Kering Group's profits plummet, is Gucci the "culprit"?

Author | Wang Xiaojun

Editor | Huang Yu

The chill in the global luxury goods market continues to spread.

Recently, global luxury giant Kering Group announced its financial report for 2024. The report shows that Kering Group's revenue for 2024 was €17.194 billion, a year-on-year decrease of 12%; net profit attributable to shareholders was €1.133 billion, a staggering year-on-year drop of 62%.

An important reason for Kering Group's poor performance last year was the lackluster performance of its flagship brand Gucci. For the entire year, Gucci's revenue fell 23% year-on-year to €7.7 billion, with the decline in the fourth quarter expanding to 24%.

Of course, other brands also experienced varying degrees of decline, such as Saint Laurent with a 9% drop in revenue, Balenciaga and other brands down 7%, while only Bottega Veneta saw a counter-trend growth of 4%.

In recent years, Gucci has been in turmoil. Since Alessandro Michele's departure in 2023, the "minimalist aesthetic" transformation led by new creative director Sabato De Sarno has failed to sustain the brand's previous market heat. The "Gucci Ancora Red" collection launched by Sabato received a lukewarm response, with its minimalist style seen as disconnected from consumers' expectations for "visual impact," failing to effectively carry on the brand identity created during Michele's "maximalist" era.

During Michele's tenure (2015-2022), he attracted a large number of young consumers with retro and romantic design language, driving Gucci's sales from €3.8 billion to €9.6 billion, but an over-reliance on trendy designs also led to a lack of subsequent innovation for the brand.

In recent years, Gucci has also attempted to shift from "trendy luxury" back to a high-end positioning, but the execution of this strategy has been chaotic.

On one hand, it has tried to reduce product lines, cutting production by 20% in 2024 and closing some outlet discount stores to enhance scarcity; on the other hand, it has relied on wholesale channels and promotional activities to maintain sales, resulting in a brand image torn between high luxury and mass appeal. Industry insiders believe that Gucci is gradually withdrawing from the "super top-tier luxury brand camp," being squeezed by brands like LV and Chanel, with a decline in recognition among high-end consumers.

In the face of the current performance decline, Gucci's strategy is to continue changing creative directors. Just like the CTOs of tech companies, the creative directors of these fashion brands can influence the overall tone of the brand, thereby affecting its performance. Recently, Gucci announced that Sabato De Sarno would also be leaving, and the Gucci 2025 autumn/winter fashion show will be handled by a design studio. The successor for this position has yet to be determined.

This change in such a key position has once again shrouded Gucci's performance in uncertainty.

In addition to the impact of the change in creative director, Gucci's performance decline is also related to changes in global luxury market consumption trends.

Aside from Kering Group's performance, the world's largest luxury group LVMH saw its recurring business profit growth rate drop from 23% in 2022 to 8% in 2023, with revenue in the first three quarters of 2024 down 2% year-on-year and a 4.4% decline in the third quarter, marking the worst performance in nearly three years The core fashion and leather goods business revenue fell by 3% year-on-year, causing the personal net worth of the group's chairman, Bernard Arnault, to shrink by $26 billion, dropping his wealth ranking to fifth in the world.

For Gucci, differences in sales strategies have also impacted its performance.

In recent years, Gucci has overly relied on wholesale channels and outlet discount stores, leading to a significant price gap between full-priced and discounted products, damaging the brand's high-end image. In the fourth quarter of 2024, its wholesale revenue plummeted by 53%. Although the group plans to reduce the scale of outlet stores, the backlog of inventory and reliance on promotions have formed a vicious cycle.

This has further accelerated the stratification of luxury brands.

Currently, Hermès is consolidating its top-tier position by strengthening the scarcity of craftsmanship and the narrative of brand history. Many products from LV and Chanel also have the ability to sustain price increases, but Gucci is sliding. For example, Hermès' revenue grew by 21% in 2023, while Gucci was squeezed out of the "10 billion euro club."

In addition, niche high-end brands (such as Brunello Cucinelli) are also capturing market share through differentiated positioning, further diluting Gucci's market space.

The decline in the Chinese market is also a key factor in Gucci's downturn. Kering Group stated that the main reasons for Gucci's performance decline include weak consumer spending in the Chinese market, the brand's transformation adjustments not meeting expectations, and changes in consumer demand.

Taking Chinese Generation Z consumers as an example, their demand for luxury goods has shifted towards culturally integrated local brands (such as SHANG XIA and UOOYAA) and the second-hand luxury goods market, which has exceeded 100 billion yuan in scale by 2023. Gucci's frequent price increases (with some products rising by 12%) have not matched the perceived value enhancement, further weakening the purchasing willingness of Generation Z and middle-class consumers.

Gucci's marketing in the Chinese market has failed to effectively integrate local cultural elements. Its "Anchora Red" offline activities, although widely rolled out, have been criticized as "superficial innovation," lacking deep cultural resonance. In contrast, LV is closer to the needs of young consumers by collaborating with Chinese artists and deepening its e-commerce layout (such as Douyin live streaming).

The predicament of Kering Group reflects the common challenges faced by the luxury goods industry amid macroeconomic fluctuations and generational changes in consumer behavior. Kering Group CEO François-Henri Pinault stated in the performance announcement that the group is intensifying the transformation of several brands, starting with Gucci. "Enhancing communication, optimizing product strategy, and improving distribution quality" is François-Henri Pinault's "new decision" for Gucci.

The actual effectiveness of the transformation will depend on whether Gucci can launch more appealing products that meet the increasingly high demands of contemporary consumers. Especially in the Chinese market, although under short-term pressure, it remains the growth engine of the global luxury goods market, and brands need to rebuild their competitive moat through localized innovation and omnichannel integration