Kering still believes in Gucci after disappointing results

Between July and September 2023, Kering saw all its activities decline, with the exception of its eyewear division, Kering Eyewear. Its fashion houses have lost their momentum, particularly Gucci, which posted sales of €2.217 billion over the period, down 14% on the third quarter of 2022 (-7% on a comparable basis). While the French luxury group recorded a 13% fall in sales to €4.464 billion, its rivals fared much better, with LVMH and Hermès ending the third quarter with increases of 9% and 16% respectively.

“There are three main reasons for this sharp fall. Firstly, Gucci, the Group’s leading brand, is very exposed to China, which is experiencing a marked slowdown. Secondly, in Europe and the United States, consumers are reducing their purchases of top-of-the-range products. Finally, worsening economic conditions coupled with inflation are slowing demand for luxury goods,” analyses Antoine Fraysse-Soulier at eToro.

This difficult macroeconomic and geopolitical environment is certainly not going to help Gucci’s immediate recovery. Notably, its retail sales fell by 7% on a comparable basis between July and September. With the exception of Japan, where sales jumped 32%, all other regions recorded declines. These include North America (-22%), Europe (-5%) and Asia (-3%), which accounted for 37% of total sales, while Europe and North America accounted for 26% and 22% respectively.

Despite this uncertain context, Kering is continuing with its roadmap, placing its absolute priority on its flagship brand, which accounts for half of the group’s revenues. New creative director Sabato De Sarno’s first catwalk show, entitled “Ancora”, dedicated to Spring/Summer 2024 and unveiled last September in Milan, gave the first real sign of change, which in fact had already begun in recent years through the rationalisation of sales channels and the multiple initiatives designed to elevate Gucci’s positioning.

“Ancora marks a new creative chapter for the label, while at the same time celebrating its past. I think the show was a good affirmation of the new direction, with clear silhouettes and the intention to build on the brand’s strong codes,” said Jean-Marc Duplaix, Gucci’s deputy CEO in charge of operations and finance, during the conference call with analysts that followed the publication of the results on October 24. He also expressed how pleased he was with the customers and professional buyers’ response to the show, as well as the very positive engagement on social networks.

When in fact, this first collection has been met with mixed reactions, analysts at GlobalData point out, “some have welcomed the return to a simpler aesthetic, while others have decried the designer’s minimalist approach. However, the collection will not arrive in shops until early 2024, which means that the first quarter of next year will be crucial in measuring the commercial success of Gucci’s rebranding and new identity,” they argue. Indeed, it is too early to measure the impact. The collection will arrive in a selection of key shops in January, then in February in the rest of the shops and in March in a wider distribution network with accessories.

In the meantime, the group’s management seems to want to resize the role of its new designer, compared to the emphasis it had given to Alessandro Michele, its previous designer. Jean-Marc Duplaix highlights the work of “Sabato De Sarno and the studio with the merchandising department,” placing the show within “a wider communications strategy.”

He recalled, for example, the emphasis placed this summer on certain iconic handbag models such as the Bamboo, the Horsebit and the Jackie, which Gucci wants to relaunch. The Group intends to step up its investments, while improving the effectiveness of its communications with targeted campaigns, for example around these iconic bags, but also seasonal or more specific campaigns, such as the one on luggage, or institutional campaigns through exhibitions, not forgetting celebrities.

Focus on executing the strategy

“We want to show that Gucci is at the crossroads of fashion and luxury,” sums up the CEO. Regardless of the aesthetics of Alessandro Michele, Sabato De Sarno or Frida Giannini, most customers are passionate about the product for its quality and the high-end shopping experience offered by the brand, he points out, noting that in the third quarter almost 70% of sales of leather goods accessories consisted of “continuous” classic products. This helped to build customer loyalty and even win new customers over the period.

Following the departure of CEO Marco Bizzarri this summer, the company is now led by Jean-François Palus, who has just taken the helm and has defined his four priorities: making the brand desirable by reaffirming Gucci’s unique positioning, improving production with greater efficiency in the supply chain, the quality of distribution and operational efficiency. What counts, as Jean-Marc Duplaix insists, “is the execution of the strategy.”

The search for a new CEO, which the former deputy CEO of Kering was supposed to be working on, is not a priority, although Gucci will be making some recruitments shortly to build a stronger and talented team. “Jean-François Palus’ mission is to put Gucci’s foundations back in place and support the relaunch. He will remain in place for as long as is necessary,” says the director of operations and finance.

As far as distribution is concerned, Gucci has almost completed the rationalisation of its wholesale network, with sales expected to remain stable next year. It has announced that it intends to reduce its exposure in outlets at a later date. Gucci’s direct shop network of 534 units worldwide, including 181 in Asia-Pacific, is not expected to expand significantly over the next few years, with the company concentrating on certain relocations, such as its flagship shop in Paris, which is due to relocate near Place Vendôme on the corner of Rue Saint-Honoré and Rue de Castiglione.

At midday, Kering shares were down 4.5% at €389 on the Paris Bourse, while the CAC 40 index was hovering around 0%.