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The recent plummet in shares of French luxury group Kering has sent shockwaves through the industry, with a warning of a significant downturn in first-half profits. This decline is attributed to waning demand for its flagship brand, Gucci. The luxury market, known for its discerning clientele, has been facing challenges as consumer preferences shift and economic conditions change.

Struggles of Kering

Kering’s Chairman and CEO, François-Henri Pinault, acknowledged the company’s performance worsening considerably in the first quarter of the year. This was primarily due to sluggish market conditions, notably in China, and the strategic repositioning of certain brands, starting with Gucci. The decline in revenue has prompted a sharp decrease in operating profit for the first half of the year.

Impact on Sales

The group experienced a 10% decrease in sales to 4.5 billion euros in the first quarter, signaling a challenging period for the company. The significant drop in Gucci sales, particularly in Asia, has been a major contributor to the downturn. This is in contrast to other luxury brands like LVMH and Hermes, which have managed to remain resilient in the face of economic uncertainties.

Gucci, once a star performer for Kering, has seen a decline in sales following a boom in 2021 during the early stages of the Covid-19 pandemic. The brand has been unable to maintain its market share as consumer preferences shift towards more subtle luxury brands. Factors such as higher inflation and changing consumer behavior have impacted Gucci’s performance in recent times.

Kering reported a 6% drop in fourth-quarter revenues, with sales declining across all major brands under its portfolio, including Yves Saint Laurent. Gucci, in particular, experienced a 4% decrease in sales on a comparable basis, highlighting the challenges faced by the luxury group as a whole.

The luxury market is facing a period of uncertainty, with changing consumer preferences and economic conditions impacting the performance of prominent brands like Kering. The struggles of Gucci serve as a stark reminder of the challenges faced by luxury companies in retaining their market share and appealing to discerning consumers. It remains to be seen how Kering will navigate these turbulent times and adapt to the evolving landscape of the luxury industry.

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