Source of this article: Times Finance Author: Zhou Jiabao
Image credit: Pexels
On April 21, Gucci’s parent company, Kering, released its first quarter 2021 earnings. As of March 31, Kering revenue rose 21.4% to EUR 3.89 billion, with comparable sales up 25.8%. Among them, the revenue of luxury goods business was 3.727 billion euros, an increase of 21.6% year-on-year, slightly higher than the same period in 2019 before the epidemic.
Despite the overall performance above analyst expectations, Kering and rival LVMH clearly lost ground in the first quarter.
According to LVMH’s quarterly report released on April 13, as of March 31, the group’s revenue rose 32% to 13.96 billion euros, and organic revenue increased by 30%. Among them, the Fashion & Leather Goods segment recorded a record revenue of 6.739 billion euros.
“The gap between Kering and LVMH is likely to grow.” No Agency analyst Tang Xiaotang told Times Finance that Kering’s performance since the epidemic has not been satisfactory, especially while the global tourism market has been greatly impacted, the performance of the Western European market, which is highly dependent on tourism consumption, has slumped, and the Western European market is still negative growth of 34% in the first quarter of this year, and the recovery is slow.
More noteworthy at the moment is the plight of Gucci, Kering’s top brand, 2021 is Gucci’s 100th birthday, and Kering is worried about Gucci’s growth.
In the first quarter of 2021, revenues from Gucci, YSL, Bottega Veneta and other brands were €2,168 million, €517 million, €328 million and €714 million, respectively, representing increases of 25%, 23%, 25% and 33% compared to the same period last year. Although Gucci still contributes half of the Group’s revenue, it is not as good as the 2.325 billion euros in the same period in 2019.
According to a 2019 report by Bain & Company, Asian buyers are driving the “new normal” and growth of luxury consumption in recent years. According to the report, millennials (Generation Y) accounted for 35% of luxury spending in 2019, and this proportion will rise to 45% by 2025; By 2035, Gen Z will account for 40% of luxury buyers.
Gucci captured market changes earlier.
After creative director Alessandro Michele took office in 2015, street graffiti and complicated animal totems made Gucci have a clear “younger” performance, and its performance once ushered in rapid growth. According to the financial report, Gucci, which had negative growth for two consecutive years from 2013 to 2014, recovered to a year-on-year growth rate of 4.8% in the fourth quarter of 2015, and by the fourth quarter of 2016, Gucci grew by 21.4%.
However, the good times did not last long, and the growth momentum brought by the rejuvenation of the brand did not continue. Since 2019, Gucci’s revenue growth has slowed continuously.
In 2019, Gucci’s sales reached 9,628 million euros, an increase of 13.3% year-on-year, well below the 36.9% growth rate in the same period of the previous year. Since the pandemic last year, Gucci’s sales have fallen sharply by 22.7% in 2020 to 7.44 billion euros. At the same time, Kering’s total sales fell by 17.6% to EUR 12,677 million, and net profit fell by 6.9%.
“Because of the rejuvenation strategy in recent years, Gucci’s consumer groups are too young, although they bring purchasing power, but due to changes in the economic environment and emergencies, their resilience to impact is much smaller than that of the wealthier class with older age, higher social status and more wealth, and these wealthy classes are the traditional consumer groups of luxury brands.” Tang Xiaotang said.
Tang Xiaotang pointed out that once the young consumer group accounts for too much of the brand’s consumer structure, it may affect the stability of consumption, because their loyalty to the brand is not as high as that of traditional luxury consumer groups.
Kering was clearly aware of this and decided to turn the ship’s bow. At the end of last year, Gucci launched the Jackie 1961 based on the classic handbag Jackie, which is divided into old flower, patent leather, pink, powder blue and other styles, hoping to satisfy both young consumers and traditional consumers.
In April, Gucci CEO Marco Bizzarri said in an interview that he decided to adjust the proportion of new and old products to 30% and 70%. He made it clear: “It is necessary to capture traditional consumers with more purchasing power. ”
But six years after Gucci’s “younger” start, it is not easy to turn around. In 2021, Gucci’s 100th birthday, can the high-profile adjustment of product strategy make Gucci performance come back?
Tang Xiaotang thought it was very difficult, saying: “At least the process will be very long.” First, based on the current development of the epidemic, although vaccines are available, the possibility of a fully open international tourism market is very small, which means that the strength of the rebound in the European market, which is highly dependent on tourism consumption, is debatable. Second, the transformation of product strategy is risky, other brands of the same level are also constantly moving forward, according to the current development situation, although Gucci will not fall out of the first echelon, but may not be able to catch up with LV and Hermes. ”
Image credit: Pexels