Kering: Struck Harder Than Expected by COVID-19

Kering S.A., the French luxury conglomerate, reported a 15.4 percent decline for the first quarter 2020, with reported revenues of 3.2 billion euros. The drop was steeper than first projected by the group on March 20, as the impact of the global COVID-19 crisis has become much larger than expected. Despite kicking off the year with an exceptional start in January, Kering’s luxury houses have been hit hard by the COVID-19 pandemic since early February, down 19 percent compared to the same period of last year. Gucci, normally the cash cow of the company, posted the most substantial sales decline, down 22.4 percent, while Yves Saint Laurent, Bottega Veneta, and other houses reported a relatively contained decrease. Among the global markets that have been struck by the pandemic, mainland China has been the first to see a gradual recovery of offline traffic since early March. Kering’s e-commerce business, however, have achieved a triple-digit increase in the first quarter, which has led to concerns about having enough product to sell in the mainland. To guarantee this, Kering will optimize product distribution and allocations. Although other global luxury players are suffering from the COVID-19 crisis, Kering is facing challenges on all fronts, from retail to wholesale. For example, Gucci’s significant drop in sales was, in part, due to the house’s strong position in the Asia-Pacific region and its popularity with mainland Chinese consumers worldwide. Moreover, travel retail has also been devastated by the crisis, which in the past, was influenced by vast amounts of Chinese tourists — but no more. Kering is actively reconsidering distribution and targeting local consumers through expanding its domestic offline presence, as well as on all its digital channels. Jean-Marc Duplaix, the CFO of Kering underlined in the earning call that it’s difficult to make any predictions, yet the group is well-prepared for the positive recovery in China.

Sectors

Insights

Company

Kering: Struck Harder Than Expected by COVID-19