Exclusive: De Meo, All the forbidden truths about the Kering crisis in his top-secret memo
Carmine Rotondaro
November 18, 2025 – Reading time: 39 minutes
The confidential file contains a harsh diagnosis, shocking numbers, and shock therapy to regain leadership.
THE NEWS: THE ENCRYPTED FILE
On Monday, November 10, 2025, a large group of Kering Group managers found a password-protected file in their email inbox, with the print function disabled. The email—for internal workshops held on Friday, November 14—was accompanied by a peremptory prohibition on disclosure. The file is named ReconKering Memo_06.10.2025, and the author of the memo is the French group's new CEO, Luca De Meo. The title evokes the neologism "RECONKERING," coined by the Kering Group and submitted for trademark registration on July 29, along with the similar term "CONKERING." This is in keeping with the tradition of linguistic innovation that has seen super CEO De Meo condense the key message of his strategic plans into innovative keywords, such as "RENAULUTION," meaning Renault's revolution, which became the title of Luca De Meo's strategic plan for the automotive group of the same name. And in this case, too, the neologism that lends its title to the top-secret file evokes the Kering Group's strategic objective of "RECONQUERING" its leadership in order to become the leader in the next luxury segment over the next 60 months, as stated in the file itself.
The highly protected file circulated within Kering contains several dozen pages of analyses, considerations, priorities, and strategic proposals relating to the past, present, and future of the Kering Group and its brands. A first draft of the strategic plan promised and expected in spring 2026, the preparation of which, it was reported, would see the new head of Kering and the brand CEOs assisted by two major consulting firms, Bain & Company and Boston Consulting Group.
Being able to preview it and share it with readers is therefore particularly interesting, and it's like lovingly approaching the bedside of a Kering patient to demonstrate our heartfelt concern for their health, listening directly to the attending physician's medical history, diagnostic tests, treatment plan, and prognosis.
THE RUTHLESS HISTORY OF KERING'S STATE
And as with any respectable diagnostic process, De Meo's report begins with an assessment of the Group's medical history, which is then reiterated and detailed in various sections of the document.
Revenue
And, indeed, the first lines of the report note that, in terms of performance, in the 2022-2024 period, the Group lost €3 billion in revenue, showing a compound annual growth rate (CAGR) of -9%, while the market, over the same period, grew at a CAGR of 2%.
EBIT
Over the same period, 2022-2024, the Group generated EBIT that fell from 27% to 15% of revenue, a loss of 12 percentage points. In absolute terms, EBIT contracted at a CAGR of -32%, while LVMH saw a contraction of -4% CAGR and Hermes saw an increase of +14% CAGR in absolute terms.
Gross Margin
The Group's gross margin was 74% in 2024, but despite declining sales, total operating expenses increased significantly, from €8.1 billion in 2021 to €10.1 billion in 2024. Operating expenses represent 59% of sales, compared to 44% of sales for the LVMH Group and 30% of sales for the Hermès Group.
Capital Expenditures
Capital expenditures (CAPEX) reached 19% of sales, compared to 6% for the LVMH Group and 7% for the Hermès Group, resulting in a ROCE (RETURN ON CAPITAL EMPLOYED) of 6% in 2024, a precipitous decline from the ROCE of 22-23% recorded in 2021-22. In 2024, LVMH's ROCE was 14% and Hermès' was 84%.
Net Debt
In three years, net debt has increased from zero to approximately €10.5 billion, equivalent to a leverage of 3.6 times 2024 EBITDA.
All of the above has resulted in various negative consequences, including a significant loss of share price, decreased interest from growth investors, rating risk, and higher borrowing costs.
Share Value
In particular, Kering shares lost 80% of their value from their 2021 peak, only to recover 30%. De Meo's report says this reflects the sector's worsening performance, but also a sign of confidence in the strategy and the industry's attractiveness, given that Kering's multiple remains modest.
Furthermore, of particular interest are the more granular valuations in terms of performance.
Business performance.
Retail
In this regard, De Meo emphasizes that the Group's retail network is oversized, with a low sales density (€20,000–€30,000 per square meter), stores that are too small, and outlets and wholesale channels that are dilutive. De Meo points out that all Kering brands have expanded their distribution networks assuming a mechanical increase in revenue, which obviously hasn't happened. The distribution network is oversized and expensive. Performance is disappointing: brands record average sales densities of €20–€30,000/m² and have never exceeded €50,000/m², even in the best years. This places Kering significantly behind market leaders such as Louis Vuitton, Chanel, and Hermés, which generate densities around €100,000/m² (LV density). But even more importantly, De Meo highlights the Kering Group's lag behind brands like Dior and Céline, which operate in the €50–75,000/m² segment. De Meo writes that Kering's mix of presence is outside of market standards, with too many small-format stores, outlets, and wholesale channels cannibalizing flagships.
According to De Meo, all the Group's brands have expanded similarly, growing their store networks according to the strategic logic of €7–10 billion revenue brands capable of appealing to both luxury and aspirational customers with broad category coverage. This is in line with LV and Dior, and in contrast to Chanel or Hermès, which have chosen to remain relatively selectively distributed to maintain desirability.
