Gucci’s profit hit by fashion for exclusivity
Thursday 31 July 2014
Kering’s plan to turn Gucci around as an ultra-luxury brand has hit first-half sales and profit at the designer.
Gucci’s second quarter sales fell 2.4 per cent and first-half reported operating profit fell 5.1 per cent, hit by weaker wholesale numbers as its Paris-based owner cut the number of accounts that sell the label. Kering was concerned that its Gucci brand had become ubiquitous and it instigated a turnaround by increasing prices and limiting where it is sold.
Rahul Sharma, an analyst at Neev Capital, said: “Gucci is the latest reflection of how consumers are turning up their noses at mainstream luxe brands such as Louis Vuitton and Prada.”
But he added: “Newer powerhouses, Bottega Veneta and Saint Laurent picked up the baton from Gucci.”
Kering’s first-half results were in line with analyst expectations, with sales up 1.5 per cent on a reported basis to €4.7bn (£3.7bn) and sales at its luxury arm up 6 per cent – helped by the success of Bottega Veneta and Saint Laurent. Overall second-quarter sales came in at €2.35bn.
Kering's operating profit reached €810m, down 3.9 per cent on a reported basis as it was hit by currency changes.
The French luxury giant, run by chairman and chief executive François-Henri Pinault, said Gucci will return to growth in the second half as its new strategy begins to pay off. He also announced the purchase of Swiss watch maker Ulysse Nardin.
Mr Sharma added: “The land grab for bling-tastic watch brands by luxury conglomerates goes on… Ulysse Nardin -think ultra-shiny, huge watches.”
Claire Adler, a luxury jewellery and watch consultant, added: “Ulysse Nardin has a reputation for daring, ambitious, experimental watches that are not for the fainthearted. It is a good time for giant luxury conglomerates to go shopping - luxury watches and jewellery globally are growing at a faster rate than other luxury categories.”
The groups’ sports and lifestyle division, which includes the Puma brand, showed signs of improvement and Mr Pinault said: “In an unsettled operating environment, we are pursuing the implementation of our strategy, all the while keeping tight control over costs and safeguarding our gross margins.”
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