What: Kering is intensifying cost-cutting measures, including layoffs and store closures, following a significant drop in profits and missed forecasts for Gucci.

Why it is important: This move highlights the challenges faced by luxury brands amid global economic uncertainties, particularly in key markets like China and Japan, impacting their financial performance and strategic decisions.

Kering, the French luxury conglomerate, is deepening austerity measures due to a projected 50% drop in operating profit for the year. The company plans layoffs, store closures, and contract renegotiations after a challenging third quarter. Gucci, Kering's flagship brand, missed sales expectations, particularly in China and Japan, contributing to a 15% revenue decline to EUR 3.79 billion. Gucci's organic sales fell by 25%, while other brands like Saint Laurent and Balenciaga also saw declines. However, Bottega Veneta showed growth with a 5% increase in sales.

Kering's CEO, François-Henri Pinault, emphasised the need for sustainable growth and tighter cost control. The company expects recurring operating income of EUR 2.5 billion in 2024, down from EUR 4.75 billion last year. Despite some improvement in trends, Kering anticipates continued pressure on gross margins and plans to maintain flat advertising spending.

Gucci is undergoing a turnaround under new creative leadership and aims to boost sales with new handbag lines. However, retail revenue has dropped significantly in Asia-Pacific and other regions. Kering is also downsizing its store network and renegotiating supplier contracts to improve efficiency.

The company's fortunes are closely tied to China's economic conditions, with revenues from Chinese nationals down 35%. Kering's efforts to optimise costs are part of a broader strategy to navigate the current luxury market slump.

Kering implements austerity measures amid profit decline