De Meo denounces the Kering Group's oversized and structurally underutilized retail network. Among the Group's brands, per-store productivity is significantly lower than that of competitors: less than 50% of the footprint generates the majority of sales and EBIT. Gucci, for example, generates 50% of its sales and 60% of its EBIT from less than 20% of its stores. Outlets are the best-performing locations, while too many small-format stores dilute the performance of flagships (Gucci's best stores average 2–3x lower sales than Dior, LV, Chanel, and Hermès).
In recent years, the Group has not slowed down retail expansion even when the macro environment has become more challenging; on the contrary, new retail projects have been accelerated. The Group's brands' retail space has grown more rapidly in the 2021–2024 period, with a CAGR of +9%, compared to +4% in the 2015–2019 period. This has made the balance sheet more rigid (higher inventory, fixed assets, and personnel costs).
Inventory
Regarding the Group's inventory, gross inventory before write-downs reached a staggering €6 billion in 2022–23 and is now still over €5 billion, which De Meo aims to reduce by at least 30% over the next 12–18 months.
Sell-Through
Sell-through is bluntly defined as low, assortments are too broad, and price increases are not always supported by adequate desirability. De Meo notes that almost all Kering Group brands are facing issues with meeting demand, product availability, and a disconnect between price increases and perceived value. All of this has led to lower margins and a loss of market share. Sell-through rates remain well below industry benchmarks (full-price sell-through in leather goods: 50% for Gucci versus 95% for LV and Hermès and 80% for Chanel, the latter despite a growing share of new products in the assortment). Off-price channels represent an average of 15–20% of retail sales, and inventory levels are too high: a veritable Bermuda Triangle.
No industrial company can survive producing 3 to sell 1! exclaims De Meo.
Prices
Furthermore, the sector has increased prices disproportionately in recent years (3x compared to the historical series), and Kering has reduced its entry-level product offering more than some of its competitors: between 2022 and 2024, the entry-level offering under €1,000 online decreased by 30% for Gucci and 20% for Saint Laurent, while it remained essentially stable for Dior and Louis Vuitton (where it decreased by only 1%). According to De Meo, regardless of the quality of the creative work, this has led to a decline in conversion rates, combined with a sharp decline in store traffic (-15% for top brands and -40% for Gucci!), a sign of weakened brand desirability, uncompensated by a shift upward in terms of product or customer mix (an "elevation" strategy). In other words, Kering brands have given way to premium brands at the low end of the price range without gaining ground at the high end.
Marketing
Marketing is openly accused of inefficiency, given that, since 2021, annual marketing and communication expenses
Business performance.
Retail
In this regard, De Meo emphasizes that the Group's retail network is oversized, with a low sales density (€20,000–€30,000 per square meter), stores that are too small, and outlets and wholesale channels that are dilutive. De Meo points out that all Kering brands have expanded their distribution networks assuming a mechanical increase in revenue, which obviously hasn't happened. The distribution network is oversized and expensive. Performance is disappointing: brands record average sales densities of €20–€30,000/m² and have never exceeded €50,000/m², even in the best years. This places Kering significantly behind market leaders such as Louis Vuitton, Chanel, and Hermés, which generate densities around €100,000/m² (LV density). But even more importantly, De Meo highlights the Kering Group's lag behind brands like Dior and Céline, which operate in the €50–75,000/m² segment. De Meo writes that Kering's mix of presence is outside of market standards, with too many small-format stores, outlets, and wholesale channels cannibalizing flagships.
According to De Meo, all the Group's brands have expanded similarly, growing their store networks according to the strategic logic of €7–10 billion revenue brands capable of appealing to both luxury and aspirational customers with broad category coverage. This is in line with LV and Dior, and in contrast to Chanel or Hermès, which have chosen to remain relatively selectively distributed to maintain desirability.
De Meo denounces the Kering Group's oversized and structurally underutilized retail network. Among the Group's brands, per-store productivity is significantly lower than that of competitors: less than 50% of the footprint generates the majority of sales and EBIT. Gucci, for example, generates 50% of its sales and 60% of its EBIT from less than 20% of its stores. Outlets are the best-performing locations, while too many small-format stores dilute the performance of flagships (Gucci's best stores average 2–3x lower sales than Dior, LV, Chanel, and Hermès).
In recent years, the Group has not slowed down retail expansion even when the macro environment has become more challenging; on the contrary, new retail projects have been accelerated. The Group's brands' retail space has grown more rapidly in the 2021–2024 period, with a CAGR of +9%, compared to +4% in the 2015–2019 period. This has made the balance sheet more rigid (higher inventory, fixed assets, and personnel costs).
Inventory
Regarding the Group's inventory, gross inventory before write-downs reached a staggering €6 billion in 2022–23 and is now still over €5 billion, which De Meo aims to reduce by at least 30% over the next 12–18 months.
Sell-Through
Sell-through is bluntly defined as low, assortments are too broad, and price increases are not always supported by adequate desirability. De Meo notes that almost all Kering Group brands are facing issues with meeting demand, product availability, and a disconnect between price increases and perceived value. All of this has led to lower margins and a loss of market share. Sell-through rates remain well below industry benchmarks (full-price sell-through in leather goods: 50% for Gucci versus 95% for LV and Hermès and 80% for Chanel, the latter despite a growing share of new products in the assortment). Off-price channels represent an average of 15–20% of retail sales, and inventory levels are too high: a veritable Bermuda Triangle.
No industrial company can survive producing 3 to sell 1! exclaims De Meo.
