Kering’s overreliance on Gucci backfires, Hermès thrives

What happened Kering’s Q3 2024 earnings report underscores a challenging period for the global luxury sector, with the group’s revenue declining 15% YoY to 3.8 billion euros ($4.1 billion). Gucci, Kering’s flagship brand and a linchpin of its portfolio, saw sales nosedive 26% – highlighting the broader difficulties the conglomerate faces as it grapples with complex market trends. This downturn wasn’t isolated to China; Kering reported a marked slowdown in Japan, uneven results in North America, and sluggish sales in Western Europe. Despite the broader downturn, Bottega Veneta stood out as a bright spot. The brand recorded a 4% increase in revenue, driven by double-digit growth in North America and Europe, contrasting with the significant struggles seen across Kering’s other houses. In stark contrast, Hermès continued its momentum in the third quarter, reporting a 10% increase in sales at current exchange rates, bringing quarterly revenue to 3.7 billion euros ($3.9 billion). The group's consolidated revenue for the first nine months reached 11.2 billion euros ($12 billion), up 11% at current exchange rates, highlighting Hermès' ability to weather a more volatile market environment. The Jing Take Kering’s recent performance reflects a larger narrative in the global luxury industry, where the combination of economic uncertainty, shifting consumer behavior, and a post-pandemic correction has led to a more cautious consumer. The Asia-Pacific region, with China at its core, played a pivotal role in Gucci’s sharp sales drop, with a 25% decrease in retail revenue driven by lower store traffic and muted consumer enthusiasm. For a brand as reliant on Chinese shoppers as Gucci, this downturn underscores the risks of overdependence on a single market and highlights the need for a more diversified strategy. In contrast, Hermès’ resilience showcases the advantages of a diversified product line and a measured approach to growth. Despite observing a slight dip in Greater China post-Chinese New Year, Hermès maintained steady gains in the region, buoyed by continued strong performance in Korea, Singapore, and Australia. This demonstrates the effectiveness of a balanced market strategy, relying not just on China but on a broader Asia-Pacific presence. The contrast between Kering and Hermès highlights differing strategic approaches in today’s evolving luxury market. Kering’s reliance on Gucci as its primary growth driver has turned into a vulnerability during regional slowdowns, whereas Hermès' diversified portfolio and commitment to craftsmanship offer a more stable foundation amid economic turbulence. High-net-worth consumers, particularly in China, are becoming more selective, gravitating towards brands that emphasize heritage, sustainability, and cultural engagement over ostentation. Hermès’ emphasis on craftsmanship and a balanced distribution network, including local investment in key markets like Japan, has allowed it to maintain growth despite broader industry challenges. For Kering, the immediate challenge will be navigating evolving consumer expectations while overhauling Gucci’s product lines to emphasize sustainable growth. Kering CEO François-Henri Pinault’s acknowledgment of a strategic transformation underscores the group’s awareness of shifting demands. Meanwhile, the relative success of Bottega Veneta points to the potential benefits of a quieter, craftsmanship-focused brand narrative. The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.

Kering’s overreliance on Gucci backfires, Hermès thrives

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Published October 24, 2024

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Kering’s overreliance on Gucci backfires, Hermès thrives