Kering, a French-based multinational luxury goods firm, issued an unusual profit warning in response to declining sales in Asia for its Gucci brand, dropping its stock price by 14%.

Wednesday, March 20, saw a precipitous collapse in the stock price, which has dropped by almost a third in the last year.

Other luxury conglomerates were also dragged down. In the first round of trades, Burberry's share price dropped 5.7%, while LVMH, Christian Dior, and Hermes all had falls of over 2%, CNBC reported. The Hong Kong-listed Prada stock dropped by as much as 11% at one point before making a partial comeback.

Amid Decline in Asia Sales

Gucci sales -responsible for two-thirds of the group's operational profits last year - fell roughly 20%, according to Kering's press statement, which predicted a 10% year-on-year decline in first-quarter comparable sales.

Kering cited Gucci's greater sales decline, especially in the Asia Pacific region, as the reason for the company's poor results. As April draws close, the company will reveal its first-quarter revenue.

With new leadership and creative director Sabato de Sarno at the helm, Gucci is attempting a comeback, but nothing has yet materialized.

The De Sarno collections have been available in shops since mid-February, and Kering said they are receiving a lot of positive feedback. They added that the new goods would be more widely available in the coming months.

Last month, Kering announced intentions to invest in Gucci's transition this year, with the expected impact on profits in 2024.

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Within the High-End Business Sector

While Gucci has been the focus of Kering's problems, the company's other labels, such as Saint Laurent and Bottega Veneta, also saw declining sales last year.

According to the Financial Times, the success of larger competitor luxury businesses LVMH and Hermès, which saw double-digit sales growth in their most recent quarters, starkly contrasts its profit warning.

The luxury market has been experiencing record sales and profits for some time now, but when the industry begins to cool, the gap between the fortunes of the best and weakest enterprises will only expand.

After averaging 10% organic growth annually since 2016, UBS predicts that the luxury industry will see sales growth decelerate to 5% in 2024. One aspect is how businesses target younger, less-wealthy consumers, known as "aspirational shoppers," who are more susceptible to economic constraints.

During the tenure of Gucci's illustrious previous designer, Alessandro Michele, for instance, the brand attracted a younger, trendier demographic. It was a smashing hit for a while, but as time passed, consumers' preferences shifted. Gucci's performance declined even further when stimulus checks from the pandemic were spent in the United States and Europe, and China's economic future became less secure.

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