Prices
Furthermore, the sector has increased prices disproportionately in recent years (3x compared to the historical series), and Kering has reduced its entry-level product offering more than some of its competitors: between 2022 and 2024, the entry-level offering under €1,000 online decreased by 30% for Gucci and 20% for Saint Laurent, while it remained essentially stable for Dior and Louis Vuitton (where it decreased by only 1%). According to De Meo, regardless of the quality of the creative work, this has led to a decline in conversion rates, combined with a sharp decline in store traffic (-15% for top brands and -40% for Gucci!), a sign of weakened brand desirability, uncompensated by a shift upward in terms of product or customer mix (an "elevation" strategy). In other words, Kering brands have given way to premium brands at the low end of the price range without gaining ground at the high end.
Marketing
Marketing is openly accused of inefficiency, given that, since 2021, annual marketing and communication expenses
Revenues increased by approximately €400 million, while business declined. In the same first half of 2025, marketing spending rose to over 9% of sales, compared to the 7% previously recorded.
Given the stark frankness of De Meo's case history, it's not surprising that Kering's management wanted to keep the document confidential.
ANALYSIS AND DIAGNOSIS
And, moving on to the diagnosis of the state of Kering and its brands, De Meo's analyses of brands, markets, and prospects are no less frank.
Brands and Desirability
A clear loss of desirability is reported for key brands (Gucci and Balenciaga), while opportunities are highlighted for Saint Laurent, Bottega Veneta, Beauty (later sold to L'Oréal as announced on October 19, 2025, but the report is dated October 6), and Jewelry.
In particular, Gucci is currently considered overexposed: it has high awareness (#2) but weaker desirability (#5—a low score relative to awareness)—driven by aspirational, non-core consumers, indicating broad but unqualified knowledge. As a "gateway" brand to luxury fashion, Gucci has the legitimacy to operate on a broader "high-low" spectrum, but this expansion must be managed more carefully to strengthen its customer base. The strategic priority is to rebuild desirability and protect the brand's image from unqualified exposure, pursuing more moderate, "clean," and sustainable growth.
Bad news also for Balenciaga, whose perception is assessed as polarized and for which stability is the priority over scale. Balenciaga is a highly polarized brand that generates either strong love or rejection. While it is seen as high fashion, it is often perceived as "low luxury." For De Meo, the strategic priority is to build a more stable core customer base, capitalizing on its VICs (Very Important Customers)—without, however, committing to aggressive growth. De Meo concludes that, compared to Bottega Veneta, Balenciaga may have more limited growth potential and unrealistic targets should be avoided.
Saint Laurent, on the other hand, demonstrates sustained desirability and a more resilient growth profile. According to De Meo, Saint Laurent has maintained a stable, consistent, and high desirability profile over time. The brand is well-perceived and valued by its audience—although it is sometimes perceived as less than "exciting." There is a clear opportunity to introduce more innovation and diversify the offering, particularly by shifting its center of gravity upward. This would strengthen relevance and engagement, especially among high-end customers.
Bottega Veneta demonstrates low awareness but represents a clear source of growth. According to De Meo, brand awareness remains low, which weighs on overall desirability. However, results are significantly improving among consumers familiar with the brand—primarily the high-end audience (with BV showing greater desirability than Prada and Gucci among a more sophisticated audience). This indicates a clear growth opportunity by capitalizing on strong desirability among high-spending consumers and deepening its high-end positioning.
Brioni and McQueen are loss-making: Brioni is well-positioned in an established segment but has failed to scale; McQueen is still searching for a clear purpose in the market and its portfolio.
The Jewelry segment is undersized compared to the competition and lacks synergy with other brands and the category.
Beauty is a high-potential growth driver, but requires investment to reach scale and unlock full value.
Eyewear is a success story with strong operating performance; however, recent investments have yet to produce a full return and are weighing on ROCE.
Kering has divested from some categories due to lack of success (e.g., Watches) and has not invested in adjacent categories of the new luxury ecosystem (Hospitality, Auto & Travel, Wellness).
Markets
The obvious starting point is that we are facing the most complex and unpredictable conditions in the luxury market in recent years.
The annual growth of the personal luxury goods market has gone from +3% (2016–2019) and +5% (2022–2023) to -1% in 2023–2024. The decline is mainly explained by the loss of 50 million aspirational consumers, particularly among Gen Z.
The Chinese market has slowed (-20% in 2024 – returning to 2020 levels), despite having contributed significantly to growth between 2016 and 2019, when China and Chinese consumers accounted for approximately 40% and nearly 75% of the luxury market's growth, respectively, over the period.
Consumer fatigue is due to multiple price increases (+10% CAGR in the 2020–2023 period versus an average annual +2.3% pre-COVID-19).
d), often excessive and sometimes disconnected from the true desirability of the brand and product, and this fatigue is eroding the aspirational customer base. According to De Meo, the brands performing best and maintaining growth are those that have been cautious (Hermès, Prada, Cartier, Van Cleef & Arpels, Bottega Veneta, etc.).
Finally, De Meo sees an acceleration in experiential luxury: growth in recent years has been driven primarily by non-personal luxury (+4% in 2023–2024) compared to personal luxury (-1% in 2023–2024).
