A difficult start to the year worldwide, except in Japan and the Middle East

The first quarter of 2024 has reshaped the geography of Kering‘s outlets. Over the period, traffic in the shops of its main houses, and in particular those of its flagship brand Gucci, fell everywhere in the world, with the notable exception of Japan and to a lesser extent the ‘rest of the world’ zone, driven by the Middle East. “Trends in Western Europe, North America and Japan are in line with those of the fourth quarter of 2023, while the decline in Asia-Pacific is more marked,” summarised the French luxury group in a press release, which recorded an 11% fall in sales to €4.5 billion in the first three months of the year.

Japan, which accounts for 8% of Kering’s revenues, continues to do well thanks to the influx of tourists attracted by the weak yen. The group’s retail sales over the period jumped by 16%. Saint Laurent in particular, which saw its sales fall by 8% and its retail sales by 4% in the first quarter, recorded an increase of 34%. Direct sales by the ‘other houses’ division, which includes Balenciaga, soared by 40%. Even Gucci’s sales rose by 7%.

On the other hand, the rest of Asia-Pacific, which accounts for 34% of Kering’s total sales, proved negative for all the brands, with retail sales down by 19%, affected by ‘a sharp fall in shop traffic’. This was particularly the case in China, a country hit by the bursting of the property bubble and suffering from an unfavourable economic climate. According to the Group’s CFO, Armelle Poulou, “the macro-economic environment in this market makes it attractive for customers either to buy very high-end products, which they even see as an investment, or, because of a certain pressure on consumers, to buy more affordable products.”

During a teleconference with analysts, he pointed out that in this region over the period, “Balenciaga recorded very encouraging results” and that Bottega Veneta is making progress, but has yet to realise its potential. On the other hand, Saint Laurent and Gucci were the brands to suffer most in Asia.

In particular, Gucci suffered a 28% fall in direct sales in the region between January and March. As Armelle Poulou points out, “China is the worst area of difficulty for Gucci at the moment. Probably all the brand’s weaknesses are exacerbated in this country.” She goes on to explain that “the context is not favourable, because it is more polarised. At the moment, Gucci is not in the right place in terms of positioning, being perceived as not upmarket enough or not affordable enough. But this context can change and the situation can change quickly.”

Kering’s flagship house has therefore made a targeted effort in this country, where its Chinese team has been beefed up. In addition, in-store training sessions for the sales force have been stepped up, while the emphasis has also been placed on communication through local ambassadors to improve the perception of Gucci in China in terms of exclusivity and desirability.

In the rest of Asia, South Korea is one of the largest markets. Group sales are still down there, but “much less than in the previous quarter,” according to the company’s managers.

Another market in difficulty is North America, where aspirational consumers are in retreat, while very high-end customers are holding up better. However, Kering is seeing positive signs from younger customers in the region. Retail sales for all its brands fell by 11%. Nevertheless, Balenciaga’s sales began to grow again in the first quarter, while Bottega Veneta’s sales exploded by 25%. Saint Laurent “is more resilient than in the previous quarter.”

In Western Europe, first-quarter sales are in line with those for the final quarter of 2023. With the exception of Gucci, all the brands are making quarter-on-quarter progress, points out Claire Roblet, director of financial communications, who notes that tourist spending continues to normalise as it has since the end of last year. Gucci’s direct sales in the region plunged by 15%, while Balenciaga’s sales remained in negative territory, but to a lesser extent. Bottega Veneta fared better, with a 14% increase.

As for tourists to Europe, “we are seeing a degree of normalisation among American buyers for almost all the brands, better performances from consumers in the Middle East, with strong increases for Bottega Veneta and Saint Laurent, and significant double-digit growth among Chinese tourists for all the brands except Gucci. Overall, the weight of tourists in the region represented less than 50% in the first quarter, while local demand still remained weak, but improved, especially in Italy, for every brand except Gucci,” she continued.
 
Lastly, retail sales by Kering brands rose by 6% over the first three months of the year in the “rest of the world,” boosted above all by good performances in the Middle East.