Gucci Sales Slide as Covid Ends Brand’s Years of Expansion
(Bloomberg) -- Gucci sales fell for a fourth quarter, ending years of expansion as the growth motor of Kering struggled amid renewed lockdowns in Europe.
Revenue at the Italian luxury brand dropped 10% on a comparable basis to 2.28 billion euros ($2.76 billion) in the three months through December, Kering said Wednesday. Analysts had expected a 7.2% decline.
The shares fell as much as 9.2% in Paris.
Kering’s results contrast with rival LVMH’s more buoyant performance. The Louis Vuitton owner’s sales surged in the quarter, driven by demand from Chinese consumers who have been spending at home with travel abroad virtually impossible.
Gucci’s performance in the fourth quarter is disappointing given the relative strength of other labels, Thomas Chauvet, analyst at Citigroup wrote in a note, citing Louis Vuitton, Dior, Hermes and Kering’s Bottega Veneta or Balenciaga. This “should continue to fuel concerns on the brand’s ability to win once again,” he said.
Gucci has been reducing its wholesale footprint as it bets this strategy will enable it to better control its image as well as the pricing of its leather handbags and other items. Analysts warned this move would hit revenue in the last three months of last year but was the right decision for the longer term.
The brand was also hurt by renewed lockdowns in Europe that shut stores during the period. In a call with reporters, Chief Financial Officer Jean-Marc Duplaix said negative trends continued in the region at the start of the year.
The pandemic brought an end to years of soaring growth at Gucci, whose sales were just shy of 10 billion euros in annual revenue in 2019. Under the leadership of Chief Executive Officer Marco Bizzarri and Creative Director Alessandro Michele, revenue more than doubled between 2015 and 2019. The brand’s popularity on Instagram -- the go-to social media platform for fashionistas -- also boomed, with followers outnumbering those of rival Louis Vuitton.
Still, Gucci has sometimes been seen as too ostentatious, especially during pandemic times when consumers may be less keen to buy conspicuous items. While the brand is popular in China, in Europe its client base is weaker, even though it will celebrate its 100th anniversary this year.
The new year has gotten off to a better start, Kering Chief Executive Officer Francois-Henri Pinault said during a call with analysts, citing a successful collaboration with the outdoor brand North Face and planned promotional events in China.
Kering carried out two phases of price increases on Gucci products last year, including in October, Duplaix said. With sales growing in China as travel globally is restricted, luxury brands have been raising prices there.
“When it comes to price architecture what is important is to maintain a difference between Europe and China,” Pinault said, adding that a price gap of around 25% between the regions is “very relevant” for Gucci.
Kering is also looking closely at merger-and-acquisition opportunities, given its strong financial position, Pinault said. Group Managing Director Jean-Francois Palus said during the same call that the Alexander McQueen brand is considering buying one of its vendors, without providing details.
Bottega Veneta saw comparable revenue jump 16% in the quarter. Analysts had expected a gain of 19%. The brand has found success with some items, notably a padded leather cassette bag with a thick golden chain.
Bottega Veneta took the unusual step at the start of the year of shutting down its Instagram account. The brand will rely more on its fans and influencers, Pinault said, adding that the move is already showing results.
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