De Meo's summary is once again merciless. In the 2012–2022 period, everyone was a winner, across all geographies and segments, and Kering gained slightly more than the others. In the 2022–2025 period, China slowed and other markets entered into high volatility. And so the market separated the winners from the losers, and Kering ended up on the wrong side of the fence, lacking true desirability, true iconicity, and the right price.
Perhaps here we can say that, besides being merciless, De Meo's summary for the period 2012–2020 is also a bit unfair to the work done by generations of top-level managers and creatives who, compared to the past, managed to grow Gucci and Saint Laurent beyond measure and establish brands like Balenciaga and Bottega Veneta.
Product and Prices
Regarding assortment, the need identified by De Meo is to clarify, for each brand, the product offering necessary to maximize its potential. Kering's new CEO intends for all Merchandising teams to share their product grids starting next season—overlapping assortment architecture and sales demand—to identify gaps, pinpoint the top 2–3 product and price priorities per brand, quantify potential upside, and better guide design, development, and distribution.
The objectives are to improve product positioning and pursue intelligent pricing. To achieve these goals, it is essential to elevate the product mix in existing categories such as leather goods and RTW and pursue coherent extensions (e.g., fine jewelry, home/design). De Meo also believes it is essential to improve product quality and reflect the upgrade in pricing, as well as expand the value-for-money offering (e.g., casual footwear), where De Meo believes space has been left for other players. Furthermore, De Meo believes it is necessary to repopulate neglected categories, such as gifting, at competitive prices and well-positioned compared to peers, to regain demand.
Here too, the basic observation is merciless: for Gucci, 15–20% of SKUs in Leather Goods and Shoes generate 80% of sales in the respective categories, creating the opportunity to reduce complexity and optimize the assortment by reducing the offering by at least 10%.
Regarding pricing, De Meo believes it is urgent to create a cross-functional and cross-brand task force to revise pricing starting with the 2026 collection. It is also necessary to consider the "real price," that is, considering the markdown volumes that end up in "dirty" channels. The optimal price must be identified not only by considering direct competitors but also by considering a broader scope that includes accessible luxury. Finally, De Meo recognizes the need for dynamic in-season pricing, with price adjustments throughout the season, rather than postponing the problem and destroying value in alternative channels.
Outlook
De Meo's assumption is a stable market for 2026, with slight growth in 2027 and 2028. "Hope" can be misleading in a company. Don't count on external tailwinds when setting cost structures.
Prices should stabilize. According to De Meo, some competitors, like Kering, have overstretched themselves and ruined the deal. Expect "value for money" strategies from competitors and avoid taking advantage of market inflation. De Meo's goal is to focus on internal productivity to recover margins and plan for productivity gains of 10% annually for three years, in addition to optimizing sell-through.
In China, luxury consumption will likely not return to pre-Covid levels; there are no political reasons for this until the leadership changes. However, the government is focusing on innovation and stimulating domestic consumption. Therefore, there's no need to panic, just find the right strategy. China will be both a market and a source of innovation. Consider leveraging Chinese expertise and the supplier ecosystem.
The US middle class will be impacted by tariffs through inflation, reducing the number of aspirational customers in stores. Social polarization will create opportunities to serve a growing high-end segment. Expect a weak dollar.
European demographics are clear. Gen X will remain the core of the market.
We must adapt our offering. The complexity of EU governance, debt management, and monetary policy will not foster growth; Europe could contract or enter recession. Japan and Korea, key markets for Kering, are also facing structural demographic trends and a highly unstable political environment.
The world is fragmenting. A single strategy will not work. Three strategies for three regions must be considered, plus one for emerging markets.
Other accelerating regions are Southeast Asia, the Middle East, Central and South America, and Africa. There may not be a "new China," but the next six major emerging markets (India, Brazil, Thailand, Mexico, Saudi Arabia, and the UAE) could collectively represent a comparable opportunity. Therefore, it is necessary to create a dedicated business development team for five years, with a plan, budget, and organization. It is essential to seize the opportunity before others.
M&A and portfolio dynamics within large groups could lead to brand sales and store closures. While brand and location values may decline, new opportunities will emerge. It will therefore be important to avoid overpaying for locations or brands.
Hard luxury, minimal luxury, experiential, wellness, as well as accessible luxury and fast fashion, will continue to evolve and redefine consumer expectations. This will need to be taken into account when building the future portfolio and competitive analysis, not limiting ourselves to measuring ourselves against direct competitors but also exploring and learning from different operating models.
THE TREATMENT
And after anamnesis and diagnosis, De Meo's top-secret report for Group managers outlines the treatment with the schematic nature of a medical prescription.
De Meo's prescription outlines a series of corrective actions over successive time periods, outlining an initial strategic plan.
In the short term (12 months), De Meo's planned actions are:
reducing debt by disposing of properties;
reducing marketing expenses to the industry benchmark; reducing sampling; negotiating a 20% increase in average efficiency; Map agencies and suppliers;
Increase coverage of the next collection by 20%; Review pricing for certain categories with volume elasticity.
Reduce inventory by at least 30%.
Evaluate the organization to attract and retain top talent and proactively address underperformance; pool retail staff.
Integrate an AI-powered data tool for end-to-end business management.
Review and, if necessary, freeze new projects.
Manage the agreement with Valentino.
