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Kering Wants to Be the ‘Most Influential Group in the Luxury Universe.’ What Does That Mean?

Chief executive Francois-Henri Pinault laid out his ambitious strategy at the Paris-based conglomerate’s annual meeting for shareholders.
François-Henri Pinault | Source: Courtesy
By
  • Laure Guilbault,
  • Lauren Sherman

PARIS, France — François-Henri Pinault has transformed Kering from an amalgamation of disparate companies into a sleek, one-track operation focused entirely on the business of luxury, with a market capitalisation of €67 billion. On Wednesday at Kering's headquarters on Rue de Sèvres, the chairman and chief executive presented his plan to become the "most influential group in the luxury universe" to a packed room of 335 shareholders.

Pinault touted 2018 successes across the group, including continued double-digit growth in sales at Gucci and Saint Laurent, the latter of which enjoyed 19 percent growth on a comparable basis after growing more than 20 percent for seven years in a row.
He also underscored the billion-dollar potential of both Balenciaga — which is set to cross that particular sales milestone in 2019 — as well as Alexander McQueen, while acknowledging that there is work to be done at Bottega Veneta, where sales continued to drag. (Recently introduced products from new creative director Daniel Lee are selling well, Kering chief financial officer Jean-Marc Duplaix said on an early-April call with analysts.)
The company went on to burnish its progressive reputation, granting chief sustainability officer Marie-Claire Daveu 17 minutes to discuss 2019 initiatives, including a focus on animal welfare — for which a new set of standards are soon to be announced — land use and biodiversity protection.
The announcements fell on the same day as the release of non-profit Fashion Revolution’s annual review of 200 major brands and retailers’ public disclosures. On average, companies received a rating of 21 percent for the transparency of their supply chains. Gucci’s rating was 40 percent, Bottega Veneta’s 39 percent and Saint Laurent 38 percent. (The group’s brands were the highest-rated among pure luxury labels, although a number of brands scored over 60 percent this year, including Adidas and Patagonia.)
In other areas of corporate responsibility, the group said it plans to make an announcement at Copenhagen Fashion Summit in May pertaining to the charter aimed at improving the working conditions of models, first established in partnership with rival LVMH in 2017.

We are fortunate to have a portfolio of brands that are among the most important in these categories

Pinault also addressed why Kering dissolved its 50-50 partnership with Stella MCartney in 2018, despite the fact that her ethos falls so closely in line with Kering’s take on corporate responsibility.
“It's not for lack of trying to keep her,” he said, noting that, as part of the agreement made with McCartney in 2001, she was given the option to buy back the shares owned by Kering at certain points in the business’ trajectory. In 2018, she chose to do just that.
“Stella remains very close to us, especially in the field of sustainable development because she is so ahead of her time on this front,” he added, noting that McCartney is still on the board of directors of the Kering Foundation.
While Kering has pruned its portfolio in recent years — parting ways with McCartney but also Christopher Kane, spinning off Puma and selling Volcom — analysts suspect that the company may entertain a major acquisition in order to continue to generate value for shareholders. In 2018, the dividend was €10.50 per share, up 75 percent from €6 per share a year earlier.
Much of that value was driven by direct retail, which makes up 77 percent of the group’s revenue, according to group managing director Jean-Francois Palus. Direct retail was up 31 percent overall in 2018, while online sales were up 71 percent from a year earlier.

There would be no point today in going into another sector when we realise the significance of the potential that awaits us.

If Kering were to make an acquisition, it will likely be in what has become its core competencies: luxury apparel, accessories and jewellery. For instance, Pinault said that the group would steer clear of the wines and spirits category, which generated €5.14 billion for LVMH in 2018.
“We cannot do everything,” he said. “We are fortunate to have a portfolio of brands that are among the most important in these categories on an international scale...There would be no point today in going into another sector when we realise the significance of the potential that awaits us.”
It’s also crucial for Kering to keep its top performing brands hot, especially money-maker Gucci, which reported sales of €2.3 billion, up 20 percent from a year earlier, in the first quarter of the 2019 fiscal year. That pace, though far faster than the luxury market as a whole, was a comedown from the first quarter of 2018, when the Italian fashion house reported a 49 percent jump in sales.
On Gucci, Pinault reiterated ambitions in the beauty category and noted that the brand will launch its first high fashion jewellery collection in June. "I am convinced that we can do much better in beauty," he said, noting that about 70 percent of Gucci’s sales come from permanent-collection items, ensuring stability. He added that the brand's online sales, which were up 70 percent in 2018, are expected to exceed €1 billion euros in the medium term.
Shareholder approval of Pinault’s 2018 salary was just 78.74 percent, noticeably lower than in previous years (83.21 for his 2017 salary and 88.84 for his 2016 salary). That’s because Pinault was paid a considerable amount more than in the past: nearly €22 million, up from €2.75 million in 2017. The jump, covered heavily by the French media over the last few weeks, was attributed to a compensation package set up by the company in 2013, spurred by the company’s good performance last year.
(Last week at LVMH’s annual meeting, chief executive Bernard Arnault’s 2018 compensation, amounting to €4.48 million, was approved by 84.11 percent of shareholders.)
Shareholders, however, approved to keep the compensation package as is for 2019.

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