Balenciaga Scandal Seen Contributing to ‘Bad as It Gets’ Q4 for Kering
Balenciaga’s ad scandal stifled the brand’s “hyper growth mode,” notably in the U.S. and U.K., meaning fourth-quarter results for French luxury group Kering “could be as bad as it gets,” according to an equity research report from HSBC released Thursday.
The bank also cited slowing momentum in China and the U.S. and a “tough basis of comparison” as additional factors likely to have dented Kering’s revenues during the crucial holiday season.
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It forecasts Q4 revenues, due out on Feb. 15, will slip 3.1 percent in organic terms, reflecting a 12.5 percent dip at Gucci and an 8 percent improvement in “other brands,” which include Balenciaga, Alexander McQueen, Boucheron, Brioni, Pomellato and Queelin.
Still, the report, titled “Leave Your Troubles Behind,” suggests that the worst at Balenciaga is “likely behind us” and that Gucci is likely to do better in 2023, despite the exit of creative director Alessandro Michele, who helped take the Italian brand from 3.9 billion euros in 2015 to 9.7 billion euros in 2019.
His successor has yet to be named.
“It appears that management is starting to address the issues faced by the Gucci brand,” the report said. “The commitment to spend more in terms of advertising, combined with a stronger team in mainland China as well as in merchandising should help the brand converge towards peers’ sales growth regardless of the fact it will be in a transition period.”
Balenciaga represented about 10 percent of Kering’s 2021 group sales, versus 55 percent for Gucci, 14 percent for Saint Laurent, and 8 percent for Bottega Veneta, according to HSBC charts tabulating company data.
HSBC also cut its earnings-before-interest-and-taxes estimates for Kering by an average of 4 percent “for FY22-24 as we have taken into account a slightly less favourable FX set-up, the consequences on sales of the recent Balenciaga advertising scandal and a tougher situation in mainland China overall than previously anticipated.”
Among downside risks are COVID-19 leading to delays in tourism-related spending and “longer-term pain at Balenciaga from the recent PR problems.”
Last November two Balenciaga campaigns triggered outrage that engulfed the French fashion house, photographers, creatives and even longtime collaborator Kim Kardashian.
One featured children posing alongside a variety of items, including logo beer glasses and handbags shaped like teddy bears dressed in bondage gear. Another fashion campaign, depicting actresses Nicole Kidman and Isabelle Huppert in business attire, included a closeup of a handbag resting on a page from the 2008 Supreme Court ruling “United States v. Williams,” which confirmed the promotion of child pornography as illegal and not protected by freedom of speech.
By Nov. 23, Balenciaga pulled both campaigns from all platforms, apologized for any offense it caused and pointed the finger of blame at external production companies.
After a mounting backlash, Balenciaga on Nov. 28 publicly condemned child abuse and took full responsibility for the controversies surrounding the two campaigns, a day after Kardashian said on Nov. 27 that she was “reevaluating” her relationship with the brand, writing that she was “shaken by the disturbing images.”
Creative director Demna and chief executive officer Cédric Charbit issued further apologies on Instagram on Dec. 2, along with vows to change Balenciaga’s “content organization” and “help make a difference in protecting children.” The company also dropped its legal action against production company North Six Inc. and set designer Nicolas des Jardins.