In the medium term (18 months), the following will be needed:
Align supply chain levers (from forecasting to store refurbishment to channel management). Potential for a 20% increase in revenue and improved working capital;
Refine the collection structure for all Maisons with a consistent organization by segment;
Share industrial, purchasing, logistics, systems/cloud, and retail capabilities across brands;
Define strategy and organization to enter new markets/segments;
Accelerate the development of the Jewelry business and design the appropriate operating model;
Coordinate the strategy between ARTEMIS (seeding) and KERING (scaling) for new businesses. Enable cooperation on certain operational projects—Ponant, CAA, Christie's, Puma.
De Meo's recipe also includes a shock therapy consisting of the first five recommended actions in the first 90 days:
1. Launch two parallel task forces: Asset Disposal & Balance Sheet and Marketing Efficiency & Agency Consolidation;
2. Launch a sprint for inventory reduction: identify slow-moving SKUs, pricing plans, and outflow channels;
3. Implement a pilot project for an end-to-end AI tool on a sample maison (demand forecast → S&OP);
4. Selectively block all new non-core investments and review all projects;
5. Launch skills mapping and retail mobility plans to pool resources and retain top talent.
THE PROGNOSIS. STILL UNDER CONFIDENTIAL.
The objectives of De Meo's plan are highly ambitious, at times hyperbolic, although still vague and undetermined in terms of value, timeframe, and method (quantum, quando, quomodo). These objectives include:
Make Kering the undisputed luxury challenger (the "Good No. 2") within 5–10 years: more agile, first on trends, on the podium in every category, the fastest, and most efficient.
Build the Group's competitive advantage by integrating technology at every level of the organization (hardware and software), making Kering the most technologically advanced luxury group.
Create a fully integrated ecosystem built around customers to meet every expectation of an extraordinary life. A company built around the Cloud; the Cloud built around the Customer.
Relaunch Gucci's growth
sustainable pace, reducing the Group's dependence on a single brand.
Rebalance the Fashion segment's contribution to the Group's total profitability by 2035; explore the rebalancing of fashion cycles by investing in accretive and stable businesses.
Find a resilient and differentiated growth model for each brand.
Go beyond the current perimeter: consider now where HNWIs (High Net Worth Individuals) will want to spend and build the Group accordingly.
Create an integrated structure of manufacturing, processes, technology, software (AI), data, and talent to serve existing brands and integrate new brands and businesses.
Become the most asset-light luxury group.
While my warmest wishes for a speedy recovery for the ailing Kering are certainly those of a patient, I cannot help but note that, in this first phase of the top-secret strategic plan, the prognosis still appears largely guarded, especially regarding the actions that should bring the brands back to the top of the list of desirability and competitiveness.
*****
DE MEO. THE FIRST, TOP SECRET, VERSION OF THE STRATEGIC PLAN FOR KERING. THE GROUP IS STILL A TOUCH AND GO PATIENT.
by Carmine Rotondaro
THE NEWS: THE ENCRYPTED FILE
On Monday, 10 November 2025, a large group of Kering Group managers found a password-protected file in their email inboxes, with the print function disabled. The file, intended for internal workshops held on Friday, 14 November, was accompanied by a strict prohibition on disclosure. The file was named ReconKering Memo_06.10.2025 and the author of the memo is the new CEO of the French group, Luca De Meo. The title evokes the neologism RECONKERING, coined by the Kering Group and submitted for trademark registration on 29 July, together with the similar term CONKERING. All this is in keeping with the tradition of linguistic innovation that has seen super CEO De Meo condense the key message of his strategic plans into innovative keywords such as RENAULUTION, i.e. the Renault revolution, which became the title of Luca De Meo's strategic plan for the automotive group. And in this case too, the neologism that gives the top-secret file its title evokes the Kering Group's strategic objective of RECONQUERING its leadership in order to become the leader of the forthcoming luxury within the next 60 months, as stated in the file itself.
The highly protected file circulated within Kering contains dozens of pages of analysis, considerations, priorities and strategic proposals relating to the past, present and future of the Kering Group and its brands. It is a veritable first draft of the strategic plan promised and expected for spring 2026, which the new head of Kering and the CEOs of the brands are reported to have been assisted in preparing by the two big consulting firms Bain & Company and Boston Consulting Group.
Being able to preview it and share it with readers is therefore of particular interest. It is like lovingly approaching the bedside of the ailing Kering to express heartfelt concern for its health, listening to the doctor in charge describe the patient's medical history, diagnostic analyses, treatment and prognosis.
THE MERCILESS ACCOUNT OF KERING’S (MEDICAL) HISTORY
And as in any self-respecting diagnostic process, De Meo's report begins with an assessment of the Group's (medical) history, which is then revisited and detailed in various parts of the document.
Turnover
In fact, the first lines of the report point out that, in terms of performance, in the period 2022-2024, the Group lost €3 billion in revenue, showing a compound annual growth rate (CAGR) of -9%, while the market grew at a CAGR of +2% over the same period.
EBIT
In the same period 2022-2024, the Group generated EBIT that fell from 27% to 15% of turnover, with a loss of 12 percentage points. In absolute terms, EBIT contracted with a CAGR of -32%, while LVMH saw a contraction of -4% CAGR and Hermes saw an increase of +14% CAGR in absolute terms.
Gross margin
The Group's gross margin was 74% in 2024, but despite declining sales, total operating expenses increased significantly from €8.1 billion in 2021 to €10.1 billion in 2024, the latter representing 59% of sales compared to 44% of sales for the LVMH Group and 30% of sales for the Hermès Group.
