The Luxury Crisis: Gucci Hit by the impact of China
Kering Group Faces Stock Market Decline
The Kering group, owner of Gucci, is facing a sharp decline in the stock market after the French luxury goods company reported a greater-than-expected drop in sales in the second quarter and warned of a weak second half of the year due to fragile demand in China.
Challenges in the Luxury Sector
Following the slump of the luxury giant LVMH due to a disappointing quarterly performance, Kering also revealed difficulties in the first six months of 2024, increasing pressure on the entire European and global luxury sector.
Stock Market Performance
At the time of writing, Kering’s shares are down over 8% in Paris after already hitting their lowest level since August 2017.
Struggles of Luxury Brands
As luxury groups grapple with weaker demand for expensive bags and clothing, even brands that have been resilient in the past are feeling the effects.
The financial results of Kering, particularly the performance of Gucci, confirm the negative trend and uncertain outlook for the luxury sector.
Revenue Decline and Expectations
Kering announced a significant drop in revenue in the first half of the year and a weak forecast for the remaining six months.
The luxury group reported an 11% decrease in revenue in the first half of 2024 compared to the same period last year, citing a slowing market in most regions except for Japan.
Excluding the effects of currency fluctuations, the group’s revenue in Japan increased by 22% in the first half of the year, while the broader Asian figure, excluding Japan, decreased by 20%.
The company expects recurring operating income to plummet by up to 30% annually in the second half of 2024, citing “uncertainties weighing on the evolution of luxury consumer demand.” Recurring operating income fell by 42% in the first six months of the year.
Challenges for Gucci and the Luxury Market
Kering, which owns luxury companies including Gucci, Yves Saint Laurent, and Bottega Veneta, is facing challenges in revitalizing Gucci, its Italian brand representing about two-thirds of its profits.
The company had already issued a profit warning in April due to weak demand, especially in China.
Gucci appointed a new stylist last year, Sabato de Sarno, whose designs are now being distributed in its stores.
While the brand is seeing a positive response to new creations, there is lower demand for some of its permanent leather products.
Analysts are cautious about Gucci’s performance, with uncertainties looming over consumer reaction to new product lines.
The luxury sector is facing a period of fragile consumer confidence globally, impacting the demand for luxury goods.
