Gucci owner Kering SA (KER) will consider acquiring sports and lifestyle brands in three years as it assesses the performance of the Puma label, Chief Executive Officer Francois-Henri Pinault said.
Any deal will hinge on Kering’s ability to reverse the fortunes of Puma SE (PUM), Europe’s second-largest sporting-goods maker, which has been undertaking a reorganization since 2009, he said in an interview in Hainan, China. Pinault, who’s also Kering’s chairman, said he’s “convinced” the Paris-based company should have a sports- and lifestyle-oriented business.
“When you look at the next 20, 30 years in terms of economic development of the world, the key markets are young people very much attracted by brands, very much aware of the health issues, attracted by sports,” he said in a Bloomberg Television interview yesterday. “Luxury and sports are structurally, over a long period of time, growing markets.”
Kering is seeking new sources of revenue to offset slowing growth at Gucci, the retailer’s biggest label. Customers are switching to brands perceived to be more exclusive and Chinese President Xi Jinping’s campaign to curb public extravagance damps luxury sales in the world’s second-largest economy. Gucci recorded the weakest quarterly sales growth in four years in the three months ended December.
The French company will spend 70 million euros ($97 million) to strengthen Puma under a new slogan of “Forever Faster,” Pinault said. The 51-year-old ruled out selling the Herzogenaurach, Germany-based sporting-goods manufacturer.
“The portfolio of our sports brands is not finished,” Pinault said. “We’ve started it but, until Puma is on track, we won’t make any acquisitions. Let’s say two, three years from now, we will look again to try and strengthen that portfolio.”
The first signs of the marketing campaign’s success will come in September and October, when wholesale orders are taken, Pinault said. Puma, 84 percent owned by Kering, reported on Feb. 20 full-year profit that declined more than analysts had estimated.
“I am a bit skeptical about sports and lifestyle,” as the segment is “by far more competitive” than the luxury business and offers lower margins, Mario Ortelli, an analyst at Sanford C. Bernstein in London, said in an interview. “In this market, you have both local and global competitors.”
Direct rivals such as Adidas AG (ADS) and Nike Inc. (NKE) are also much bigger than the smaller producers in the category and will be able to spend more money on advertising, promotions and research and development, Ortelli said.
Kering has declined 0.5 percent in Paris trading this year, in contrast to a gain of 3.4 percent in France’s benchmark CAC 40 index. Kering was trading up 2 percent at 152.90 euros as of 1:09 p.m.
The company is in the process of raising prices and tightening distribution at Gucci to elevate the appeal of its biggest brand. The strategy is taking a toll on business in China, as the pace of Gucci store openings slows and Kering reduces sales of entry-level luxury products, Pinault said at a post-earnings presentation. Chinese customers account for more than $1 in every $4 spent on luxury goods worldwide, Bain & Co. estimates.
Kering will spend more money this year to market the results of its Gucci product revamp and won’t replace its creative director or its chief executive officer, Pinault said.
The company, which owns other luxury labels such as Bottega Veneta and Yves Saint Laurent, is increasing sales of those brands as customers increasingly seek exclusivity in their purchases.
Bottega Veneta’s share of Kering’s sales was 9.7 percent in 2012, more than double the proportion in 2010, according to data compiled by Bloomberg. Yves Saint Laurent’s share also more than doubled in the period, to 4.9 percent. Gucci accounted for 37 percent of revenue in 2012, compared with 24 percent in 2010, the data show.
To contact the editors responsible for this story: Stephanie Wong at firstname.lastname@example.org Tom Lavell, Celeste Perri