With Gucci Stalled, Kering enters into a deal for Valentino

The French conglomerate said Thursday that Kering will acquire a 30 percent stake in Italian fashion house Valentino for €1.7 billion — meaning a valuation north of €5 billion — as part of a broader partnership with Qatar investment fund Mayhoola. The agreement gives Kering the option to acquire 100 percent of Valentino “no later than 2028.”

“We are honored to have been chosen by Mayhoola to develop Valentino as well as work on other opportunities,” said Kering Chairman François-Henri Pinault, describing the deal as a “first step” in its partnership with Mayhoola. The group said Mayhola, an investment fund with links to the Qatari royal family headed by Rashid Mohammed Rashid, may eventually invest in Kering as part of the consortium.

Mayhoola, who also owns Balmain and Pal Zileri, has been at a crossroads with the development of her fashion holdings. With brands too big to let go, but too small to compete with the biggest players in the sector, industry observers saw Mayhoola as needing to either expand or sell.

For Kering, which has faced mounting pressure because of its lackluster share price and several years of underperformance at its flagship Gucci brand, the deal is the latest in a series of changes aimed at reviving growth and reassuring investors.

Last month, the group cemented its ambition to build a beauty division with the acquisition of high-end fragrance brand Creed (for which it reportedly paid $3.8 billion). Then last week, the group shuffled its executive ranks, ousting longtime Gucci CEO Marco Bizzarri and appointing Saint Laurent boss Francesca Bellettini as executive vice president to oversee all of the group’s brands.

In recent months, the situation has become increasingly dire. Kering announced the Valentino deal along with its latest batch of results, revealing that Gucci’s sales in the second quarter were up just 1 percent on a similar basis, putting the brand behind its blockbuster peers. (Earlier this week, the fashion division of LVMH and the Prada Group posted 20 percent growth.)

With Kering’s shares roughly flat since 2019, while LVMH’s valuation nearly tripled over the same period, and virtually no tangible progress in its current efforts to reposition the Gucci aesthetic under a new designer, investors have run out of patience. Kering confirmed last week that an activist shareholder, Bluebell Capital, had taken a percent stake in the company. Outlets including Reuters and Le Monde reported that Bluebell was urging the group to explore a merger with rival Richemont.

Just a few years ago, when Gucci was flying high under Bizzarri and designer Alessandro Michele, Kering’s momentum might have allowed her to assume a controlling position at owner Cartier. But today, if Richemont chairman Johann Robert agrees to link up with Pinault, it’s most likely Richemont who will get Kering. (Strong demand for fine jewelry and an exit plan from loss-making YNAP raised the Swiss “solid luxury” specialist’s valuation.)

On Thursday’s call, Kering sought to reassure investors: Chairman Pinault described Valentino’s high-end stature as highly complementary to its existing brands, which are boosted by the appeal of “aspirational” luxury items like sneakers, logos and clutches. With this market segment slowed by high inflation and slowing global growth – as well as the end of the post-coronavirus “YOLO” ethos – the group has raced to boost its business with high net worth clients who are less likely to cut back on their lifestyle amid economic shocks.

Taking on the Romanian brand under the leadership of former Gucci chief merchandising officer Jacopo Venturini and star designer Pierpaolo Piccioli will be a great step in that journey. However, with €1.4 billion in annual sales and €350 million in EBITDA, Valentino will hardly make up for the slack at Gucci, Kering’s largest and most profitable brand.

Restoring momentum at Gucci targeting growth in the medium term of €10-15 billion remains the top priority. Managing Director Jean-Francois Ballos, who is taking over as Gucci’s interim CEO after Bizari’s exit, Pinault told investors, “knows the Gucci Foundation inside out.” “I know it will work right away. That was my main concern — to have instant efficiency.”

Regarding designer Gucci Sabato de Sarno’s September debut, Pinault added that the collection “was making sure it wasn’t just a fashion show, but we had a whole amplification program.”

However, employees, directors, investors and buyers are likely to remain very nervous about how De Sarno’s vision will pan out, and whether it will be enough to turn the business around – especially since it is set to launch in an uncertain market, in a label trying to build a more brand-centric platform. Stabilizing and asserting her heritage story with her C-suite in flux.

In addition to Bizzarri, several senior executives at the brand’s design studio have departed in recent months. So did longtime marketing and communications chief Robert Trefuss (who took on a new role as Stone Island’s CEO this spring).

One might hope to see Gucci excited about its new designer’s debut. But barring a few heritage-focused initiatives—like monogramming weekend bags on tennis superstar Yannick Sinner—the high turnover (and high pressure) has kept the brand mostly quiet.