This week, Kering announced preliminary negative sales results for Q1 2024 based upon weaker-than-planned results for Gucci and the China business. As such, we thought to look at trends in the U.S. for prestige luxury. We recently constructed a custom luxury index which is comprised of all centers that hold a Louis Vuitton store as well as the Louis Vuitton, Saks, and Neiman store locations in Placer. As readers know, we don’t measure transactions at these locations or what is bought, but it's a good proxy for consumer interest / engagement with the category. As shown below, after the fall swoon, things picked up for the holiday as we reported here. Post January’s bad weather, interest / engagement firmed up solidly. Given the wealth generation that’s coming from the strong stock market and housing, plus, the improvement in sentiment around the economy, we expect the firming to continue. 2022 and 2023 were softer years for prestige luxury spending in the U.S. as its customers were off on international holidays (in other words, spending on "fun" versus "stuff"). In our outlook for 2024 consumer spending, we shared that we expected the industry to improve as overseas tourists coming to the U.S. would be weightier than U.S. travelers spending overseas. That traffic and spend will be on top of what we show below and what we can see with Placer.
As it relates to Kering, the company and the Gucci brand have underperformed its peers since 2021 as we’ve previously written about (including when they uniquely commented on a softer January during their earnings results). The shortfall to the company's Q1 2024 expectations appears to be solely brand and China-related, with Gucci continuing to lose appeal in the region (Gucci Asia sales are down approximately 20%). That loss is seen to be stemming from Chinese customers being more discerning with their luxury purchases and choosing brands that they feel have long-term value such as Cartier, Chanel, Louis Vuitton, and Hermès. Gucci and some of Kering’s other large brands such as YSL are more aspirational luxury brands. A similar dynamic has also been seen with Burberry.
Kering isn’t sitting still and has made changes to the Gucci management team and appointed a new creative director. The Q1 2024 performance is a reminder that the turnaround is in its early stages as the first product of the new director has only recently entered stores and remains small relative to the overall product offer.
