Kering's Faith in Gucci Remains Despite Disappointing Results

Kering, a French multinational corporation focused on luxury goods, continues to place its faith in its flagship brand Gucci, despite a drop in sales during the Q3 period of 2023. Its performance saw a 14% decrease with earnings of €2.217 billion in contrast to the same period during 2022. This dip in sales represented a 7% failure on a comparable basis. Kering's overall sales during this time also saw a 13% reduction, coming in at €4.464 billion. On the other hand, luxury goods competitors LVMH and Hermès experienced sales growth of 9% and 16% respectively, during the same period.

The decline in Gucci sales has been attributed to three primary factors: a significant slowdown in the Chinese market where the brand has significant presence; reduced spending on high-end products in Europe and the US households; and worsening economic and inflationary conditions leading to a decreased demand for luxury goods.

During this time, Gucci also faced declines in retail sales, falling by 7% between July and September 2023. With the exception of a 32% sales boost in Japan, declines were noted for every other region. North America experienced the steepest decline with a drop of 22%, followed by Europe (-5%) and Asia (-3%).

Kering, however, is not deterred and is working diligently to revive Gucci's fortune. The company has placed an emphasis on its new creative director, Sabato De Sarno's maiden collection, 'Ancora.' Duplaix commented on the future of the brand stating that 'Ancora' presents a fresh creative direction while honoring the brand's history.

The new collection has had a mixed reception among the public and will not be available in stores until early 2024. Hence, Q1 of 2024 will be critical in determining the commercial success of Gucci’s new brand identity and rebranding efforts.

Gucci’s management does not want the new designer to overshadow the brand. The focus is on a wider communication strategy highlighting some of its iconic handbags such as the Bamboo, the Horsebit and the Jackie, as a part of its relaunch.

In addition to improving the product line, Kering's priorities for Gucci also include enhancing operational efficiency and production processes by improving the supply chain. Despite the search for a new CEO, interim CEO Jean-François Palus is expected to stay on board until the brand gets back on its feet.

The company also plans to stabilize its wholesale network sales in 2024 and reduce exposure to outlets in the future. Meanwhile, the Paris Bourse saw a 4.5% fall in Kering shares, which came in at €389, while the CAC 40 index remained unchanged.