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Kering Announces a 30% Stake in Valentino at H1 2023 Earnings Call
What all the shifts at the world's second-largest luxury conglomerate may mean for the future of Valentino
Gucci’s earnings continue to disappoint in a wild year for Kering
It has been a busy month for Kering. On June 26, the luxury group announced a €3.5 billion acquisition of the heritage fragrance company Creed. Today it announced it has acquired a 30 percent stake in Valentino for €1.7 billion and presented another disappointing round of earnings, particularly at Gucci. These events of the last month have taken place against a background of management shakeups.
Let’s start with the financials and then get into the acquisitions. This was another poor earnings report from Kering. The group, which comprises brands such as Gucci, Saint Laurent, Bottega Veneta, Balenciaga, Alexander McQueen, Brioni, and Boucheron, has long lagged other industry leaders in terms of growth, free cash flow, and marketing. While other major luxury groups have surged during and after the pandemic, recording growth rates near 15 percent, Gucci has been in the single digits. Today Kering reported H1 revenues up 2 percent compared to the first half of 2022. By comparison, LVMH reported that its H1 revenues were up over 17 percent two days ago.
The group’s flagship maison, Gucci (which contributes over 50 percent of Kering’s earnings), reported earnings fell 1 percent year-over-year which was offset by 6 percent growth at Saint Laurent (~15 percent of total Kering earnings) and 47 percent growth at Kering Eyewear and Corporate (8.5 percent of total Kering earnings). Gucci was held down by poor e-commerce, men’s, and entry-level segments, particularly in North America. First half of the year sales in North America were down 23 percent. This was significantly more than LVMH’s reported 3 percent decline in U.S. sales though the reasons for the declines are similar: weaker demand for luxury by so-called aspirational consumers who are holding off on big ticket luxury good purchases in the face of still high inflation and a preference for luxury travel rather than goods.
One interesting thing to note about this earnings report is that capital expenditures, or investments, surged in the first half of the year. Gross capital expenditures were up 50 percent from H1 2022 and now comprise 4.5 percent of revenue versus 3 percent a year ago. The group reports that this surge in investment will help drive expansion and improvements in operations and supply chains.
But the big new is that Kering now owns a stake in Valentino
But speaking of expansion, let’s now focus on the big news that Kering has acquired a 30 percent stake in Valentino with the option to take full control down the road. Kering purchased the stake from the Qatari investment fund Mayhoola. With the stake, Kering will be represented on Valentino’s board and will have the option to buy 100 percent of the share capital by 2028.
This announcement comes hot on the heels of a slew of Kering leadership changes, including the unexpected announcement of the imminent departure of Gucci CEO Marco Bizzarri, the appointment of Francesca Belletini as Deputy CEO in charge of brand development, with all Kering brand CEOs reporting to her, and, of course, the onboarding of Sabato de Sarno as creative director ahead of his first collection launch at Milan Fashion Week in September, after Alessandro Michele stepped down last November.
What do all these changes mean for strategy at Kering?
While Kering sorts out its organizational priorities (hello, change management), what does this new investment mean for the future of Valentino? For this Italian luxury brand, Kering full acquisition is not off the table; and it certainly brings up inevitable questions about the brand’s financial wellness.
From a sheer artistic and brand strategy point of view, Pierpaolo Piccioli and his team of artisans—along with the brand and marketing teams supporting them—brought new levels of creativity, innovation, craftsmanship, and storytelling over the past few years.
When it comes to brand storytelling and the cohesion of a luxury fashion collection, narrative is effective (and makes for a great theme for a couture collection). But having vision takes money. Valentino, like many heritage brands, may take an old Italian approach to business—it is all about vision and art, not financials.
At Valentino, Piccioli is not one to spare expense, particularly when it comes to his elaborate haute couture collections, never mind the brand’s beautiful bricks-and-mortar stores (with fun summer pop-ups like the one the FSW team saw in Miami). The couture runway shows themselves are nothing less than an extravaganza, from showcasing a huge, breathtaking collection on the Piazza di Spagni for AW2022 last year to bussing a horde of celebrities, journalists, and influencers an hour outside of Paris for the sole purpose of seeing a sumptuous AW2023 couture show at the Chateau de Chantilly this past June.
Yet, if you set any experienced strategist off to the task of conducting a brand and content audit of the Valentino website, they would undoubtedly come back with a portrait of a heritage luxury brand that is struggling with its identity and that demonstrates inconsistent brand messaging and a content strategy that is frankly all over the place. Strategically speaking, the brand’s attempt to play the line between a digitally-relevant e-commerce brand and the elevated, inaccessible status of a high-end luxury brand does not really work.
What this all boils down to is that Valentino, like all luxury brands, needs a stable base, both financially and branding-wise, in order to continue to operate at the same level of creative artistry and storytelling and to successfully implement a strategic approach to digital transformation that allows it to adapt and scale over time. So the Kering investment is perhaps not a surprise and coming at a very critical moment for the future of the iconic Valentino brand.
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