Kering, the French luxury group, saw a marginal 1% increase in sales in the first quarter, underscoring the difficulties faced by its flagship brand, Gucci. While Gucci lagged behind its competitors in capitalizing on the rebound in China, Kering also experienced a significant decline in revenue in the United States.

During the three months ending in March, Kering’s sales reached 5.08 billion euros ($5.58 billion). Comparable sales growth, which excludes the impact of currency fluctuations and acquisitions, met analyst expectations. However, it paled in comparison to the growth achieved by competitors like LVMH, which reported a 17% increase in sales, and Hermes, which experienced a hefty 23% growth during the same period. Kering’s lackluster performance follows a 7% decline in the final quarter of 2022.

François-Henri Pinault, chairman and CEO of Kering, acknowledged the mixed results in the first quarter but highlighted an improvement in trends during this period. Retail revenues in the Asia Pacific region, where Kering generated a significant portion of its sales last year, grew by 10% as Covid-related restrictions eased and consumers returned to stores. Conversely, the United States market, which accounted for 27% of Kering’s total sales in 2022, experienced an 18% decline in retail sales. LVMH had previously warned of a slowdown in the US market due to reduced spending by inflation-hit younger and less affluent consumers.

Gucci, once renowned as the fastest-growing luxury brand and a key revenue driver for Kering, has been facing a slowdown in recent years. The departure of its creative director, Alessandro Michele, in November 2022, has further compounded the challenges. Although the appointment of relatively unknown Sabato De Sarno as Michele’s successor has raised concerns, Gucci’s collections will not be available in stores until next year. Consequently, there is a potential risk of further sales and margin decline for Gucci in the coming months.

While some of Kering’s other brands, like Yves Saint Laurent, reported 8% growth in the first quarter, others encountered difficulties. Bottega Veneta’s sales remained stagnant, and the “other houses” division, including Balenciaga, experienced a 9% decline in revenues. Balenciaga has faced criticism in the United States and Britain due to its contentious ad campaigns featuring children.

Jean-Marc Duplaix, Kering’s finance chief, emphasized that recapturing market share would not occur overnight. The company’s focus lies in elevating Gucci to a more prestigious positioning, which includes launching salons catering to the ultra-rich with starting prices at $40,000. Despite the challenges faced in the first quarter, Kering maintains optimism regarding its future prospects, as the initiatives it is implementing are anticipated to yield long-term results.

Useful links:
1. Reuters: Luxury group Kering lingers in sales slump due to Gucci’s poor performance
2. Business of Fashion: How Kering is reshaping Gucci’s business model