Poor: What Does Gucci Performance Slowdown Mean For Opening The Cloud?

Last week, the French luxury group Kering announced its latest performance report, showing a rare sign of weakness. The main problem is that most of the sales of this company depend on Gucci, but the growth rate of the brand is slower than expected.

Gucci's sales increased by 13% over the same period last year: the growth rate is still very fast compared with the extensive luxury goods industry, but it is far from the 40% increase in the same period last year. In the US, sales of Gucci actually dropped by 2% over the same period last year, and analysts blamed it on Sino US trade tensions and the strong US dollar trend. In February this year, Gucci brought "racist" accusation with a "black face red lip", which caused a great stir.

Last year, Kai Yun group issued an early warning that the rapid growth of Gucci would slow down sooner or later. But the company also said its goal was to accelerate other brands. But this is not the case. Balenciaga and some brands perform well, but they are not yet close to Gucci's success. As fashion trends change, some brands may fade out of the market (many fashion experts believe that Balenciaga's Triple S sneakers are the key drivers of sales, but are vulnerable to shocks).

To sum up, Kai Yun is more dependent on Gucci than ever before in terms of sales and profits. In 2018, Gucci contributed about 60% of cloud revenue and 80% of profits (compared to 52% and 63% of Gucci in 2015). As Gucci returns to normal growth, analysts and investors are strongly calling for more effective measures to reduce Gucci's dependence on Qian Shu.

Kai Yun group's share price fell 8.6% after its earnings announcement last Thursday. On Wednesday, the group's share price fell 0.39% to 469.50 euros per share.

Aur lie lie, a luxury analyst at Kepler Cheuvreux, said that one reason for the sluggish growth of Gucci was that the second quarter's spending on marketing was reduced (accounting for 4.5% of sales, while the average expenditure in the past was 6% to 7%).

The management of Kai Yun group admitted that Gucci was more cautious this year in the US propaganda. In February this year, Gucci was rejected by consumers because of its "black faced red lipstick" knitted sweater, which was also forced to withdraw.

Some consumers said that the big red lips on the coat looked very African American face.

Jean-Marc Duplaix, chief financial officer of Kai Yun group, told analysts last Thursday: "I think before we decide to take more marketing initiatives, we want to assess the response of American consumers after problems. Considering the whole incident, we are still worried that the returns on these additional investments will be very bad."

Analysts expect Gucci to increase its marketing efforts in the second half of this year, which may prevent brand sales from slipping.

But what are the plans for other brands?

Saint Laurent is the second largest contributor to cloud profit. The second quarter year-on-year sales increased by 15.8% in the second quarter, the first time over the years. Even this growth rate is also lower than the brand's 19.8% in the same period in 2018.

Although Balenciaga expects sales to exceed US $1 billion this year, its size is unlikely to double again in 2018. On the cloud side, the sale of Balenciaga's "Triple S" sneakers seems to have been affected by the public's demand for thick bottom sneakers, which have been popular in the past few years.

The performance of Bottega Veneta is better than expected (second quarter year-on-year sales growth of 0.8% over the 0.8% quarter, which is generally considered -5%), but the brand has not changed under the leadership of the new creative director, Lee.

"Like Burberry, we have to wait for several quarters until we see the upward trend," Husson-Dumoutier said. What he means is that Riccardo Tisci has worked very hard to become the creative director of Burberry, but the feedback of brand performance takes time.

Some analysts say the takeover is the best option for Kai Yun group. Kai Yun has repeatedly proposed the idea of acquiring competitors, but many high priced brands of luxury brands have moved away.

Analysts said that the "Gucci problem" of Kai Yun group could push the company to carry out a large takeover transaction. At present, the debt level of the company is relatively low, with a cash charge of 2 billion 500 million US dollars.

Thomas Chauvet, an analyst at Citi, said: "the scale of the acquisition is likely to be much larger than in the past. Opening up the cloud needs to reduce" dependence on Gucci ". Now it is not difficult to integrate or develop the medium sized brands acquired in the past. He added that the group needed a big brand with "immediate results".

By the end of this year, Gucci is expected to sell more than 9 billion euros ($10 billion), and now all eyes are on Gucci. Author: Laure Guilbault