Luca de Meo, who took office in June as the new chief executive officer (CEO) of Kering, the parent company of Gucci, has kicked off a full-fledged group overhaul. He said he would reduce reliance on Gucci, which can be called Kering's identity, and actively drive the growth of other brands.
On the 19th (local time), the Financial Times (FT) in the United Kingdom reported that CEO de Meo presented a mid- to long-term plan to revive Kering in a memo sent to employees last month. In the memo, he emphasized that a recovery at Gucci, Kering's core brand by sales and profit, remains important, while also saying broad changes across the group are needed.
De Meo stressed that Kering must activate other brands such as Saint Laurent, Bottega Veneta and Balenciaga to reduce "over-dependency" on Gucci. Gucci accounts for about half of Kering's revenue and two-thirds of its operating profit, making it the group's central pillar. But with sluggish sales continuing in major markets such as China, it has faced years of growth stagnation, and moves to change designers and the chief executive officer (CEO) have had little effect.
The memo is part of the innovation plan "ReconKering" conceived by de Meo, meaning to "retool Kering's competitiveness." ReconKering aims for Kering to reorganize within 18 months and put all brands back on a growth track. De Meo also gained global recognition for successfully leading an innovation plan called "Renaulution" at Renault, a previous employer.
De Meo assessed that while sales have plunged, selling, general and administrative expenses and investment expenditure have increased significantly, dealing a major blow to Kering's profitability. As a result, he said, there has been a "decline in return on capital, an increase in net debt, and a drop in Kering's share price value." In its earnings release in Jul., Kering said first-half net profit fell 46% on-year to 474 million euros (802.2 billion won).
The memo also included steps that de Meo calls the "First 100 day no-brainer" to cut the group's liability and funding expense. It also said a "multi-brand task force" should be formed to clear excess inventory, and that product assortments and pricing strategies need to be restructured by brand.
It also included a review of marketing expenditure to boost efficiency, a reduction in the size of Kering's retail network, and a renegotiation of lease contracts. De Meo said, "We must analyze the entire chain to identify underperforming stores and seek opportunities for rationalization." According to Reuters, Kering closed 55 retail stores last year.
Citing multiple sources, the FT reported that since de Meo joined, all Kering brands have been undergoing strategy reviews led by global consulting firms Bain & Company and Boston Consulting Group (BCG). In particular, loss-making Alexander McQueen is said to be most likely to face restructuring first as it finalizes its long-term strategy.
News of the plan to reduce reliance on Gucci sent Kering shares swinging. Since de Meo's recruitment, Kering's share price has risen steadily, up 75% from before he was hired, but on the 19th in Paris trading it fell 3.2%, cutting its market capitalization to 37 billion euros (about 63 trillion won). The FT said, "The strong rebound that followed the announcement in the spring of de Meo's CEO appointment has been broken."
Kering said in a statement that day, "Although these initial plans are subject to change later, they were widely shared with employees to build consensus and lay the groundwork for future strategic plans." The official strategy conceived by de Meo for Kering's revival is expected to be announced around next spring.