Kering’s stock plummeted by approximately $3 billion on Friday following the announcement of Demna, the current creative director of Balenciaga, as the new head designer for Gucci. This in-house appointment, while unexpected, signals a bold strategic move by the luxury conglomerate. The market reacted negatively, with Kering shares dropping as much as 13% in early Paris trading, marking their steepest decline in nearly a year.
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A Risky Bet on In-House Talent?
Demna, known for his avant-garde streetwear aesthetic and impactful runway presentations at Balenciaga, is considered a risky choice for Gucci, a brand synonymous with classic elegance and timeless design. While lauded for his innovative approach at Balenciaga, some industry analysts question whether his style aligns with Gucci’s heritage and core customer base. The fashion world eagerly awaited the successor to Alessandro Michele, anticipating a high-profile appointment to revitalize the brand after a period of declining sales.
Gucci’s Performance Under Pressure
Gucci, contributing nearly half of Kering’s revenue and two-thirds of its operating profit, has experienced a significant sales slump. A 24% revenue drop in the fourth quarter of 2024 highlighted the urgency for a change in creative direction. The brand’s previous attempts to shift towards minimalism under former creative director Sabato de Sarno failed to resonate with consumers, further emphasizing the need for a successful leadership transition. This appointment follows the departure of star designer Matthieu Blazy from Kering’s Bottega Veneta to Chanel, adding to the pressure on the luxury group. Ariane Hayate, European Equity Fund Manager at Edmond de Rothschild, suggests that while the in-house solution might indicate a lack of external options, it’s also a daring move considering Balenciaga’s success under Demna’s leadership.
A Strategic Shift for Gucci?
Barclays analysts posit that choosing Demna over established industry figures like Hedi Slimane, Maria Grazia Chiuri, or Pier Paolo Piccioli indicates Kering’s ambition to reposition Gucci as a global trendsetter. This decision comes at a time when Kering faces challenges beyond Gucci’s performance, including costly brand acquisitions, real estate investments, and multiple profit warnings. Bernstein analyst Luca Solca highlights these concerns, questioning the overall strategic direction of the group.
The Future of Gucci Under Demna
The appointment of Demna marks a pivotal moment for Gucci. His success hinges on his ability to balance his distinctive design sensibilities with the brand’s established identity. While the market’s initial reaction was negative, the long-term impact of this decision remains to be seen. Demna’s tenure will determine whether he can successfully reinvigorate Gucci and restore its position as a leading force in the luxury fashion industry. Kering’s significant stock decline underscores the high stakes involved in this strategic gamble. The luxury conglomerate is betting on Demna’s vision to reverse Gucci’s declining sales and reaffirm its position as a dominant player in the global fashion landscape. Only time will tell if this bold move will pay off.
