Turnaround eludes Ferragamo, despite China sales boost

    Navigating a brand transition is no easy feat. Although profits were down in 2023, Ferragamo found a glimmer of hope in China, where sales grew by double digits in Q4.
    Shoes by Salvatore Ferragamo in a boutique window in the center of Florence. Photo: Shutterstock
      Published   in Finance

    What happened

    On Wednesday, Ferragamo reported that its revenue in 2023 fell 7.6 percent year on year (8.1 percent at constant exchange rates) to $1.25 billion (1.15 billion euros), attributed to changes in its product offering as well as softening luxury demand.

    Operating profit was down 43.7 percent YoY due to higher investments in marketing and communication, which largely supported the visibility of the new brand image, spearheaded by creative director Maximilian Davis. Meanwhile, net profit tumbled 59.9 percent to $28.3 million (26 million euros), the company reported.

    Only the EMEA (Europe, Middle East, and Africa) region posted an increase in net sales in the year ended December 31, 2023. In the Asia Pacific, net sales shrank 13.1 percent YoY, though sales gradually improved in the last quarter, with growth in Greater China clocking in at double digits.

    The Jing Take

    Despite the initial excitement around Ferragamo’s new creative direction, revitalizing a brand is easier said than done. Kering, whose star brand Gucci is still trying to find its footing under Sabato De Sarno, and Burberry both cut their guidance for 2024, pointing to a tough market environment — especially for brands undergoing a turnaround.

    However, a few bumps are to be expected in laying the groundwork for what is to come.

    “We improved the quality of sales and invested to strengthen the brand while driving engagement, and we have seen some pleasing results from new products,” said Ferragamo CEO Marco Gobbetti in a statement.

    “In terms of the Chinese customer, 2023 was positive overall, including travel, which increased significantly but remained below pre-Covid levels,” he added on a call with investors.

    In August last year, the Italian luxury shoemaker unveiled its “New Renaissance” campaign, reconnecting the brand to its home city of Florence. The new look was received largely positively in China, with the campaign hashtag on Weibo #Ferragamo New Renaissance (菲拉格慕新文艺复兴) garnering 33 million views to date. In October last year, the company further strengthened its presence in Greater China by acquiring minority stakes in three Chinese joint ventures.

    Although the company did not provide an outlook for 2024, February ended on a promising note, with retail sales in line with last year’s. “There were some positive calendar effects because of the timing of Chinese New Year, but also due to a recovery we saw in Europe, Japan, and the US,” Gobbetti said.

    For the Year of the Dragon, Ferragamo created a clothing capsule adorned with prints of red dragons, blooming magnolias, and hibiscus flowers.
    For the Year of the Dragon, Ferragamo created a clothing capsule adorned with prints of red dragons, blooming magnolias, and hibiscus flowers.

    Yet, Ferragamo’s success in China and beyond ultimately hinges on Davis’ ability to deliver standout pieces. In reviewing Ferragamo’s 2024 Fall/Winter collection, Xiaohongshu user @Peekaboom writes, “Davis’ designs still lack a bit of memorability and continuity. While each season is visually pleasing, they are easily forgettable, and there isn't even a representative product that stands out consistently.”

    “However, I must admit that Davis is an excellent fashion designer; each of his works is refined, and it’s evident that he puts effort into telling a story,” @Peekaboom continues. “Give him some more time, and maybe he'll soar to new heights next time.”

    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.

    • Ferragamo reported a 7.6 percent YoY revenue decrease and a significant decline in operating profit and net profit for 2023. This was attributed to changes in product offerings and softening luxury demand, along with rising marketing costs.
    • Although net sales in the Asia Pacific market were down over the fiscal year, there were signs of improvement in the last quarter, especially in Greater China, where retail sales saw double-digit growth.
    • The company’s focus on China, including acquiring minority stakes in Chinese joint ventures, indicates its commitment to growth in this key market. However, success ultimately depends on the creative direction of Maximilian Davis, with mixed reviews from consumers indicating room for improvement.
    Discover more
    Daily BriefAnalysis, news, and insights delivered to your inbox.