Capital expenditure
Capital expenditure (CAPEX) reached 19% of sales, compared to 6% for the LVMH Group and 7% for the Hermès Group, leading to a ROCE (RETURN ON CAPITAL EMPLOYED) of 6% in 2024, a sharp decline from the ROCE of 22/23% recorded in 2021/22, whereas in 2024, LVMH's ROCE was 14% and Hermès' was 84%.
Net debt
In three years, net debt rose from 0 to approximately €10.5 billion, equal to 3.6 times EBITDA in 2024.
All of the above has had various negative consequences, such as a significant loss in share value, decreased interest from growth investors, a rating risk and a higher cost of debt.
Share Value
In particular, Kering shares lost 80% of their value compared
to their peak in 2021, before recovering 30%. De Meo’s report says that this reflects the worst performance in the sector, but also a sign of confidence in the strategy and attractiveness of the industry, given that Kering’s multiple remains modest,.
Also of particular interest are the more granular assessments in terms of business performance.
Retail
In this regard, De Meo points out that the Group’s retail network is oversized with low sales density (equal to £20,000/£30,000 per square metre), overly small stores, and dilutive outlets and wholesale. De Meo complains that all Kering brands have expanded their distribution networks, assuming a mechanical increase in turnover, which obviously did not happen. The distribution network is oversized and expensive. Performance is disappointing: brands record average sales densities of €20-30K/sq m and have never exceeded €50K/sq m, even in the best years. This puts Kering significantly behind market leaders such as Louis Vuitton, Chanel and Hermés, which generate densities of around €100K/m², like LV. But, more importantly, De Meo points out that the Kering Group also lags behind brands such as Dior and Céline, which operate in the €50-75K/m² range. De Meo writes that the presence mix is outside market standards, with too many small-format stores, outlets and wholesale channels cannibalising our flagship stores.
According to De Meo, all the Group’s brands have expanded in the same way, growing their store networks according to the strategic logic of brands with €7-10 billion in turnover capable of targeting both luxury and aspirational customers with broad category coverage, i.e. following in the footsteps of LV and Dior, and in contrast to Chanel or Hermès, which have chosen to remain relatively selective in their distribution in order to preserve desirability.
De Meo criticizes the Kering Group’s retail network as oversized and structurally under-employed. Among the Group’s brands, productivity per store is significantly lower than that of its competitors: less than 50% of the footprint generates most of the sales and EBIT. Gucci, for example, generates 50% of sales and 60% of EBIT from less than 20% of its stores. Outlets are the best performers, while too many small-format stores dilute the performance of flagship stores (Gucci’s best stores record on average 2-3x lower sales than Dior, LV, Chanel and Hermès).
In recent years, the Group has not slowed down its retail expansion even when the macro environment has become more challenging; on the contrary, new retail projects have been accelerated. The retail space of the Group’s brands grew more rapidly in the period 2021–2024 with a CAGR of +9%, compared to +4% in the period 2015–2019. This has made the balance sheet more rigid (higher stock, property investments, personnel costs).
Inventories
As regards the Group’s stock, gross stock before write-downs reached a staggering €6 billion in 2022–23 and now stands at over €5 billion, which De Meo aims to reduce by at least 30% over the next 12–18 months.
Sell-through
Sell-through is bluntly described as low, with overly broad assortments and price increases not always supported by adequate desirability. De Meo notes that almost all Kering Group brands face problems with demand coverage, product availability and a disconnect between price increases and perceived value. All this has led to lower margins and loss of market share. Sell-through rates remain well below industry benchmarks (full-price sell-through in leather goods: 50% for Gucci versus 95% for LV and Hermès and 80% for Chanel, the latter despite a growing share of new products in the range). Off-price channels account for an average of 15-20% of retail sales and inventory levels are too high: a veritable Bermuda Triangle.
No industrial company can survive by producing 3 to sell 1!exclaims De Meo.
Prices
In addition, the sector has increased prices disproportionately in recent years (3× compared to the historical series), and Kering has reduced its entry-level product offering more than some of its competitors: between 2022 and 2024, the entry-level offering below €1,000 online decreased by 30% for Gucci and 20% for Saint Laurent, while remaining essentially stable for Dior and Louis Vuitton (for which it fell by only 1%). According to De Meo, regardless of the quality of the creative work, this has led to a decrease in conversion rates, combined with a sharp drop in store traffic (-15% for the best brands and -40% for Gucci!), a sign of weakened brand desirability, without compensation from an upward shift in terms of product or customer mix (elevation strategy). In other words, Kering brands have given way to premium brands in the lower end of the price range without gaining ground in the upper end of that range.
Marketing
Marketing is openly accused of inefficiency, given that, since 2021, annual marketing and communication expenses have increased by approximately €400 million whil
e business has declined. In the same first half of 2025, marketing expenditure rose to over 9% of sales compared to 7% previously.
Given the stark frankness of De Meo’s analysis, it is not surprising that Kering’s top management wanted to keep the document confidential.
ANALYSIS AND DIAGNOSIS
Moving on to the diagnosis of the state of Kering and its brands, De Meo’s analysis of brands, markets and prospects is no less frank.
