By G. Mudalige, Jadetimes Staff
G. Mudalige is a Jadetimes news reporter covering Technology & Innovation
Kering SA, the parent company of Gucci, recently saw its stock fall to a seven-year low due to weakening demand in China, a vital market for luxury brands. Barclays Plc downgraded Kering’s stock, citing concerns that Gucci has been particularly affected by economic conditions in China. Despite expectations of 5% organic growth for Gucci in fiscal 2025, Barclays warned of a risk that the brand may remain in negative territory. This comes as Kering has struggled to revive Gucci’s performance under its new designer, leading to a 43% year-to-date stock decline.
The luxury market in China has always been crucial for global brands, but a slowing economy and shifting consumer preferences have presented new challenges. Gucci, known for its distinctive designs and wide appeal, now faces stiff competition from even more exclusive brands. Consumers in China are becoming increasingly selective, gravitating toward brands with higher levels of exclusivity, which has hurt Gucci’s market position.
Barclays analysts pointed out that this shift in consumer behavior is impacting the entire luxury sector, but Gucci is particularly vulnerable. Despite efforts to reposition the brand, Gucci is struggling to capture the interest of China’s elite, who now seek more niche, high-end labels. As a result, many fear that Gucci’s decline may extend into 2025, despite analysts' initial projections for a turnaround.
Kering’s overall performance has been dismal, with its stock tumbling 43% in 2024, heading for its worst annual return since the global financial crisis. Several factors contribute to the decline, including the company's heavy reliance on Gucci, which represents a significant portion of its revenue. A series of downgrades by financial institutions like Barclays and RBC Capital has only added to the pressure. Kering's stock was downgraded by Barclays to "underweight" and by RBC to "sector perform," signaling widespread skepticism about the brand’s near-term recovery.
Adding to the brand's struggles, just six analysts now hold buy-equivalent ratings for Kering, compared to 23 in 2022. A growing number of analysts recommend holding or selling Kering’s stock as uncertainty over Gucci's recovery looms. Reviving Gucci’s appeal, especially in China, is essential for Kering to regain market confidence. The brand must focus on innovation and exclusivity to compete in China’s increasingly selective luxury market. With new leadership at Gucci, the company is attempting a brand refresh, but time will tell if these efforts are enough to turn the tide. Meanwhile, Kering must also look at diversifying its portfolio beyond Gucci to reduce its over-reliance on the brand.
As the luxury market in Asia continues to evolve, the stakes are high for Kering and Gucci. Analysts are closely watching whether Gucci can adapt to changing market dynamics and reclaim its position as a leading luxury brand in China.
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