Gucci Aria Collection Holds Key to Kering’s Year-end Fortunes
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PARIS — Gucci has a lot riding on its fall collection.
Sales at French luxury group Kering’s star brand slowed in the third quarter as a resurgence in coronavirus cases over the summer impacted business in Asia, while consumers held back on making purchases in expectation of the Aria collection landing in stores in late September.
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The line not only marks the centenary of the Italian brand, with products like a baseball cap marked “100,” but also features a “hacking project” that saw creative director Alessandro Michele pay tribute to his colleague Demna Gvasalia, creative director of Balenciaga, with products bearing the logos of both labels.
The first Aria drops began landing in stores in late September and have gained strong traction with consumers, after a quarter relatively lacking in novelties, except for the relaunch of the Diana handbag, Kering executives said after the company reported third-quarter results on Tuesday.
“Aria is receiving a very good response of the market, whatever the region, and in China, we see a rebound that I will not quantify,” Jean-Marc Duplaix, chief financial officer of Kering, said on a conference call.
Claire Roblet, director of financial communications and market intelligence, said Gucci had implemented a price increase in the low single digits, on average, with the new collection. She confirmed that the products bearing both the Gucci and Balenciaga logos would be available from November.
Kering is hoping the buzz around Aria will be a shot in the arm for Gucci after its disappointing performance in the three months to Sept. 30.
The brand’s organic sales rose 3.8 percent year-over-year, following a jump of 86.1 percent in the prior three months, missing a consensus of analyst estimates, which had called for a 9.1 percent rise in like-for-like sales. Figures for the second quarter were inflated because of an exceptionally weak comparison basis last year.
By comparison, sector leader LVMH Moët Hennessy Louis Vuitton last week reported a 24 percent year-over-year increase in organic sales at its key fashion and leather goods division, powered by Louis Vuitton and Dior. Hermès International is scheduled to report quarterly results on Thursday.
“We are confident for [the fourth quarter] at Gucci that the brand can reaccelerate compared to [the third quarter] that was a transition quarter and probably not a good proxy to assess the brand trajectory,” Roblet said. She predicted the release of Ridley Scott’s eagerly awaited “House of Gucci” film in November, though in no way affiliated with the house, would also have a “halo effect” on the brand.
Gucci’s performance was patchy in the third quarter, with retail sales in North America up 24 percent, despite some volatility, and Western Europe gaining 7 percent. The Asia-Pacific region, which accounts for 41 percent of the brand’s sales, was down 3 percent due to new COVID-19 restrictions that led to the cancellation of retail events and activations planned for the final chapter of the previous Ouverture collection.
“The pace of novelty injection tied to this collection was also milder this quarter,” said Duplaix, citing the knock-on effect of product development delays in Italy at the height of the pandemic last year.
Gucci is also paying the price for its decision to accelerate a strategy that involves cutting back its wholesale network, and switching investment from a handful of high-profile fashion shows to a speedier pace of digital storytelling and events. The brand now presents just two seasonless coed collections a year, the next of which will be unveiled in Los Angeles on Nov. 3.
Nonetheless, Duplaix pointed to a steady increase in average selling prices, as Michele has tweaked his geek chic aesthetic to introduce more timeless styles and emphasize higher-end products.
“If we look at overall growth drivers, Gucci is on the right track,” the executive said. “We expect some clear increases both in terms of traffic and in terms of volumes, with a good conversion.”
Analysts say Kering needs to reduce its reliance on Gucci, which accounted for three quarters of its recurring operating income in the first half of 2021.
François-Henri Pinault, chairman and chief executive officer of Kering, pointed to “outstanding” performances in the third quarter by Saint Laurent, Bottega Veneta and other houses, a division that includes Balenciaga and Alexander McQueen, as well as Kering eyewear. “With the launch of its Aria collection, Gucci is set for an intense fourth quarter,” he said in a statement.
Overall group revenues during the period totaled 4.19 billion euros, representing a rise of 10 percent in comparable terms versus the same period in 2019, considered a more reliable comparison base due to the widespread disruption caused by the pandemic last year. This marked a deceleration from the second quarter, when sales rose 11.2 percent.
Compared with 2020, organic sales were up 12.2 percent in the quarter, beating the consensus forecast of a 9.2 percent rise.
Comparable sales at Saint Laurent were up 28.1 percent year-over-year, with “outstanding” momentum in North America and Western Europe. “Saint Laurent has much room to grow further to a higher degree of penetration of certain markets,” said Duplaix, noting that the brand continues to expand its store network.
Organic sales at Bottega Veneta were up 8.9 percent in the third quarter, compared with a 69 percent rise in the previous three months. Meanwhile, like-for-like sales at other houses were up 26 percent, versus a rise of 111.3 percent in the second quarter.
Duplaix highlighted the strong profitability of Balenciaga and Saint Laurent, adding that Kering has no plans to curb investment in the fourth quarter, despite Gucci’s recent underperformance.
“We are actually convinced that it makes sense to invest even more short-term to accelerate brand momentum when it’s needed,” he said. “Globally, we remain quite confident about the trajectory of the group as a whole, in terms of profitability.”
He indicated that Balenciaga is becoming comparable in size to Bottega Veneta, which logged revenues of 1.07 billion euros in the first nine months of 2021, but that it enjoys a greater contribution from wholesale and e-commerce. Balenciaga in July unveiled its first haute couture collection in 53 years, and won Paris Fashion Week with its bespoke episode of “The Simpsons.”
“The haute couture really had an impact in terms of perception of the brand, and the brand momentum is obviously very excellent,” said Duplaix, noting Balenciaga was growing less reliant on sneakers and casualwear, and seeing a growing contribution from more formal shoes and ready-to-wear, as well as leather goods.
“Of course, it does open some new opportunities in terms of store openings. It’s, like Saint Laurent, typically a brand which has a huge potential in terms of store footprint,” he added.
In terms of geographical trends, sales in China remain below 2019 levels and are globally flat compared to last year, Duplaix reported, though he declined to make any predictions for the fourth quarter.
Shares in luxury firms fell this week after China reported its gross domestic product grew by a lower-than-expected 4.9 percent in the third quarter, its slowest pace in a year, hurt by power shortages, supply bottlenecks and COVID-19 outbreaks.
Observers also fear that Chinese President Xi Jinping’s call for the country to narrow its wealth gap and curb “excessive incomes” could deprive the luxury goods industry of its biggest motor.
In Europe, Kering is seeing a double-digit increase in sales to local clients in almost all key countries. Meanwhile, the outlook for the U.S. remains positive despite some seesaw trends in September, which was followed by a rebound in October. Duplaix said he had seen no impact so far from the end of federal government stimulus checks.
“It’s something we’re fearing a little bit, looking at the volatility in September, combined with some other events like somewhat bad weather conditions, but at the end of the day, it’s not so obvious when we look at the most recent trends that there is any sort of slowdown, beyond just clearly a normalization of the growth,” he said.
“So far, we believe that the U.S. environment is very supportive, besides some restrictions that could occur because of COVID-19,” he added.
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