In a changing luxury landscape, Gucci faces challenges as it grapples with shifting consumer preferences. The luxury industry is undergoing a transformation, redirecting its attention towards the ultra-wealthy and leaving behind the middle class. Kering SA, the parent company of Gucci, reported a 9% decline in third-quarter sales (excluding currency and mergers and acquisitions effects), falling short of analysts’ expectations of a 6% decline. In contrast, Hermes International SCA surpassed estimates and saw sustained demand among its affluent clientele, while Brunello Cucinelli SpA consistently upgraded its revenue forecast.
The contrast between these luxury brands is attributed to their distinctive customer bases. Confidence has diminished among the moderately affluent in the US and Europe, while the ultra-wealthy continue to indulge in luxury. This shift aligns with changing fashion trends, favoring refined elegance over ostentation.
Brands like Hermes and cashmere-maker Cucinelli epitomize this trend, appealing to the discerning elite. In contrast, Kering has targeted younger, fashion-conscious consumers in the US and China, who are now grappling with inflation and higher borrowing costs or exploring alternative designer options. Kering must pivot to attract top-tier buyers, even if it entails challenges such as price adjustments, a more sophisticated aesthetic, and reduced third-party retailer collaborations.
This transition is not without its difficulties. Gucci, Kering’s flagship brand, is transitioning from the bold maximalism of its former creative director to a sleeker style. Gucci’s organic sales dipped by 7% in the third quarter, worse than the anticipated 6.2% decline. While the collection received a positive response, the full transformation won’t be seen until the end of January, and Gucci’s operating margin is expected to decline by 2 percentage points this year.
Gucci isn’t the only Kering brand facing challenges. Yves Saint Laurent faces competition from LVMH’s Celine and Loewe, resulting in a 12% decline in organic sales in the third quarter. A reduction in spending by local customers in North America and western Europe further contributes to this decline.
Kering has strategies in place to reorient its business towards understated luxury and the purchasing power of the ultra-rich. Continuing Gucci’s reinvention is a priority, ensuring the new creative direction is fresh and appealing, with a focus on longevity. Saint Laurent, operating in the subdued luxury segment, offers room for growth in high-end women’s wear and accessories priced above €3,000.
Bottega Veneta’s performance, impacted by efforts to enhance exclusivity, can benefit from expanding popular product lines. While investors remain skeptical, Kering’s track record of revitalizing brands and success in the Chinese market provides optimism. Balancing old-money elegance with the evolving luxury landscape is essential for Kering’s future success.
