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Is the Gucci bubble about to burst?

By Don-Alvin Adegeest

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Business |ANALYSIS

The thing about bubbles is, they inevitably burst. Some last a long time, like the dot-com bubble from 1994 to 2000, which saw internet-based companies peak, then crash, in March 2000, with even Amazon and eBay finding themselves in negative waters. But more often than not bubbles burst as quickly as they grow. So too it is with fashion. Brands that are hot today rarely keep the same growth momentum for longer than a few years.

Investors are eyeing Gucci for an inevitable slowdown

As the luxury houses revealed their half year figures this week, investors have been keeping a keen eye on Kering’s Gucci, which has seen double digit growth for three years solid but is now facing a slower momentum. While Gucci is unlikely to crash, when the slowdown sinks in it will be interesting to see how the Florentine business and parent company Kering will respond. The bubble, it appears, is no longer brimming at the same pace.

Cause for alarm?

Gucci’s comparable sales rose 12.7 percent in the second quarter, down from analysts expectations, who had forecasted 14.5 percent. It is the waning momentum that is alarming the brand’s key investors, said Bloomberg.

Kering shares fell 9.9 percent in Paris after the group announced its results on Thursday. According to Bloomberg, “Gucci is coming up against tough comparisons, after sales surged 40 percent a year earlier and 20 percent in the previous quarter. Kering has been trying to persuade investors that the brand’s growth is simply normalising and that the decadent wares by designer Alessandro Michele aren’t going out of style.”

Compared to LVMH, who’s quarterly results saw a rise of 20 percent, Kering may be losing some momentum. A weak performance in the United States, linked partly to a drop in Chinese visitors there, dragged on Gucci's sales and that of other Kering labels, said Reuters. Kering's Financial Director Jean-Marc Duplaix said. "It's a market that's becoming more difficult, we've seen that for all our brands," Duplaix told reporters.

Still, total revenue generated by Kering's Houses was up 15.2 percent on a comparable basis to 7,364.4 million euros.

François-Henri Pinault, Chairman and Chief Executive Officer in a press release stated: “In the first half of the year, we delivered another very strong set of results. Kering’s revenue growth handily topped market trends, and was highly profitable. We created an additional 1.2 billion euros in revenue in the six months, and our operating margin reached a record 29.5 percent. Our strategy is clearly paying off. The success of our brands, built on creativity, innovation, and customer dedication, along with rigorous execution and financial discipline, are delivering a superior combination of organic growth and sustainable profitability.”

Picture: Gucci Facebook

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Kering