The French conglomerate Kering, owner of the Italian fashion house Gucci, worth $34 billion, has suffered from falling revenues and rising debt. The new CEO, Luca de Meo, may sell most of the group's €4 billion store portfolio to ease the company's growing influence, but such a sale of shares only reduces the problem, and the release of luxury addresses could give competitors an advantage, writes UNN with reference to Reuters.
Details
The French luxury goods company has spent 3.9 billion euros on building its real estate empire since 2022. Last year, Kering acquired 715-717 Fifth Avenue for $963 million, securing the best shopping center of more than 35,000 square meters – roughly the same area as one and a half football fields – in one of the world's most popular fashion districts. Last April, it also spent 1.3 billion euros on Via Monte Napoleone 8 in Milan – one of the largest shopping centers on the city's luxury strip.
This shopping boom preceded a particularly volatile period. Kering has lost more than 50% of its market value in the last two years amid a sharp drop in sales of Gucci, its largest brand.
To raise additional funds, the group began selling off some of its real estate. In January, it raised 837 million euros by selling controlling stakes in three Parisian buildings to the private investment company Ardian, while retaining 40% of the project.
Deputy CEO Jean-Marc Dupleix said the deal was "smart and efficient" and hinted that the same model could be applied to Gucci's flagship on Fifth Avenue in New York, Milan's Trophy, and another Parisian property.
This strategy is an attempt to avoid bigger problems. A sell-off could further undermine value: the company has already recorded capital losses this year from its Parisian deals.
Moreover, giving up full control could open the way for Bernard Arnault's $300 billion LVMH, creating new development opportunities or attracting competitors to prestigious locations, undermining brand prestige and possibly sales.
Nevertheless, de Meo is in a difficult position. Retaining 40% of the building instead of getting 100% will not solve the company's net debt problem, which amounts to almost 10 billion euros, almost three times the 3.6 billion euros in EBITDA that Visible Alpha forecasts for this year.
Getting rid of this debt means that competitors with cleaner balance sheets can invest more aggressively in marketing, products, and growth. The new CEO can accelerate asset sales to strengthen finances and return capital to Gucci. But he will likely find that playing both landlord and tenant creates more problems than it solves.
Addition
Donatella Versace left her position as creative director of Versace, and Dario Vitale will replace her. Demna Gvasalia left Balenciaga and took over Gucci, replacing Sabato De Sarno.