Kering has been furiously trying to regain its mojo after watching its shares plunge by 60% in the past five years while it tries to revive its flagship brand, Gucci.
The French luxury giant announced that Sabato De Sarno, Gucci’s creative director, who was tasked with reinvigorating its biggest brand, is leaving the company. The move comes just two years after his appointment, leaving Kering’s most lucrative segment in limbo at one of its weakest moments.
Creative directors are the most critical players for any brand. Their designs and vision drive traction and, ultimately, sales. Kering’s fortunes are also influenced by volatility in the luxury market, changes in company leadership, and depressed demand from China.
De Sarno, who had previously worked at Kering-owned Valentino but was still fairly unknown in the world of high-end fashion, was to be a key piece of Kering’s efforts to position itself at the intersection of fashion and luxury.
But his first collections, unveiled in the second half of 2023, didn’t stir the kind of interest that could turn Gucci’s fate around. They were seen as too traditionalist, given Gucci’s track record of bolder styles. So the pain continued to radiate through the brand’s business. Gucci’s sales cratered 26% in the third quarter of last year, pulling Kering’s revenue down 15% compared with the same period a year ago.
When announcing De Sarno’s departure, Kering didn’t provide a firm timeline around when a new creative director would be announced. But without one, Gucci’s position will continue to look weak in a luxury market that’s finally showing green shoots of a recovery.
Kering’s 2024 operating income, to be released Tuesday, is expected to drop 47%, according to Visible Alpha consensus estimates.
It doesn’t get much worse than this, Flavio Cereda, investment manager at asset management firm GAM Investments, pointed out. Kering faces financial pressure as it has made big acquisitions, including of perfume maker Creed for €3.5 billion.
“Kering has many issues right now, but Gucci is core. If Gucci does not perform, Kering will not rerate, so they must get that right now,” he told Fortune in an email.
Luca Solca, an analyst at Bernstein Societe General, said in a note last week that De Sarno’s departure was a long time coming because his designs “didn’t fit the exuberant image that consumers have built of Gucci in the past 30 years.”
“Gucci now has the opportunity to reignite its brand heat. Kering’s shareholders will need the courage to push this through,” Solca said.
The brand’s new CEO, Stefano Cantino, took over at the start of the year, which could help set its direction while the next creative director is being scouted. Kering has been in talks with other designers since July, two unnamed sources told the Financial Times.
Gucci is no stranger to ups and downs throughout its history, including family feuds culminating in the murder of the founding family’s heir. It had a long period of losing market share to bigger competitors throughout the 1980s and early 1990s. Things began turning a corner under then–new creative director Tom Ford. Kering, then known as PPR, bought a controlling stake in Gucci in 1999 and has been instrumental in growing it into the luxury powerhouse that it is today.
Its streak of success continued into the 2010s, with a few blips along the way. Then came the COVID-19 pandemic, which drove sales up rapidly before they came crashing back down after. This trend left much of the luxury industry reeling, especially as Chinese demand struggled to recover—and Gucci was hurt by it, too.
Despite its less-than-alluring results recently, Gucci will likely see this crisis through.
“The change in creative direction at Gucci hardly guarantees a turnaround but does signal that Paris had enough, acknowledges the mistake, and is attempting a reset,” Cereda said. “Certainly Kering can no longer afford to get it wrong and hopefully has learnt from past mistakes.”
For its part, Kering is trying to clean up parts of its business and shore up cash. Last month, the French company sold majority stakes in three of its Paris real estate assets to private equity firm Ardian.
It might announce further updates to its plans moving forward when it reports full-year earnings on Tuesday.
Representatives at Kering didn’t immediately return Fortune’s request for comment.