Brands and Desirability
There is a clear loss of desirability for key brands (Gucci and Balenciaga), while opportunities are highlighted for Saint Laurent, Bottega Veneta, Beauty (later sold to L’Oreal as announced on 19 October 2025, but the report is dated 6 October) and Jewellery.
In particular, Gucci is currently considered overexposed: it has high awareness(#2), but weaker desirability (#5 — a low score compared to its awareness level) — driven by non-core aspirational consumers, which indicates broad but unqualified knowledge. As a ‘gateway’ brand to luxury fashion, Gucci has the legitimacy to operate across a broader ‘high-low’ spectrum, but this expansion needs to be managed more carefully to strengthen its customer base. The strategic priority is to rebuild desirability and protect the brand image from unqualified exposure, pursuing more moderate, ‘clean’ and sustainable growth.
There is also bad news for Balenciaga, whose perception is considered polarised and for which stability is a higher priority than scale. Balenciaga is a highly polarised brand that generates either strong love or rejection. Although it is seen as high fashion, it is often perceived as ‘low luxury’. For De Meo, the strategic priority is to build a more stable core customer base, capitalising on its VICs (Very Important Customers) — without, however, engaging in aggressive growth. De Meo’s conclusion is that, compared to Bottega Veneta, Balenciaga may have more limited growth potential and unrealistic goals should be avoided.
Saint Laurent is viewed differently, demonstrating sustained desirability and a more resilient growth profile. According to De Meo, Saint Laurent has maintained a stable, consistent and high desirability profile over time. The brand is well perceived and valued by its audience—although it is sometimes perceived as not very ‘exciting’. There is a clear opportunity to introduce more innovation and diversify the offering, particularly by shifting its centre of gravity upwards. This would strengthen relevance and engagement, especially among high-end customers.
Bottega Veneta shows low awareness but represents a clear reservoir for growth. According to De Meo, brand awareness remains low, which weighs on overall desirability. However, results improve significantly among consumers who are familiar with the brand — primarily among the high-end audience (with BV showing greater desirability than Prada and Gucci among a more qualified audience). This indicates a clear reservoir of growth by leveraging strong desirability among big spenders and deepening the high-end positioning.
Brioni and McQueen are losing ground: Brioni is well positioned in an established segment but has failed to scale up; McQueen is still searching for a clear purpose in the market and in the portfolio.
The Jewellery segment is undersized compared to the competition and is not synergistic with the other brands and the category.
Beauty is a high-potential growth driver, but requires investment to achieve scale and unlock full value.
Eyewear is a success story with strong operating performance; however, recent investments have yet to yield a full return and are weighing on ROCE.
Kering has divested itself of certain categories due to lack of success (e.g. Watches) and has not invested in adjacent categories of the new luxury ecosystem (Hospitality, Auto & Travel, Wellness).
Markets
The obvious starting point is that we are facing the most complex and unpredictable conditions in the luxury market in recent years.
Annual growth in the personal luxury goods market fell from +3% (2016–2019) and +5% (2022–2023) to -1% in 2023–2024. The decline is mainly explained by the loss of 50 million aspirational consumers, particularly among Gen Z.
The Chinese market has slowed (-20% in 2024 – returning to 2020 levels), whereas it had strongly contributed to growth between 2016 and 2019, when China and Chinese customers accounted for approximately 40% and nearly 75% of luxury market growth during that period, respectively.
Consumer fatigue is due to multiple price increases (+10% CAGR in the period 2020–23 compared to an average of +2.3% per annum pre-Covid), which are often excessive and sometimes disconnected from the actual desirability of the brand and product, and this fatigue is eroding the aspirational customer base. According to De Meo, the brands that are performing best and maintaining growth are those that have been cautious (Hermès, Prada, Cartier, Van Cleef & Arpels, Bottega Veneta, etc.).
Finally, De
Meo sees an acceleration in experiential luxury: growth in recent years has been driven mainly by non-personal luxury (+4% in 2023–2024) compared to personal luxury (-1% in 2023–2024).
De Meo’s summary is once again merciless. In the period 2012–2022, everyone was winning, in all geographies and segments, and Kering earned a little more than the others. In the period 2022–2025, China slowed down and other markets entered a period of high volatility. And so the market separated the winners from the losers, and Kering ended up on the wrong side, lacking true desirability, true iconicity and the right price.
Perhaps here we can say that, in addition to being blunt, De Meo’s summary of the period 2012–2020 is also a little ungenerous to the work done by generations of top managers, designers and creative director who have managed to grow Gucci and Saint Laurent beyond measure, compared to the past, and to establish brands such as Balenciaga and Bottega Veneta.
Product and Prices
In terms of assortment, De Meo recognizes the need to clarify, for each brand, the product offering necessary to maximize potential. The new CEO of Kering’s intention is that, starting next season, all merchandising teams will share their product grids — overlapping assortment architecture and sales demand — to identify gaps, pinpoint the 2–3 product and price priorities per brand, quantify the upside potential and better guide design, development and distribution.
The objectives are to improve product positioning and pursue intelligent pricing. To achieve these objectives, it is necessary to elevate the product mix in existing categories such as leather goods and RTW and pursue consistent extensions (e.g., fine jewellery, home/design). De Meo also considers it essential to improve product quality and reflect the upgrade in prices, but also to expand the value-for-money offering (e.g., in casual footwear) where De Meo believes that space has been left for other players. In addition, De Meo believes it is necessary to repopulate neglected categories, e.g., gifting, at competitive prices and well positioned relative to peers, in order to regain demand.
