% drop in profits for the H1 2024, we believe the worst is already reflected in the current share price which may be close to bottoming out.
Despite the downturn, Kering is using this period to overhaul its business.
Leadership reshuffle
Kering views Gucci's turnaround as a journey rather than a race. That is wise. This began with a leadership reshuffle: in January, Italian designer Sabato De Sarno was appointed Creative Director of Gucci, while Jean-François Palus and Stefani Cantino were named Co-CEOs, replacing the team of Alessandro Michele and Marco Bizzarri.
In parallel, Francesca Bellettini and Jean-Marc Duplaix were appointed Co-CEOs of Kering Group, separating the roles of Chairman and CEO from François-Henri Pinault. Armelle Poulou was named CFO last July, completing the leadership reorganization. This new structure streamlined decision-making and concentrated responsibilities on individual expertise.
Be more patient with Gucci
Sabato De Sarno launched a highly-anticipated collection last September in Milan, which received an enthusiastic reception. However, the rollout has been slower than expected, with the collection only becoming widely available from mid-February and gradually increasing to 25% of the product line by the end of Q2 24. It is expected to reach 100% of the seasonal offers by Q3 24, or one-third of the total line.
Optimization of the portfolio and business
Luxury products are defined by scarcity and experience. Kering's brands other than Gucci have higher exposure to wholesale (22% of group sales). To increase retail exposure, Kering is accelerating wholesale rationalization, aiming for 85% retail sales. This will continue to cause short-term pain for YSL, Bottega Veneta and the other houses.
The group is also diversifying by acquiring Creed, a luxury niche perfume brand, to tap into the booming beauty market, following its success in the eyewear business. According to Bain & Co., the global beauty market grew by 5% to €72bn in 2023, driven by strong momentum in skincare and a promising fragrance market.
Earlier mover in luxury eCommerce
China's second-largest e-commerce shopping festival, held on June 18, saw its weakest performance to date, reflecting continued weakness in consumer sentiment and shifting market dynamics in the post-pandemic era. Year-round discounting driven by live streaming has made shopping festival events less attractive, with AI-led customization, premium consumer experiences and multi-channel engagement emerging as the latest fads.
Despite a broader consumer slowdown, luxury goods continue to grow strongly, with an increasing number of Chinese consumers purchasing luxury goods online. The market expects luxury e-commerce sales in China to reach $35bn, accounting for more than 40% of the overall luxury market. Alongside JD.com, Pinduoduo, and social e-commerce platform Xiaohongshu, Tmall's luxury pavilion remains a major contributor. This year, Tmall shifted away from traditional festival discounts, offering over 100,000 exclusive new products directly to consumers, including brands from LVMH, Kering, Chanel, Hermès, and Richemont.
Sacrificing the short-term margin
Kering posted a double-digit top-line contraction in April, primarily due to continued weakness in Asia impacting Gucci's performance. The company has warned of a 40%-45% drop in operating profit due to slower sales growth and increased investments for ongoing brand revitalization.
To dive deep into this teaser, reach out to us at sales@alphavalue.eu
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