Luxury goods conglomerate Kering has recently released its Q3 2024 earnings report, showing a significant 25% drop in revenues for its Italian luxury brand Gucci, which recorded a revenue of €1.641 billion (approximately 16.41 billion euros) on a constant currency basis during the period.
Gucci is responsible for nearly half of Kering’s revenue. As a result, the French group posted a 16% year-on-year revenue decline in Q3, with total sales falling to €3.786 billion (approximately 37.86 billion euros).
The “Other Brands” segment, which includes Kering’s second-largest brand Saint Laurent, as well as Balenciaga, Boucheron, and other fashion jewelry labels, also reported a decline in revenue, down 12% and 14% respectively during the period.
Based on performance in the first three months, Kering predicts its full-year 2024 recurring operating income could be around €2.5 billion. In the half-year report, Kering had already forecasted a 30% decline in recurring operating income for the second half, indicating that its earlier estimated full-year revenue of approximately €2.97 billion would now be reduced—down from €4.75 billion in 2023.
During its Q3 earnings conference call, Kering stated that the decline in performance, coupled with “significant uncertainties,” may put pressure on luxury goods demand in the coming months.
The major factor driving Gucci’s and Kering’s poor performance is weak demand in the Asia-Pacific region, particularly Greater China. In Q3, Kering’s Asia-Pacific revenue dropped by 30% year-on-year.
Kering’s CFO, Armelle Poulou, shared with analysts during the meeting that “the soft performance is mainly driven by the impact of the Mainland Chinese market. Hong Kong, Macau, and Taiwan have shown slight improvements compared to Q2.” As a result, Kering’s Asia-Pacific market share has decreased from 30% to 29% by the end of Q3.
It is also noteworthy that, similar to LVMH and Chanel, luxury consumption from Mainland China has increasingly shifted overseas. Armelle Poulou mentioned during the earnings call that, in Q3, one-third of Chinese luxury purchases occurred overseas, with nearly 80% of those foreign purchases of Gucci handbags taking place in Asia, particularly Japan.
The Japanese market, which had been a popular destination for Chinese tourists seeking luxury goods due to factors like yen depreciation and tax refunds, saw a sharp decline in attractiveness in Q3. According to Kering’s data, Japan became the region with the largest quarterly decline, with revenue growth dropping from 27% in Q2 to just 3% in Q3. “The price difference between Japan and other markets is becoming less and less attractive,” said Poulou.
The ongoing weakness in the Asian markets has compounded the struggles of Gucci, Kering’s flagship brand.
In comparison to other leading luxury brands—LVMH’s fashion and leather goods division (which includes Louis Vuitton and Dior) reported only a 3% decline, while Hermès saw an 11% increase—Gucci’s 25% drop in Q3 is significant. Kering has been restructuring Gucci’s management and internal structure over the past two years, while also streamlining its store network, particularly cutting back on wholesale channels that had become too large and discounted, in an effort to reverse the brand’s continuous decline.
In Q3 2024, Gucci continued its store closures, particularly in wholesale channels, which further negatively impacted its revenue. Armelle Poulou noted, “We continue to work with the best distributors, but we will continue to reduce the number of wholesale stores. Meanwhile, the product assortment allocated to wholesalers will be more selective, as we aim to ensure the exclusivity of our own retail network.”
Gucci’s executive reshuffling continues. In May 2024, Kering appointed Stefano Cantino as the executive vice president of Gucci. In early October, Cantino was promoted to CEO, marking the brand’s first new president in over a year.
During the Q3 earnings call, Kering also addressed the fact that Gucci’s executive team has been significantly improved. Looking ahead, further changes are expected within Gucci, especially in its communications team. “We look forward to having a fully operational leadership structure for Gucci’s communications team by the end of 2024,” Poulou added.
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