Week Four - Facing luxury slowdown
News in short
The Federal Trade Commission is challenging Tapestry's acquisition of Capri Holdings. The merger of the companies would mean that brands like Versace, Jimmy Choo, Michael Kors (all Capri), Coach New York, Kate Spade New York and Stuart Weitzman (all Tapestry) would all fall under one company. The FTC argues that this move limits competition in pricing, innovation, and workforce in the "accessible luxury" handbag market. Tapestry and Capri argue that the deal is pro-competitive, emphasizing the industry's fragmented nature. The deal is not over, as now Tapestry and Capri have to offer more information to the FTC for the second request.
Miu Miu, under the Prada Group, has experienced a dramatic sales increase of 89% in the first quarter of 2024, signaling a strong consumer response to its distinct, playful fashion led by Miuccia Prada. Since shifting her focus more towards Miu Miu, Miuccia has infused the brand with a youthful energy, notably through collegiate-inspired looks and pleated miniskirts. This surge in Miu Miu's sales has significantly boosted the Prada Group's overall financial health, contributing to a 16% increase in net revenues and a 7% rise in retail sales. Prada Group chairman Patrizio Bertelli noted this exceptional growth amidst a challenging market environment.
With Kering coming in as expected at -10%, questions arise about its double-digit downturn. Certainly its strategic repositioning, emphasizing handbags over ready-to-wear, contributed. Neglect of RTW weakened Gucci's client base, exacerbating downward pressures on Kering's overall performance.
With these numbers at hand, it is possible to perceive the polarization of the market, with top-tier brands resilient to economic fluctuations while mid-tier ones facing challenges from consumer trading down. Brands must reassess their product portfolios and pricing strategies to navigate shifting consumer preferences and economic uncertainties effectively.
What strategies can brands employ in response?
Interrogating the benefits of price increases, leveraging product portfolios for consumer safety nets, and closely listening to consumer feedback emerge as strategic imperatives. Premiumizing offerings while capturing trade-down opportunities present avenues for sustained growth and resilience.
Tenniscore dominates as summer 2024's freshest trend. Riding the wave of 2023's 'stealth wealth' and 'old money' trends, tenniscore steps onto the court with its roster of polished polos, pleated skirts, and crisp whites. The catalyst? Guadagnino's tennis movie ‘Challengers’, from the acclaimed director of ‘Call Me By Your Name’. Zendaya’s striking Challengers press tour looks has turbocharged tenniscore. This possibly served MiuMiu's impressive Q1 sales spike, as MiuMiu is famous for its flippy little tennis skirt and the tennis-inspired AW2022 show.
Spotlight - Gucci: Is Kering the bad guy in their story?
As already mentioned, in a recent announcement Kering forecasted a shocking 40 to 45 percent drop in first-half profits. This revelation came alongside first-quarter sales figures confirming a slowdown previously hinted by the company. One would wonder, is Kering the root of the problem or is there a deeper issue at the luxury sector level?
CFO Armelle Poulou attributed the challenging period to a tough market in China as well as the struggle of rebranding Gucci for a more selective clientele. Although sales reported in March have been in line with predictions, extensive marketing investments for the new Gucci identity cost Kering the percentage drop.
The broader slowdown in the luxury market was evident across Kering's portfolio, with Yves Saint Laurent and Alexander McQueen experiencing sales declines of 6%. Fortunately there were some improvements as well: Bottega Veneta reported modest sales growth and Balenciaga showed signs of a less extreme decline which is seen as an improvement for the controversial label.
Despite challenges, investor attention remains fixated on Gucci, seen as a potential game-changer but cause for Kering's financial troubles as well. Main concerns revolve around its pricing strategy and distribution, particularly in China where consumers no longer view Gucci an equal player to Hermes or Chanel, but lower on the luxury pyramid.
Tune in next time for more!
Yours,
The Debrief Team
BS4F, active since 2013, is one of the leading fashion associations with the mission of bringing students closer to their professional career aspirations in the fashion and luxury world.