Kering Faces Profit Plunge as Gucci’s Turnaround Efforts Stumble

Kering, the French luxury conglomerate, has issued a stark profit warning, projecting a significant decline in operating profit for the first half of 2024 due to ongoing struggles with its flagship brand, Gucci. The anticipated 40-45% plunge in profits highlights the challenges Kering faces in reviving Gucci’s performance amid changing market dynamics and consumer preferences.

Gucci’s Struggles

Despite efforts to rejuvenate Gucci, including the appointment of Sabato De Sarno as the new creative director, the brand has not seen the desired turnaround. Gucci’s revenue fell by 18% in the first quarter, exacerbated by sluggish demand in key markets like China. The brand’s repositioning towards more classic and high-end leather goods, such as the new Ancora collection, has yet to yield significant results​.

Market Reaction

Kering’s struggles have had a broader impact on the luxury sector, with its shares dropping 18% since March, while rivals like LVMH and Hermès have also experienced declines, though to a lesser extent. The market’s response underscores concerns about the effectiveness of Gucci’s new strategies and the overall health of the luxury market in a post-pandemic world​ (Yahoo Finance)​.

Strategic Shifts

In response to these challenges, Kering has committed to increasing investments in advertising and events to boost brand exclusivity and visibility. CEO François-Henri Pinault emphasized the need to support Kering’s various luxury houses through targeted investments, despite the short-term financial pressures this might create​ (Yahoo Finance)​.

Looking Ahead

The coming months will be crucial for Kering as it continues to navigate these challenges. The success of Gucci’s new collections and the company’s ability to adapt to market conditions will play a significant role in determining its financial performance moving forward.