Paris “Luxury is always possible,” it was said for years. Luxury goods encountered a steadily growing demand worldwide. Nothing could shake them, not the financial crisis and also not the euro crisis. But now the sales records have been suddenly stopped by the corona virus. The luxury industry has been in crisis since the outbreak of the pandemic and needs to reinvent itself.
This also applies to the French luxury group Kering, which was founded in Paris in 1963 and, despite its size, is still a family business that has been run by François-Henri Pinault, son of the founder François Pinault, since 2005. The 58-year-old Pinault son increasingly geared the group from classic retail to the luxury industry, with which he was also successful until Corona.
Kering with the draft horse Gucci is the world’s number two in luxury behind the domestic competition LVMH (Moët Hennessy – Louis Vuitton). In addition, the brands Saint Laurent, Bottega Veneta, Balenciaga and Boucheron belong to the company with around 38,000 employees.
The company boss cuts his salary by a quarter
For this year, Kering boss Pinault has cut his salary from April to December by 25 percent to 960,000 euros. Pinault, the husband of actress Salma Hayek and previously a friend of top model Linda Evangelista, is extremely discreet and relies more on deeds than big words.
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However, some new personal details from the company show that you still have to reckon with Pinault and Kering. Jean Liu, Tidjane Thiam and Emma Watson will join Kering’s Board of Directors, it was recently announced. “Their respective knowledge and skills”, as well as the diversity of their backgrounds and perspectives, are of inestimable value for Kering, emphasizes Pinault.
Especially with Emma Watson, Kering landed a media coup. “In the future, brands must also be activists, because people want to find value in luxury,” said Fabrice Pelosi from communications consultant Apco Worldwide. To do this, the leading people have to appear authentic, which is the case with Watson.
The British actress, Hermione from “Harry Potter”, is supposed to take care of sustainability at Kering. The company intends to increasingly rely on this in the future, and Watson is considered a pioneer in this area. The British woman is “one of the most popular actresses and one of the most famous activists in the world,” said Kering.
For years, the 30-year-old has been committed not only to ecological issues, but also to women’s rights. The day after the inauguration of US President Donald Trump, she took part in the “Women’s March on Washington”, one of the worldwide protest marches for women’s and human rights.
With the new supervisory boards, Pinault is relying on well-known influencers
The 42-year-old Chinese Jean Liu turned the start-up Didi Chuxing into one of the world’s largest transport service providers and competitor of Uber. She is well versed in tech and featured on Time Magazine’s list as one of the 100 Most Influential People in the World. It is important for Kering’s Chinese market.
Tidjane Thiam, 57, who comes from Ivory Coast, is the former head of the Swiss bank Credit Suisse and will chair the audit committee. In April he became the African Union’s special envoy for Covid-19. All three have a lot of weight as influencers in their respective fields. Digitization should be advanced.
In times of crisis, corporations have to maintain their image and reinvent themselves. At Kering there was a sales decrease of 15.4 percent in the first quarter. Pinault said: “The Covid-19 pandemic hit us hard.” Especially Gucci, the otherwise most profitable brand, fell by 23.2 percent in sales. Overall, however, Kering is in line with the trend. Competitor LVMH also saw sales fall by 15 percent in the first quarter.
Where otherwise customers queue up in front of the shops of Gucci or Louis Vuitton on the luxury streets of Avenue Montaigne and Champs-Élysées, there is a yawning emptiness. The rich tourists from all over the world, especially the Chinese travelers, are missing.
Experts from the management consultancy Bain & Company assume that the luxury industry will record a drop in sales of 20 to 35 percent in 2020 as a whole. They do not expect a recovery until 2023 and a return to the level of 2019. In the past year, Kering generated sales of around 15.8 billion euros – 16.2 percent more than in the previous year.
But Pinault also has to keep an eye on the share price. Analysts are unsure of what Kering’s future will look like. In the last five years, the market capitalization had quadrupled, since the crisis year 2009 even twenty-fold.
Analysts are undecided
The effects of the pandemic in the important US, China and Hong Kong markets have left their mark. However, Pinault was able to partially compensate for the losses in February and March. The first numbers in China after the shutdown are already going up again and the share has risen by more than 20 percent in the past three months, even if at around 500 euros it is still 15 percent below the value at the beginning of the year. But that still makes the stock quite expensive.
Numerous analysts believe a further increase in the price by eight percent within three months is possible. However, some also fear that cheaper stocks such as banks and oil will be preferred to the stock market in the future – to the detriment of luxury stocks, according to Christophe Machinot, analyst at the independent French bureau AFATE. (Association Française des Analystes Techniques).
The Oddo banking house is even particularly pessimistic and believes the share price could fall because it cannot be ruled out that sales at Kering will collapse by half in the second half of the year.
Now Pinault wants to focus more on online business and hopes to boost local business, even if that should not be enough to make up for the lack of foreign tourists. Kering competes with LVMH on the subject of sustainability. That is the defining trend right now. The two companies repeatedly publish news that they are particularly environmentally conscious.
According to specialists in the field of sustainable development, Kering is currently in the lead, according to the magazine “Capital”, which compared the two’s green commitments. Positioning on the topic is important. Consumers will see the world differently after Corona than they did before. Claudia D’Arpizio from Bain & Company emphasized that those who best interpret the “zeitgeist” and remain true to their brand history have the best chances.
Awareness of ecology and sustainability has increased in the corona crisis. Pinault and Kering benefit from this.
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