Equities

Kering SA's Strategic Real Estate Investment in Milan Amid Gucci's Sales Decline

Kering invests €1.3 billion in Milan's luxury retail, amidst Gucci's sales decline and strategic brand revitalization efforts.

By Mackenzie Crow

4/4, 07:47 EDT
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Key Takeaway

  • Kering SA purchases a €1.3 billion property on Milan's Via Monte Napoleone, marking the largest asset sale in Italian real estate and reflecting its strategic investment in luxury retail spaces.
  • Gucci faces a 20% sales decline, particularly in Asia-Pacific, leading to a €6.3 billion drop in Kering's market value and prompting efforts to diversify beyond Gucci.
  • Initiatives include appointing Sabato De Sarno as Gucci's new designer and exploring partnerships to limit real estate exposure, aiming for brand revitalization and portfolio agility.

Kering's Strategic Real Estate Investments

Kering SA, the French luxury conglomerate known for owning prestigious brands such as Gucci and Balenciaga, has made a significant investment in Milan's luxury retail landscape by purchasing a property on Via Monte Napoleone for €1.3 billion ($1.41 billion). This acquisition from a unit of Blackstone Property Partners Europe includes an 18th-century building with over 5,000 square meters of retail space, housing high-end Italian cafe brand Cova and fashion label Prada. This move is part of Kering's "selective real estate strategy," aimed at securing prime locations for its labels. The deal is highlighted as the single largest asset sale in the Italian real estate market, reflecting exceptional investor demand for high-quality real estate in strong markets. This follows Kering's January purchase of a building on Manhattan’s Fifth Avenue for $963 million, indicating a heating up of luxury retail real estate purchases.

Gucci's Market Challenges

Kering's flagship brand, Gucci, has faced a significant sales decline of about 20% in the first quarter, particularly in the Asia-Pacific region, which has historically been a strong market for luxury goods. This decline led to a 12% drop in Kering's stock in Paris trading, erasing approximately €6.3 billion ($6.8 billion) from its market value. The sales drop at Gucci, which accounts for two-thirds of Kering's profit, has been attributed to its designs falling out of favor with Chinese consumers, who are currently trending towards understatement. This situation has prompted Kering to explore ways to reduce its reliance on Gucci, amidst a cooling market for high-end goods and particularly weak demand in China.

Revitalization Efforts and New Directions

In response to the challenges faced by Gucci, Kering has initiated several strategic moves aimed at revitalizing the brand. Sabato De Sarno was appointed as Gucci's new designer, introducing a more elegant and minimalistic aesthetic in his first collection. Early products from the Ancora collection by De Sarno have been well received, with their availability expected to increase in the coming months. Kering has also been exploring partnerships with financial funds to become more agile and limit exposure to real estate, emphasizing that it does not intend to become a property developer. These efforts are part of a broader strategy to manage a real estate portfolio with the objective of retaining a stake in prime assets alongside co-investors.

Street Views

  • Luigi Caruso, Blackstone (Bullish on Milan's real estate market):

    "The deal represents the single largest asset sale in the Italian real estate market... exceptional investor demand for high quality real estate in the strongest markets."

Management Quotes

  • Jean-Marc Duplaix, Deputy CEO of Kering:

    "Kering will only purchase 'exceptional' buildings in a limited number of cities if they create value for the group’s labels... The company was exploring partnerships with financial funds to become 'more agile' while limiting exposure to real estate. Kering has no plans to become a property developer."

  • Francois-Henri Pinault, CEO of Kering:

    "[Kering] has about 1,800 selling points yet doesn’t intend to own or co-own more than a handful of key exclusive locations."