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The chilly winds sweeping through the global luxury market are becoming palpable, signaling a troubling period for many renowned brandsRecently, the Kering Group, a giant in the luxury sector, released its financial report for 2024, revealing alarming figures that indicate a significant downturnThe group's revenue fell to €17.194 billion, marking a 12% decrease compared to the previous yearMore disheartening is the staggering drop in net profit attributable to the parent company's shareholders, which plummeted by an astonishing 62% to €1.133 billion.
At the heart of Kering's struggles is the underperformance of its flagship brand, GucciFor the full year, Gucci's revenue experienced a sharp decline of 23%, amounting to €7.7 billion, with a particularly stark 24% drop in the fourth quarterSuch a downturn raises alarms not only for Kering but also for the wider luxury market as brands grapple with a shift in consumer trends and preferences.
Other brands under the Kering umbrella did not fare much better, with Saint Laurent witnessing a 9% decrease in income and Balenciaga seeing a 7% dropHowever, it is worth noting that Bottega Veneta exhibited some resilience, managing to achieve a 4% growth amidst the overall declineThis variance in performance underscores the volatility and unpredictability that currently characterize the luxury market.
The turbulence confronting Gucci can, in part, be traced back to the departure of Alessandro Michele, its creative director, in 2023. Michele’s tenure from 2015 to 2022 was marked by a revival of the brand through his distinctive retro and romantic design language, which resonated strongly with a younger demographicHis ability to cultivate a compelling narrative around the brand propelled Gucci’s sales from €3.8 billion to €9.6 billionHowever, the inevitable challenge of sustaining such success has manifested itself following Michele's exitNew creative director Sabato De Sarno was unable to successfully carry forward the brand’s previous momentum, especially with his "Gucci Ancora Red" collection, which failed to make a significant impact and was criticized for lacking the visual allure consumers had come to expect.
Gucci's efforts to shift away from an overly trendy aesthetic towards a more high-end positioning appear muddled
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While the brand has attempted to streamline its product offerings—reducing the number of products by 20% in 2024 and shuttering various outlet stores to enhance product scarcity—simultaneously it has relied on wholesale channels and promotional activities to drive salesThis dual approach has exacerbated a split image for the brand, caught between high luxury and mass-market appeal, and many industry insiders suggest Gucci is gradually retreating from the top tier of luxury brands, increasingly overshadowed by giants like Louis Vuitton and Chanel, leading to waning consumer recognition at the higher end of the market.
The recent strategy adopted by Gucci has also seen a wave of changes in leadership, notably regarding the creative director roleMuch like Chief Technology Officers in tech companies, creative directors wield significant influence over the brand’s identity and, by extension, its financial performanceRecent announcements indicate that De Sarno will also be leaving, with Gucci's Fall/Winter 2025 fashion show set to be managed by a design studio—an uncertain future that has led to increased speculation regarding the brand's trajectory.
Gucci's challenges are not solely a result of internal changes, but are also reflective of shifting global luxury consumption trendsData from the luxury sector reveals that the largest luxury conglomerate, LVMH, has also experienced declining profit margins, with a drop from 23% in 2022 to just 8% in 2023. Revenue in the first three quarters of 2024 fell by 2%, with luxury apparel and leather goods reporting a 3% dip, pulling down the wealth of LVMH chairman Bernard Arnault by approximately $26 billion, resulting in his drop to fifth place in global wealth rankings.
The adjustments in sales strategies have notably impacted Gucci’s overall performance negativelyIn recent years, excessive reliance on wholesale channels and outlet stores has led to significant price disparity between full-priced and discounted items, further tarnishing the brand's high-end image
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In the fourth quarter of 2024, wholesale revenue plummeted by 53%. Although the group plans to reduce the number of outlet stores, a cycle of inventory buildup and dependence on promotional pricing has ensued, leading to further segmentation within the luxury market.
As luxury brands navigate these turbulent waters, it becomes increasingly apparent that differentiation is keyIconic houses like Hermès are fortifying their status in the upper tier by emphasizing craftsmanship and the narrative surrounding their brand heritageIn contrast, Gucci is struggling to maintain its footing, having fallen out of what some describe as the "billion euro club." For instance, while Hermès recorded a remarkable 21% increase in revenue in 2023, Gucci found itself faltering.
Additionally, smaller high-end brands are carving out their market niches, further squeezing Gucci's space in the luxury landscapeOne critical factor in Gucci’s decline is its performance in the Chinese marketKering has cited weak consumption in China, disappointing outcomes from brand restructuring, and changing consumer requirements as significant contributors to Gucci's downturn.
A particular concern emerges with the attitudes of Chinese Generation Z consumers, who are increasingly gravitating towards local brands that emphasize cultural integration, such as SHANG XIA and UOOYAA, alongside the burgeoning second-hand luxury market that has surged past the trillion yuan mark in 2023. Gucci's pattern of frequent price hikes—some as steep as 12%—has not paralleled any noticeable uplift in perceived value, further eroding the willingness of Gen Z and middle-income consumers to make purchasesFurthermore, Gucci's marketing strategies in China have lacked integration with local cultural elementsAlthough its "Ancorra Red" campaign received widespread promotion, critics argue it reflects superficial innovation, failing to resonate on a deeper cultural level.
The challenges faced by Kering encapsulate broader difficulties within the luxury sector, revealing vulnerabilities amid macroeconomic fluctuations and shifting consumer demographics
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