Kering, the luxury goods company owned by Francois-Henri Piault, issued a profit warning due to a decline in demand for its flagship brand Gucci.
The Paris-based company, unlike its competitors in the same sector who have done better, said that like-for-like retail sales would fall by 10% on an annual basis in the first three months, while Gucci’s sales were expected to drop by almost 20%.
Kering’s other luxury brands include Saint Laurent Balenciaga, and Alexander McQueen. Kering’s shares dropped 13.3% after the profit warning on Wednesday.
Gucci is responsible for approximately half of the parent company’s revenue and two thirds of its operating profits. Sabato de Sarno, the new creative director and new manager of the Italian fashion house, is undergoing a major shake-up.
Since mid-February, the first Ancora items have been available in Gucci stores. Kering stated that they are “meeting a highly positive reception” and that “availability is gradually ramped up during the next months”.
James Grzinic and other analysts at Jefferies said that Kering’s warning is largely due to a dramatic decline in Gucci’s popularity in Asia Pacific. This includes China. The transition to De Sarno is still in its early stages. The mixed Chinese yuan background may have been a challenge but the news indicates a deeper trough.”
Jefferies analysts stated that Gucci’s classic legacy products such as leather bags failed to resonate among consumers. The initial reception of the De Sarno first product, however, was “disturbed by this tough headwind”. The new lines are likely to make up less than 5% in total of what is currently on offer at Gucci.
De Sarno presented clean-cut suits and chunky knitwear for his first menswear line at Milan Fashion Week, in January. This marked the beginning of a new era, one of pragmatism, after nearly a decade under Alessandro Michele’s maximalism.
Michele has made Gucci popular among younger shoppers, or so-called “aspirational” shoppers, who are more susceptible to economic pressures. This is in contrast to older consumers, who tend to be more wealthy.
The Bernstein analyst Luca Solca stated that the jury is still out as to whether or not the Chinese will embrace the “Sabato de Sarno tranquil luxury”.
Kering’s brands, including Bottega Veneta and Boucheron, have also suffered from lower demand. The larger rival luxury groups LVMH – which owns Louis Vuitton and Tiffany – and Birkin bag maker Hermes , however, posted double-digit growth from October to December.
Since the Covid outbreak at the beginning of 2020, the global luxury market has slowed. Consumer spending in China has lagged behind the rest the economy. This is despite a property crises that has led to developers declaring bankruptcy or defaulting on their debts. Around 70% of Chinese households’ wealth is invested in real estate.