Kering, the renowned French luxury conglomerate, anticipates another quarter of sales deceleration while it undertakes a revival mission for its iconic brand, Gucci, under new creative leadership. This endeavor unfolds within the context of a luxury market grappling with decreasing demand for high-end fashion.
Consumers in Europe and the United States are showing restraint in high-value purchases, reflecting the evolving dynamics within the industry. In China, a significant driver of luxury market growth, the situation is further complicated by rising youth unemployment and a property crisis.
According to consensus estimates cited by Bernstein, Kering’s sales are expected to decrease by approximately 6% on a comparable basis, with their report slated for imminent release. This mirrors the trend observed in LVMH’s recent sales update, which indicated a decline in high-end fashion demand and marked a shift from the robust post-pandemic growth seen earlier. These developments have prompted investors to adjust their expectations, emphasizing the need for a return to sustainable growth levels.
Analysts at HSBC have underscored the «brutal wakeup call» for investors who may have underestimated the industry’s cautious stance. In response, TD Cowen analysts have revised their Q3 sales estimates for Kering, now projecting a year-on-year decrease of 7.7%, a stark contrast to the original forecast of a 0.3% rise.
These challenging market conditions pose a formidable test to Kering’s efforts to rejuvenate Gucci, a brand that contributed over 50% of the company’s sales and nearly two-thirds of its overall profit last year. Once a standout success story, Gucci witnessed a loss of ground to competitors like LVMH’s Dior and Louis Vuitton, which rebounded strongly from the pandemic-induced slowdown.
Gucci’s new designer, Sabato De Sarno, unveiled the brand’s aesthetic reimagining in September, presenting a collection marked by sensual, minimalist styles at his debut fashion show in Milan. Initial feedback was promising and displayed potential, but JPMorgan noted that online interest quickly reverted to pre-show levels, suggesting that the turnaround may be a gradual process.
Over the past month, Kering’s shares have declined by around 9%, while LVMH’s shares have dipped by 7%, and Hermes shares experienced a 4.5% drop. According to analysts at Bernstein, who conducted surveys with fashion retailer buyers, there may not have been sufficient runway presence to indicate a rapid and substantial resurgence at Gucci.
Gucci’s shift toward a more classic aesthetic may boost its commercial appeal, but it also places the brand in direct competition with established players like Prada, Dior, Hermes, Loro Piana, and Chanel. Historically, Gucci thrived when pushing the boundaries with extravagant and distinctive styles, making this shift a noteworthy departure from its traditional approach.
