Kering, the French luxury conglomerate and parent company of Gucci, has launched an ambitious strategic overhaul aimed at doubling its recurring operating profit margin over the medium term. The move comes as the group struggles to regain momentum following a period of significant underperformance, particularly within its flagship brand, Gucci.
The company disclosed that its recurring operating profit margin stood at 11.1% last year, a sharp decline from its historical highs. By pledging to double this figure, Kering is signaling a pivot away from the volume-driven growth of previous years toward a model centered on exclusivity and higher pricing power—the hallmarks of the most successful houses in the luxury sector.
This strategic pivot is not merely a financial target but a survival mechanism in a cooling global luxury market. As consumer spending softens in key regions like China and the United States, Kering is attempting to insulate itself by restoring what it calls the group’s “fundamentals” by the end of 2028. The plan focuses on increasing the “desirability” of its brands, moving away from the trend-heavy cycles that previously fueled its rapid ascent but left it vulnerable to shifts in taste.
The Gucci Dilemma: From Maximalism to Minimalism
The center of Kering’s struggle is undoubtedly Gucci. For years, the brand enjoyed a meteoric rise under the creative direction of Alessandro Michele, whose maximalist, eclectic aesthetic captured the zeitgeist of the late 2010s. This era pushed Kering’s operating margins to a peak of 27.5% in 2022, driven by explosive sales of logo-heavy accessories and apparel.
However, that success created a dependency on a specific look that eventually fatigued the market. As the industry shifted toward “quiet luxury”—a trend characterized by understated elegance and logo-free designs—Gucci’s bold aesthetic began to lose its luster. The company has since seen a slide in quarterly sales, a trend that continued into the early months of this year.
To counter this, Kering has entrusted the brand to new creative director Sabato De Sarno. The goal is to transition Gucci toward a more timeless, refined luxury positioning. While the financial impact of this transition is still unfolding, the pledge to double profit margins suggests that Kering believes the path to recovery lies in higher margins per item rather than simply chasing sales volume.
The Path to 2028: Restoring the Fundamentals
Restoring a luxury group’s fundamentals is a gradual, deliberate process. For Kering, this means tightening control over distribution and reducing the reliance on wholesale channels, which can dilute brand prestige and erode margins. By shifting more sales to directly operated stores, the company can capture a larger share of the retail price and maintain stricter control over pricing.
The timeline to 2028 suggests a phased approach to recovery. The company is focusing on several key pillars to achieve these targets:
- Elevating Brand Positioning: Moving products up-market to attract ultra-high-net-worth individuals who are less sensitive to economic downturns.
- Operational Efficiency: Streamlining the supply chain to reduce costs without compromising the artisanal quality of the goods.
- Diversification: Reducing the group’s heavy reliance on Gucci by scaling other houses within the portfolio, such as Saint Laurent and Bottega Veneta.
From a financial analysis perspective, the jump from 11.1% to over 22% is a steep climb. It requires not just a return to growth, but a fundamental change in how the company manages its cost of goods sold (COGS) and its marketing spend. In the luxury world, profit margins are the ultimate proxy for brand strength; the more a customer is willing to pay for a name regardless of the material cost, the higher the margin.
Benchmarking Against the Luxury Giants
Kering’s ambitions are designed to bring it back into alignment with its primary competitors, most notably LVMH and Hermès. These peers have historically maintained higher and more stable margins by strictly limiting supply and focusing on “investment pieces” that retain value over time.
| Period | Operating Margin | Context |
|---|---|---|
| 2022 Peak | 27.5% | Maximalist boom under Alessandro Michele |
| Last Year | 11.1% | Post-pandemic correction and brand transition |
| Medium-Term Target | ~22.2% | Strategic goal to double current margins |
The disparity between Kering’s current state and its 2022 peak highlights the volatility of trend-based luxury. While LVMH operates a diversified empire of “Maisons” that balance each other out, Kering’s fortunes remain heavily tethered to the creative direction of Gucci. This concentration of risk is exactly what the new strategic plan seeks to mitigate.
What This Means for the Market
For investors and industry observers, Kering’s pledge is a gamble on the “new” Gucci. If the brand can successfully pivot to a more timeless aesthetic while maintaining its cultural relevance, the margin expansion will follow naturally. However, the luxury sector currently faces significant headwinds, including a slowdown in Chinese luxury consumption and a general global shift toward more conscious, less conspicuous consumption.
The success of this plan will depend on whether the market accepts Sabato De Sarno’s vision as a permanent staple of luxury rather than another passing trend. The move to double margins indicates that Kering is no longer interested in being the “trendy” house; it wants to be the “essential” house.
Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice.
The next critical checkpoint for Kering will be its upcoming quarterly earnings reports, where the company will provide updated data on Gucci’s sales trajectory and the initial impact of its operational cost-cutting measures. These filings will reveal whether the path to 2028 is a steady ascent or a more volatile climb.
Do you think Gucci can return to its peak profitability in the current luxury climate? Share your thoughts in the comments below.
