PARIS — François-Henri Pinault has a strategy for growth — and it centers on increasing productivity.

With margins under pressure from seesawing currency markets and tourist flows in an increasingly volatile environment, Pinault stressed that the group was setting more stringent standards for investment.

He also said he sees plenty of room for further growth at Gucci; the potential to boost sales of Bottega Veneta to more than $2 billion, and trumpeted how Kering has three brands other than Gucci that have sales of more than or close to the $1 billion mark, including Bottega, Saint Laurent and Balenciaga.

Regarding Saint Laurent, he declined to comment on persistent speculation that creative director Hedi Slimane will leave the fashion house after showing his fall women’s collection in Paris on March 7.

While paying tribute to the designer’s artistic vision, Pinault nonetheless said it was a mistake to assume a brand’s fortunes rested on the shoulders of a single individual. “That’s nothing but a construct of the mind. It’s never true. It would be dramatic,” he said. “The house is very strong.”

Pinault also weighed into the debate about making fashion shows more consumer-centric, saying he was against the idea of showing collections six months after they are designed. “In luxury, I think that is a mistake. The notion of ‘see-now, wear-now, or sell-now,’ for example, is a negation of dreaming, of desire,” he said. “The catwalk show is an integral part of the creative process. You don’t cut the creative process in two in a luxury brand.”

A key part of his presentation, though, was the outlining of the group’s growth strategy. Pinault indicated that acquisitions remain on ice and future investments will be conditional on brands improving free cash flow and same-store sales.

“The growth of the market in the short-term will often be less rapid than at the beginning of the decade,” the executive said, noting that Kering was entering a new phase in its development after several years of rapid store expansion.

“We are present today in the most important cities and locations in the world. Our priority is to extract more value from them. We will do this in particular by continuing to increase our same-store sales and this will have a direct impact on the growth of our margins,” he added.

Kering group managing director Jean-François Palus said it more bluntly: “We are not satisfied with the level of our margins in 2015, even if they can be explained partly by the effect of exchange rate fluctuations.”

Though Kering recorded organic growth of 4.6 percent in 2015, its strongest level in three years, the group’s leading brands, including Gucci and Bottega Veneta, saw their profitability decline. The French conglomerate, whose brands also include Puma and Boucheron, said full-year sales totaled 11.58 billion euros, or $12.86 billion, up 15.4 percent versus 2014 in reported terms.

Operating profit from continuing operations fell 1 percent to 1.64 billion euros, or $1.83 billion, in 2015. Meanwhile, the recurring operating income margin slid to 14.2 percent from 16.6 percent the previous year.

The good news is that a year after the start of the turnaround plan initiated by Gucci president and ceo Marco Bizzarri and creative director Alessandro Michele, Kering’s cash-cow brand is starting to deliver results.

Organic sales at Gucci, which accounts for more than one-third of total revenues at the group, rose 4.8 percent in the fourth quarter following a drop of 0.4 percent in the previous three months — marking its strongest quarterly growth rate in three years.

“Today, I can confirm that this revival is going full-steam ahead and that all the signals are on green,” said Palus.

Items like the Dionysus bag and the Princetown slip-on loafer have become hot sellers, while stores converted to the new concept developed by Michele — such as the flagship on Milan’s Via Montenapoleone – are overperforming both in terms of foot traffic and sales, he said.

In 2015, 34 stores were converted to the new concept and an additional 60 overhauls are scheduled for this year.

Meanwhile, the revamped Gucci Web site, unveiled in the United States in October, has resulted in a doubling of page views and a 20 percent increase in the average basket, Palus disclosed. The updated version of the Web site will come to Europe and Asia-Pacific this year.

Palus noted that Gucci’s performance improved despite the fact that Michele’s creations represented more than 30 percent of sales in the fourth quarter. That proportion was set to increase to 50 percent in the first quarter of 2016 and almost 100 percent by the end of the year, he added.

“Sales density at Gucci should be back in line with the sector’s top performers within the next few years. As you can see, the growth potential of Gucci is huge,” Palus said.

The brand posted a recurring operating income margin of 26.5 percent in 2015, down 370 basis points versus the previous year. This was due in part to exceptional costs linked to the marking down of collections designed by Michele’s predecessor Frida Giannini, in addition to expenses linked to restructuring and store closures.

Gucci’s wholesale revenues grew 4 percent in the fourth quarter as the brand completed a purge of the channel and inked new partnerships with specialty stores such as Colette in Paris and Dover Street Market in Tokyo, New York and London, said Jean-Marc Duplaix, chief financial officer at Kering.

Overall, sales in Kering’s luxury division jumped 16 percent to 2.21 billion euros, or $2.43 billion, while sport and lifestyle activities registered a 15.5 percent increase in revenues to 951.9 million euros, or $1.04 billion. On a comparable basis, luxury was up 7.2 percent, while sport and lifestyle rose 9.8 percent.

The strong performance comes on the heels of Hermès reporting a 14.5 percent bump in fourth-quarter revenues. LVMH Moët Hennessy Louis Vuitton, meanwhile, posted a 12 percent increase.

In highlighting Kering brands Bottega Veneta, Saint Laurent and Balenciaga, Pinault admitted that bringing these houses to their full potential will require a steady stream of investments. But he cautioned this would come with strings attached. “I won’t let a brand increase its capex without an improvement in its free cash flow,” he said.

Bottega Veneta posted sales of 1.29 billion euros, or $1.43 billion, in 2015, up 3.2 percent from the previous year in comparable terms. But the label suffered from its overexposure to the Asian market and in the fourth quarter saw organic sales fall 3.1 percent, their first quarterly drop since 2009.

Pinault said he had recently met with the brand’s ceo Carlo Alberto Beretta and creative director Tomas Maier to develop a strategy to put it on track to achieve 2 billion euros in sales in the short- or medium-term.

Among the initiatives in the pipeline were opening larger stores, including a unit on Madison Avenue in New York in 2017, in order to showcase a wider assortment; tailoring products more toward local customers in Western Europe and North America, and increasing advertising and communications for the brand.

“You can see the glass half empty or half full, but I see it half full. Bottega has a huge potential, especially in the rebalancing of its sales structure, in particular in mature markets,” Pinault said.

He said both Gucci and Bottega Veneta would close underperforming stores in Hong Kong and Mainland China this year, which should result in a small reduction in the group’s total store count in China.

Saint Laurent recorded revenues of 974 million euros, or $1.08 billion, last year, and will almost certainly cross the billion-euro threshold in 2016, said Pinault. He noted that the brand had achieved this with a network of 142 stores, signaling that it was “quite far, even very far from its total potential.”

Turning to Puma, Pinault declined to comment on persistent rumors that Kering is looking to off-load the German activewear brand, which delivered a rise of 11.7 percent in comparable sales in the fourth quarter. Tellingly, perhaps, he did not categorically state that Kering was not interested in a sale of the German sporting goods firm, as he has done in the past.

Pinault credited Puma with contributing to his positive outlook for 2016.
“We are approaching this year, in an environment that is complicated and constrained, with optimism and confidence, in particular thanks to the momentum we are enjoying internally with very important brands like Gucci, but also Puma,” he said.

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