Kering Stands Firm on European Production Amid Sales Decline

Luxury conglomerate Kering, the parent company of Gucci, Yves Saint Laurent, and Bottega Veneta, has reaffirmed its commitment to keeping production in Europe despite trade tensions. Addressing concerns over potential tariffs imposed by former U.S. President Donald Trump, the company stated that it had no intention of shifting manufacturing to the U.S. to counter the impact of these policies.

François-Henri Pinault, CEO of Kering, emphasized during an earnings call that relocating production outside Europe would be illogical. He pointed out that most of the group’s manufacturing takes place in Italy and France, an essential aspect of its brand heritage. He further noted that the company’s products embody Italian and French cultural identities, making any move to counter tariffs unnecessary. Pinault also acknowledged that Kering already operates in key markets with import duties, such as China, and suggested that the company might need to reassess its pricing strategy in response to the trade environment.

In contrast, Bernard Arnault, CEO of rival luxury giant LVMH, previously floated the idea of relocating operations from France to the U.S. to navigate potential tax hikes. However, he later retracted his statement after facing backlash, including criticism from the leader of a French trade union. Meanwhile, Trump had also threatened to impose 25% tariffs on all goods from Canada and Mexico, later stating that tariffs on the European Union were inevitable and describing the EU’s trade policies as an “atrocity.”

Kering’s financial performance in 2024 reflected ongoing challenges in the luxury market. The company reported annual revenue of €17.2 billion ($17.82 billion), a 12% decline from the previous year, while its recurring operating income dropped by 46% to €2.554 billion. Gucci, its flagship brand, saw a 21% decrease in comparable sales, while Yves Saint Laurent experienced a 9% decline. The group’s stock price has fallen by more than 40% over the past year, remaining largely stable after the earnings report.

Despite weak results, a slight improvement in key markets like China and the U.S. provided a glimmer of hope for investors. Following the announcement, Kering’s shares saw a 5% rise in early trading, reflecting optimism that the company may have reached a turning point. A consensus from Visible Alpha, as reported by UBS, indicated that Kering’s sales had declined by 12% on a comparable basis in the fourth quarter, with Gucci suffering a steep 24% drop—figures that were in line with market expectations.

Pinault expressed confidence that Kering had reached a period of stabilization and was poised for gradual recovery. He also reassured investors that Gucci would make a strong comeback, stating that he had no doubts about the brand’s future resurgence.

In an effort to revitalize Gucci, which accounts for more than half of Kering’s sales and nearly two-thirds of its recurring operational profit, Stefano Cantino made a decisive move last week by dismissing creative director Sabato De Sarno. This marked Cantino’s first major action since assuming the role of Gucci’s CEO in January.

Gucci’s struggles come amid a global slowdown in luxury demand, which has hampered Kering’s attempts to rejuvenate the brand with De Sarno’s minimalist design approach. According to Bain & Company, luxury sales declined by 2% worldwide last year, largely due to China’s real estate crisis—an issue that has significantly impacted Gucci’s business. The firm also noted that the industry is currently experiencing its slowest sales growth in years.

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