Kering SA appointed Balenciaga designer Demna Gvasalia (popularly known as just Demna) to oversee a makeover of its struggling Gucci fashion label, disappointing investors who had expected a high-profile external hire.
Shares of the French luxury-goods company plunged 11% in Paris early Friday (March 14) after the announcement late Thursday (March 13).
They’ve fallen 47% over the past 12 months as Kering has fallen behind rivals like LVMH, dragged down by the problems at Gucci, its biggest brand.
Demna, as he is known, has been at fellow Kering label Balenciaga since 2015, lifting its sales with daring new looks and sometimes courting controversy.
It’s a much smaller brand than Gucci, which accounts for almost two-thirds of the parent company’s profit and has been hit hard by the slump in demand for luxury goods in China.
Some investors were expecting Kering to tap a high-profile creative director from outside the company to take the Italian label in a new direction.
The minimalist designs of Sabato De Sarno, whose departure was announced last month after only two years at the brand, failed to resonate with consumers.
Read more: Upon his exit from Balenciaga, Demna is stepping into Gucci as artistic director
"We appreciate Demna’s success at Balenciaga, however worry this appointment at Gucci is not enough to underpin what is required in terms of signalling to consumers and investors,” RBC analysts Piral Dadhania and Richard Chamberlain said in a note.
"We believe the market was looking for an external ‘heavyweight’ candidate, who could lead and influence with fresh perspective and ideas in order to re-ignite brand momentum at Gucci.”
While at Balenciaga, Demna apologised for a promotional campaign that drew criticism that it sexualised children.
Demna said he was sorry for the "wrong artistic choice” behind a gifting campaign that included child models holding teddy bears clad in what appeared to be bondage gear.
Sales at Balenciaga have surged under his creative leadership, however, as the brand launched sneakers such as the Triple S, which are recognisable by their exaggerated size.
Demna’s "creative power is exactly what Gucci needs”, said Francois-Henri Pinault, chairman and chief executive officer of Kering.
Kering said last month that Gucci’s revenue fell 24% in the fourth quarter, which was worse than analysts expected.
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Pinault dimmed hopes for a quick turnaround, saying he doesn’t expect an improvement in demand in China this year.
The Italian label is particularly exposed to the Chinese market, and its fortunes had previously soared under designer Alessandro Michele, who preceded De Sarno and was known for his flamboyant looks.
Under De Sarno, the brand embraced a more reserved esthetic.
Demna will start in the new role in July, Kering said. The brand also has a new chief executive officer, with Stefano Cantino, a former executive at LVMH’s Louis Vuitton, taking over in January.
Other luxury brands have also been affected by the slump in Chinese demand, though French rivals LVMH and Hermes have been more resilient.
Some of Kering’s other labels, including Saint Laurent and Bottega Veneta, have also generally performed better than Gucci in recent years. – Bloomberg
