The day before yesterday, Kaiyun Group released a performance forecast, predicting that sales in Q1 2024 will decline by about 10% year-on-year, with the core reason being the sharp decline in Gucci sales in the Asia Pacific region. Kaiyun Group estimates that Gucci’s Q1 sales will decline by nearly 20% year-on-year.
As soon as the news came out, the stock price of Kaiyun Group plummeted after opening, and the intraday decline expanded to 15%, the largest drop since 1992. In addition, Kaiyun Group also caused a series of luxury goods company stock prices to collapse. After opening, Herm è s fell by 2.5%, LVHM fell by 3%, and Burberry fell by 5.3%.
According to the official statement of Kaiyun Group, the main business issue lies with Gucci. And Gucci has always been the core source of revenue for Kaiyun Group, accounting for about two-thirds of the total revenue, with the Chinese market contributing about one-third of Gucci’s revenue. As for other brands under the umbrella of Saint Laurent, Baodie Jia, and Balenciaga, the overall revenue marketing of Kaiyun Group is not significant.
The brand recognition of Gucci’s red and green contrasting colors has always been high, with a bright red and green leather style that was loved by local bosses in the early days, so Gucci was labeled as a nouveau riche in the early days.
Later, Gucci took the initiative to seek change and, under the leadership of the new CEO and creative director, began to transform into a “retro romantic” style of design. Still contrasting red and green, paired with a retro style, it has become a personality proposition that has been loved by many young people. In addition to the representative God of Wine bag, even Father’s shoes have become Gucci’s bestsellers.
From 2015 to 2019, Gucci’s sales rapidly increased from 3.8 billion euros to 9.6 billion euros, with a compound growth rate of up to 36%. But Gucci’s hidden dangers today also lay the groundwork for this style transformation.
Gucci’s retro romance has been loved by young people, which has led to Gucci having more trendy characteristics and deviating from the traditional luxury brand’s route. In fact, in the past few years, the trend of luxury brands becoming more trendy was very obvious, and the most extreme trend may have been towards Balenciaga.
After Gucci’s sales exceeded 10 billion euros for the first time in 2022, it failed to maintain its position as a “billion club” in 2023, with sales of 9.873 billion euros, a year-on-year decrease of 6%.
According to the China Luxury Report, the global luxury goods market grew by 7% year-on-year in 2023, with China recording a growth rate of 9%. Chinese luxury goods consumption accounted for about 38% of global luxury goods consumption. This indicates that Gucci has fallen far behind the market performance.
In recent years, consumer classification has been the most obvious trend in the major consumer industries. On the one hand, luxury brands continue to raise prices, and high consumer groups are not highly sensitive to prices. Moutai Herm è s has even become a wealth management product that preserves and increases value; On the other hand, Volkswagen brands continue to lower prices, and the middle and low consumer groups have begun to downgrade their consumption, paying more attention to cost-effective consumption. As a result, platforms such as Pinduoduo and 1688 have emerged.
The dangerous signal sent by Gucci’s declining revenue is that it may no longer be a luxury brand. In recent years, an increasing number of young users have purchased Gucci products, which has led to a direct impact of consumer downgrading on Gucci sales.
At the same time, even if the factor of consumption degradation is removed, the aesthetic trend of products among young users changes very quickly. “Pleasure with the new and disgust with the old” and “weak loyalty” are typical characteristics of young consumers, which also makes Gucci sales easily affected by changes in youth trends. This should not be the battlefield for high luxury brands, and it also goes against the cultural value strategy of high luxury brands relying on “brand stories” to gain user loyalty.
The performance of the capital market is the most direct vote on Gucci’s brand strategy. In the past year, the stock price of Kaiyun Group has fallen by 30%, while LVMH has risen by 3.72% and Herm è s has risen by 34.42%.
In fact, the overall situation of Kaiyun Group in the 2023 fiscal year is not good. Except for Gucci, Saint Laurent’s revenue has declined by 4%, Baodie Home has declined by 5%, and other departments where Balenciaga and Alexander McQueen are located have declined by 9%. LVMH’s fashion and leather goods division saw a year-on-year increase of 9% in revenue for the fiscal year 2023.
From the popularity of the consumer market, it can be seen that the popularity of luxury brands such as LV and CHANEL is constantly increasing, indicating that Gucci seems to have been kicked out of the high-value luxury goods array such as LV, Dior, and CHANEL.
Previously, the problem with Gucci brand was that it was too pleasing to young users, which led to a decrease in luxury value. At the same time, it also had to face consumer substitution from street fashion brands and even high-end fashion and sports brands such as Archaeopteryx and Lululemon.
Looking back, if Gucci had adhered to its original positioning as a “local boss” and “nouveau riche” with high net worth, its situation today may have been more stable.
Kaiyun Group has realized the seriousness of Gucci’s problem, and in 2023, Gucci will change its CEO and creative director again, resulting in a change in product style. Transforming from a complex style of “retro romance” to a classic and minimalist tone, we also hope to create a themed brand color like Tiffany Blue – Angela Red.
To be frank, the new Gucci design style has not yet gained consensus in the market, but this poses significant challenges for both new and existing users. Old users may not be accustomed to Gucci’s new style, while new users have not yet gained brand recognition.
From the current market status and volume of Gucci, it may take more time for “Ankara Red” to be accepted by the market, but Gucci’s position in the luxury goods industry may no longer be guaranteed.
