By Nadya Masidlover
PARIS--French luxury and lifestyle company Kering SA said
Tuesday that overhauling its flagship brand Gucci will be its top
priority this year, as business at the label slid in the first
quarter.
Kering--home to high-end labels such as Bottega Veneta and Yves
Saint Laurent as well as sports brand Puma--posted a 11% rise in
total quarterly sales to EUR2.65 billion ($2.83 billion) from
EUR2.38 billion a year earlier, as the weak euro bolstered
sales.
But stripped of the positive currency impact and excluding
acquisitions and disposals, sales slipped 0.6% over the period, as
the luxury division faltered with revenue plunging at star brand
Gucci.
The figures "reflect a complex economic and monetary environment
as well as the transition under way at Gucci," said Kering Chairman
and Chief Executive François-Henri Pinault.
In the first quarter, sales at Gucci--which makes up around a
third of Kering's revenue--fell 7.9% to EUR869 million on a
like-for-like basis, which excludes acquisitions and disposals and
currency effects, as the brand's overhaul took its toll.
"Our priority today is to give our flagship luxury brand fresh
impetus," he added.
Late last year, Kering stepped in to reinvigorate Gucci as sales
at the brand slumped. Both the head designer and chief executive
were replaced. Since then, the label has already moved to radically
reduce the wholesale side of its business as it seeks to bring all
sales within Gucci's own store network, weighing on already weak
business at the brand.
On Tuesday, the company said Gucci's next move will be to shift
the offer of its range of handbags, adding higher priced products.
Chief Financial Officer Jean-Marc Duplaix said that the label
needed to find a better balance between items sporting Gucci's
well-known GG logo and items without logos. But rather than shying
away from the label's logo entirely, Gucci plans on finding "a
smart interpretation" of the two letters.
Mr. Duplaix cited the initiative from Yves Saint Laurent
creative director Hedi Slimane, who revamped the image of Kering's
third largest luxury brand in 2013, sparking double-digit sales
growth.
Gucci's plans to reposition itself echo a wider industry trend
as luxury megabrands face more challenging times after a long
stretch of booming business stalled in 2013. For purveyors of
high-end goods, last year marked a turning point as big brands
struggled to revive demand, amid changing consumer tastes,
difficult macroeconomic conditions in Europe and a slowdown in
China.
The world's largest luxury group, LVMH Moët Hennessy Louis
Vuitton SA, has sought to renew the image of its namesake Louis
Vuitton brand over the past two years. The label brought in a new
designer and rolled out fresh lines of pricey yet discretely
branded leather handbags, steering focus away from its less
expensive signature monogrammed canvas bags. While LVMH said
business is improving at the brand, sales in the first quarter of
2015 at LVMH's fashion and leather-goods division remained subdued,
rising 1% on a like-for-like basis to EUR3 billion.
Italian fashion house Prada also hit a hurdle last year, with
2014 profit diving. Prada said last month that it is working to
revive customers' interest and strengthen its existing store
network rather than expanding.
New store openings will be moderated for Gucci as well in 2015,
Kering said. Instead, the brand will refurbish stores across the
globe, with new finishes for floors and sales counters. Since the
beginning of the year, Gucci has closed six stores and opened
three, bringing the total number of outlets to 502.
Among other initiatives planned for Gucci's revival--which is
expected to show initial results in the second half of the
year--staff at stores are set to receive more training, the label's
advertising campaign will be revisited, packaging will be modified
and the website will be redesigned.
Mr. Duplaix said Kering was confident in the new management
team's ability to steer Gucci back to growth and added that there
are already signs of improvement with the label's ready-to-wear
category.
Nonetheless, "we cannot say yet that Gucci is back on the stage
of fashion," he added.
Kering's Gucci label wasn't the only luxury business to suffer
in the group. The company's other high-end brands--which include
fashion houses such as Balenciaga, Stella McCartney, watch brand
Girard-Perregaux and jeweler Boucheron--also reported a drop in
sales, down 4.5%.
Even Kering's Bottega Veneta label, which had seemed largely
immune to the recent slowdown in the luxury industry, has begun to
record more modest growth.
In the first quarter, Bottega Veneta posted a 3.1% increase in
sales, hindered by a difficult business environment in Hong Kong
and Macau, where the label produces around one fifth of its sales,
said Mr. Duplaix.
The one bright spot in Kering's luxury portfolio came from its
Yves Saint Laurent brand, where quarterly sales were up 21%,
excluding currency effects.
Even as Kering's high-end goods business faces a more
challenging context, demand for its sport and lifestyle
brands--including Puma--has held up. In the first quarter, sales at
the division rose 3.7% to EUR890 million, outpacing Kering's luxury
division, where sales fell 2.6%.
Mr. Pinault said he expects a "gradual improvement" in the
company's performance throughout the year.
Write to Nadya Masidlover at nadya.masidlover@wsj.com,
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