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Why Luxury Brands Like Gucci Are Struggling to Regain Their Shine

by Team Lumida
May 30, 2024
in Legacy Brands
Reading Time: 4 mins read
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berlin, shopping, gucci

Photo by St33lv0ll1 on Pixabay

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Key Takeaways

  1. Gucci’s sales fell 18% in early 2024 amid slowing luxury demand.
  2. LVMH’s marketing budget swelled to €10 billion, overshadowing smaller brands.
  3. Burberry struggles with reliance on outlet sales, impacting brand image.

What Happened?

Gucci’s sales plunged 18% in the first quarter of 2024, driven by declining interest in its designs, especially among Chinese shoppers. Kering, Gucci’s parent company, faces similar struggles with Balenciaga, which has not bounced back from a controversial 2022 ad campaign.

Burberry and Ferragamo are also in trouble, with Burberry’s share price halving since a major makeover began in 2017. Smaller luxury brands struggle to keep up as LVMH expands its dominance, increasing its marketing budget from €6.3 billion in 2019 to over €10 billion in 2023.

Why It Matters?

Luxury brand turnarounds have become increasingly challenging. LVMH’s growing clout and financial muscle make it difficult for smaller brands like Gucci and Burberry to stand out.

Kering warned that its operating profit might fall by 45% in the first half of this year due to slow sales at Gucci. High fixed costs, aggressive price hikes, and a growing reliance on outlet stores compound these challenges. Burberry’s heavy dependence on outlet sales, which generate a quarter of its revenue, undermines its brand image.

What’s Next?

Investors should watch for early signs of successful turnarounds, such as social media buzz and increased foot traffic in flagship stores. However, current trends suggest cautious optimism. Brands like Gucci and Burberry must find ways to innovate and attract aspirational shoppers who are tightening their wallets amid economic uncertainty.

The luxury market’s reliance on affluent consumers, who now account for only 60% of global sales, poses a significant risk. Monitoring earnings reports and social media reactions can provide insights into whether these brands are regaining their relevance.

Kering and Burberry stocks are trading below the average for Europe’s top luxury companies, offering potential value if turnaround plans succeed. However, the luxury sector’s high fixed costs and reliance on outlet sales make these investments risky.

Source: WSJ
Tags: BurberryGucciLuxury BrandsLVMH
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Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
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