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Translated by
Cassidy STEPHENS
Published
Oct 25, 2022
Reading time
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Kering's Gucci struggles to recover, continues to underperform in the third quarter

Translated by
Cassidy STEPHENS
Published
Oct 25, 2022

Gucci's recovery appears to be taking longer than expected. With organic growth of 9% in the third quarter (+18% in published data) and 8% for the first nine months of 2022, the label, which generates more than half of Kering's total revenue, is clearly behind performance-wise compared to the company's other brands, such as Saint Laurent. But also compared to other big names in the sector such as Hermes, Louis Vuitton and Dior. The Kering share was thus penalized on Friday at the Paris Stock Exchange, losing up to 5% at midday, the day after the publication of its quarterly results.
 

The last Guccci runway in Milan - © PixelFormula


On closer inspection, Gucci's sales, which reached 2.58 billion euros between July and September, and 7.75 billion over nine months, have nevertheless improved significantly compared to the second quarter, when it reported only 4% of organic growth. As Kering's CFO Jean-Marc Duplaix pointed out at a conference with analysts, 91% of the label's sales now go through its "completely exclusive" direct distribution network. According to him, the goal of € 15 billion in sales with an operating margin of 41% for Gucci in the medium term remains plausible. "We believe in it and we will reach it in any case".

Good momentum in Europe and North America

In Europe, the Italian company continued its "very good momentum, supported by both local customers and tourists, particularly Americans, which, conversely, weighed on business in North America". In Asia, it has seen a strong increase in sales in Japan, but is suffering from "a mixed performance in mainland China, which is affecting sales in Asia-Pacific, whose trends are nonetheless strongly improving," the group said in its statement.
 
There has clearly been an improvement in Kering's sales in China, but as the CFO admitted, Gucci's sales are still negative in that market, where its recovery will be a long-term process. The house recruited Laurent Cathala last spring to head the fashion business in Greater China, but its reorganization there is still in a transitional phase. "Laurent Cathala started in July. His first mission was to meet with all the teams to assess what needed to be done in the short term," says Jean-Marc Duplaix, adding that the manager "will soon present his long-term action plan in China.
 
In the meantime, the short-term strategy is "a new impetus given in terms of energy to local teams, work on merchandising, the launch of new products, the activation of pop-ups and pop-ins, and increased investment in advertising". These activities will also be accompanied by the return of Gucci at full pace in the fashion calendar, under the supervision of the brand's new general manager Maria Cristina Lomanto, at a rate of six collections from 2023 onwards, whereas their number was greatly reduced during the pandemic.
 

A new focus on men's and travel



To cope with this acceleration, the label has reorganized and strengthened its creative team with the creation of the new position of studio director, entrusted to a senior member who has long worked with Alessandro Michele


The Q3 2022 results - Kering

 
Gucci's creative director since 2015, is behind the successful relaunch of the label in recent years through an eclectic fashion, rich in details, where different eras and genres collide between eccentricity and more classic pieces. But this universe, which has been enhanced over the seasons, sometimes giving an impression of repetitiveness, seems to have run out of steam and appears less desirable today.

The company is therefore going to concentrate on reworking its offer, focusing on certain categories, such as men's and travel/luggage, which have not yet expressed their full potential. In addition, the objective is to focus on timeless products and on moving upmarket. But as the CFO reminded us, "this is a long-term strategy".

"When you have such a scale of change, you have to take the long view. It's not going to happen overnight," he continued, pointing to Gucci's preponderant size, which has a solid and powerful structure with numerous teams in different regions, capable of quickly and efficiently relaying the directives given by the headquarters. "I think Gucci's organization is more mature than it was a few years ago. We have doubled the size of Gucci since 2016. On the other hand, changes take time, it will materialize beyond 2023."
 
Regarding Russia, another market in difficulty, the group confirmed that it had closed its stores there, continuing to pay salaries and rent. It does not expect to return to this market in the short or medium term and reserves the right to make a decision.
 
The key to understanding the future of Gucci was probably given by its CEO Marco Bizzarri, early September in an interview with Corriere della Sera. "A new phase has begun. With Alessandro Michele, we said to ourselves that it was time to change. We need to recover our historical, iconic image. In times of growth, the market demands novelties, bordering on the extravagant. In times of crisis, it's a return to tradition. We will find the right balance".

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