Gucci, a key brand within the Kering luxury group, is reportedly breaking from conventional luxury pricing strategies by implementing more competitive pricing and, in some instances, reducing prices. This move comes under the leadership of new Chief Executive Officer Luca de Meo, who has acknowledged that in certain product categories, pricing may have gone "too far," impacting sales volume. This strategy aims to appeal to the "luxury orphans" – an estimated 70 million aspirational consumers who have exited the luxury market since 2023 due to a global slowdown in luxury spending.
Analysts have reacted positively to Gucci's new approach. Luca Solca of Bernstein highlighted Gucci's "bold willingness" to cut the price of items like the Mercato Tote Bag and praised the brand's "new and more realistic take on pricing, product and positioning." This approach is seen as a key factor in the brand's quick revenue stabilization. Similarly, HSBC's Anne-Laure Bismuth noted the group's focus on product creativity, quality, and competitive pricing to re-engage aspirational customers.
Kering's shares soared after second-quarter results indicated that the turnaround plan, led by de Meo and unveiled at a Capital Markets Day in April, is gaining traction. Bernstein raised its price target to 270 euros from 220 euros, while RBC increased its target to 350 euros from 340 euros, and HSBC upgraded Kering to "buy" with a target price of 340 euros from 290 euros. Although Gucci's organic sales saw a 2% drop in the second quarter, this was better than expected, and analysts anticipate a potential return to positive sales growth in the final three months of the year, especially with the arrival of creative director Demna's first full collection in stores.
Despite the price adjustments, analysts like Jelena Sokolova of Morningstar believe that Gucci's recovery is encouraging, citing improvements in revenue trends, margins, and regional performance. She emphasizes that Kering is executing its turnaround from a stronger financial position, supported by cost discipline and debt reduction, which provides management with greater flexibility. Oliver Chen of TD Cowen also noted encouraging growth in Gucci's leather goods, specifically mentioning the successful launches of the Borsetto and Paparazzo bags, suggesting that "compelling and more alluring storytelling is back at Gucci."
This strategic shift is a significant departure for a European luxury house, which typically prioritizes exclusivity and high price points. While some might view moving downmarket as a risk to brand dilution, de Meo's arrival and the current weak luxury cycle provide a conducive environment for such bold moves. The aim is to balance exclusivity with accessibility to regain momentum and secure long-term growth, with the ultimate goal of more than doubling its operating margin from 11% in 2025, although without a specific timeline.
