The first quarter results for Kering Group and its companies were published and numbers were not positive. They displayed a sign of deeper problems inside the group and the managerial decisions made with traditionally successful companies such as Gucci, Balenciaga, and Saint Laurent.
Kering Group revenue decreased by 10% during the first quarter of 2024 to $4.5 billion, in comparison to the same period from the previous year, furthermore, the group informed investors that first semester profits will drop around 40 to 45%. Investors are concerned with results and are putting pressure on the management to take action and reverse the situation, even if it means cutting head staff.
The results come from the bad performance of the crown jewel, Gucci, which lost 20% of its revenue, followed by Balenciaga and Saint Laurent which dropped by 6%.
Top management announced that the outcome is a result of an economic slowdown in China and USA and that the group will work hard to continue investing in the long-term appeal of brands and their distinctiveness.
Are these bad results really for macroeconomic reasons or are they caused by wrong managerial decisions made by the top of the group?… a hint, it is not the economy.
We cannot deny that the luxury industry growth has been slowing down, but companies that belong to this category proved that there is a way to increase revenue even under these circumstances.
During the same period, Bruno Cucinelli grew revenue by 18%, Hermes by 17%, Zegna Group by 11%, Prada by 7%, and Miu Miu achieved an incredible increase of 89%.
For Kering Group, the negative results depended on wrong managerial strategies done by top executives that focused on short-term results instead of long-term winnings.
Gucci grew almost three times its value from 2017 to 2020, thanks in part to the brilliance of its creative director and partnerships with well-known retail brands such as Adidas and North Face. Hard discounted sales and moving from a luxury strategy to a fashion strategy damaged the long-term desirability of the brand.
There is no doubt that the ambition to succeed and the pressure of investors will help Kering to recover, but learning from mistakes is key to avoiding repetition and costly control damage strategies:
Losing valuable collaborators:
Companies should try to keep valuable and talented employees who have shown positive results. Kering lost Gucci Creative Director Alessandro Michele in November 2022 for “creative differences” with top management. Alessandro was the one who helped sustain the strong growth of the brand since 2015 with a clear vision in the leading role.
Additionally, the doubts about his replacement are still in the air, not helping the transition and credibility of the brand’s future.
Short-term results versus luxury strategy:
Luxury is heritage, reliability, trust, and respect. When a company pursues a short-term strategy based on growing through volume and sales, this generates short-term cash flow, but in luxury businesses, this devaluates the brand’s image to the consumers. Gucci’s 70% discount sales close to Paris airport turned on the alarms about company issues and management vision. Inventory cannot be managed like fast fashion when you expect consumers to continue paying high ticket prices for their products in the future.
Inability to create desire around iconic products:
The Gucci movie was a great strategic move in terms of sharing the story-telling of the brand, but unfortunately didn’t dedicate enough time to its products.
The lack of positioning for a “Birkin Bag” product that targets consumers with huge desirability, shows a managerial incapability, especially for a brand that has shown great talent to create and with enough heritage to cultivate cult items. It is not only about creating beautiful products, it is also about taking advantage of these creations to push the general desire for the brand and generate long-term profit.
Extreme brand independence:
Pinault leadership style is about giving wide freedom to each one of the brands to develop independently, but this resulted in huge mistakes that affect the long-term reputation of the group. The Balenciaga scandal can look forgotten by the industry, but young consumers (millennials and centennials) have shown that values matter when buying, especially when we talk about minors.
Top management’s vision should carefully show the brand’s path and guide them to follow corporate values and group cohesion, not limiting creativity and authenticity but alerting when a potential choice can negatively affect the business, taking care of the brand’s reputation and investors.
Kering Group has economic power, worldwide recognized brands, and investors pressure to recover from this negative situation, but top management should act fast and make the right decisions. Not only to avoid more financial losses but also to secure the long-term success of the brands.
Scarcity and desirability are luxury’s main principles. It is a must to reduce Gucci wholesale distribution and eliminate “for sales”, it will help elevate the brand again but not immediately.
Find the right partnerships and create brand awareness, it is time to remind consumers why they should empty their pockets to buy a Kering brand. This is not only through finding the correct brand ambassadors but also a heavier focus on a PR/social media campaign to regain lost reputation.
Bring the right knowledge and keep the talent motivated. Hiring Stefano Campino was a smart move, as former SVP of Communications at Louis Vuitton and new Gucci deputy CEO, he will bring new ideas and set a new vision to elevate the brand to the level it deserves.
Create, create, and create. It is the moment to invest and focus on the design teams to start developing amazing products, selling them like pieces of art instead of department store items. In the end, this is a business based on beauty and creativity. Luxury consumers are smart and will spend their money on what is deemed to be considered luxury.
