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Gucci stumbles as Kering gears up for brand’s 100th year

FILE PHOTO: Closed luxury retail stores on 5th Avenue in Manhattan during the outbreak of the coronavirus disease (COVID-19) in New York

PARIS (Reuters) – French luxury goods group Kering is betting on a marketing drive and fashion events to boost Gucci in the brand’s centenary year, after sales at the flagship label missed forecasts and lagged some rivals at the end of 2020.

The COVID-19 pandemic has kept consumers from travelling abroad, dampening luxury sales in big shopping hubs like Paris, Milan and New York, although a rebound in demand in Asia has helped some high-end brands recover in recent months.

Gucci accounts for 60% of revenues and 80% of profits at Kering and has been one of the industry’s top performers in recent years. But it faltered in the fourth quarter compared to soaring revenues at rivals like LVMH’s Louis Vuitton.

Gucci sales fell 10.3% in the quarter on a comparable basis, when analysts had expected a 4% drop, sending Kering shares tumbling just over 7% at 0910 GMT.

Gucci’s hugely successful, quirky makeover under designer Alessandro Michele saw its revenues more than double and profits treble between 2015 and 2019.

But concerns about its slowing performance have fuelled speculation that Kering, which also owns brands such as Saint Laurent, might contemplate major acquisitions to boost its portfolio – especially as larger rival LVMH has just expanded with its $15.8 billion purchase of U.S. jeweller Tiffany.

Kering’s billionaire boss Francois-Henri Pinault dismissed short-term concerns over Gucci on Wednesday, saying profitability and sales were set to recover.

He added Kering had the financial strength to contemplate purchases and was interested primarily by fashion brands with a global reach, but said the onus was still on building up labels internally.

“We still have a priority for organic growth, starting with Gucci, where we are far away from maturity,” Pinault told a conference call with investors, adding Gucci had had a “very, very encouraging” start to 2021.

‘ALWAYS ON MODE’

Gucci is the middle of rejigging its calendar of catwalk shows and lining up product launches to coincide with its 100th anniversary in 2021.

This contributed to a lull in events at the end of 2020, Pinault said, while the brand is also shifting away from selling via third parties in department stores.

Temporary “pop-up” stores were planned in the coming months, Pinault said, adding Gucci would be in “always on mode” with a steady stream of events. Collaborations with other designers on collections are also planned, as well as revamped handbag designs, like Gucci’s “Bamboo shopper” tote bag.

“We believe Gucci management will work hard to open a successful ‘new chapter’ of growth in the coming year aimed at capturing an older, non-millennial demographic,” Citi analyst Thomas Chauvet said in a note.

Kering’s overall revenue fell 8.2% to 4 billion euros ($4.8 billion) in October-December, down 5% on a comparable basis and missing analysts’ consensus forecast cited by UBS for 1% growth.

Several European countries imposed lockdowns to fight the COVID-19 pandemic during the fourth quarter, adding to retailers’ struggles as shops closed.

But Kering’s online business grew sharply, accounting for 13% of group retail sales in 2020, up from 7% a year earlier.

There was also a good performance from some smaller brands, with Bottega Veneta growing 2020 sales by nearly 5%.

Group financial chief Jean-Marc Duplaix told reporters that trends across China and Asia as well as the United States remained supportive in the first weeks of the year for the luxury market, although Europe was tougher.

But he gave no figures for current trading, including this month’s key Chinese New Year holiday.

(Reporting by Silvia Aloisi and Sarah White. Editing by Devika Syamnath and Mark Potter)

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