Here too, the basic observation is stark: for Gucci, 15-20% of SKUs in Leather Goods and Footwear generate 80% of sales in their respective categories, with the consequent opportunity to reduce complexity and optimise the assortment by reducing the offering by at least 10%.
In terms of pricing, according to De Meo, a cross-functional and cross-brand task force must be created urgently to redo pricing starting with the 2026 collection. It is also necessary to think about the ‘real price’, i.e. considering the volumes of markdowns that end up in ‘dirty’ channels. The optimal price must be identified not only with regard to direct competitors but also considering a broader scope that includes accessible luxury. Finally, De Meo sees the need for dynamic in-season pricing with price adjustments throughout the season, rather than postponing the problem and destroying value in alternative channels.
The Outlook
De Meo’s hypothesis is that the market will be stable in 2026, with slight growth in 2027 and 2028. ‘Hope’ can be misleading in business. You should not rely on favourable external factors when setting your cost structure.
Prices should stabilise. According to De Meo, some competitors, such as Kering, have stretched the rope too far and broken the toy. We should expect ‘value formoney’ strategies from competitors and not take advantage of market inflation. De Meo’s intention is to focus on internal productivity to recover margins and plan for productivity gains of 10% per annum for three years, in addition to optimising sell-through.
In China, luxury consumption is unlikely to return to pre-Covid levels; there are no political reasons for this until the leadership changes. However, the government is focusing on innovation and stimulating domestic consumption. So, no need to panic, just find the right strategy. China will be both a market and a source of innovation. Consider leveraging Chinese expertise and the supplier ecosystem.
The US middle class will be impacted by tariffs through inflation, reducing the number of aspirational customers in stores. Social polarisation will create opportunities to serve a growing high-end segment. A weak dollar is to be expected.
European demographics are clear. Gen X will remain the core of the market; we must adapt our offering. The complexity of EU governance, debt management and monetary policy will not favour growth; Europe could contract or enter recession. Japan and Korea, key markets for Kering, are also facing structural demographic trends and a highly unstable political environment.
The world is fragmenting. A single strategy will not work. Kering will have to consider three strategies for three regions, plus one for emerging markets.
Other areas experiencing acceleration are Southeast Asia, the Middle East, Central and South
America, and Africa. There may not be a ‘new China’, but the next six major emerging markets (India, Brazil, Thailand, Mexico, Saudi Arabia, UAE) could collectively represent a comparable opportunity. Therefore, it is necessary to create a dedicated business development team for five years, with a plan, budget and organization. It is essential to seize the opportunity before others do.
M&A and portfolio dynamics in large groups could lead to brand sales and store closures. While brand and location values may decline, new opportunities will emerge. It will therefore be necessary to avoid paying too much for locations or brands.
Hard luxury, minimal luxury, experiential, wellness, as well as accessible luxury and fast fashionwill continue to evolve and redefine consumer expectations. This must be taken into account when building the future portfolio and conducting competitive analysis, not limiting oneself to measuring up only against direct competitors but exploring and learning from different operating models.
THE CURE
After the analysis and diagnosis, De Meo’s top-secret report for the Group’s managers outlines the cure with the precision of a medical prescription.
De Meo’s prescription outlines a series of corrective measures in successive phases, sketching out an initial strategic plan.
In the short term (12 months), the measures planned by De Meo are
reducing debt through the disposal of real estate.
to reduce marketing expenses to the industry benchmark; to reduce sampling; to negotiate +20% average efficiency; to map agencies and suppliers;
to increase coverage of the next collection by 20%; to review the pricing of certain categories with volume elasticity.
reducing stock by at least 30%.
evaluate the organisation to attract and retain the best talent and proactively address underperformance; mutualise retail staff.
Integrate an AI-powered data tool for end-to-end business management.
Review and, if necessary, freeze new projects.
Manage the agreement with Valentino.
In the medium term (18 months), the following will be required:
align supply chain levers (from forecasting to store refurbishment to channel management). Potential +20% turnover and improvement in working capital;
clean up the structure of collections for all Maisons with consistent organisation by segment;
mutualise industrial capacity, purchasing, logistics, systems/cloud and retail across brands;
Define strategy and organisation to enter new markets/segments;
accelerate the development of Jewellery and design the appropriate operating model;
Coordinate strategy between ARTEMIS (seeding) and KERING (scaling) for new activities. Enable cooperation on certain operational projects — Ponant, CAA, Christie’s, Puma.
Finally, De Meo’s recipe also includes shock therapy, which consists of the first five recommended actions in the first 90 days:
1. launch two parallel task forces: Asset disposal & balance sheet and marketing efficiency & agency consolidation;
2. launch a sprint to reduce stock: identify low-turnover SKUs, pricing plans and outflow channels;
3. Implement a pilot project for an end-to-end AI tool on a sample fashion house (demand forecast → S&OP).
4. Selectively freeze all new non-core investments and review all projects.
5. initiate skills mapping and retail mobility plans to pool resources and retain top talent.
THE FORECAST. STILL UNCERTAIN.
The objectives of De Meo’s plan are very ambitious, at times hyperbolic, although still vague and indeterminate in terms of values, timing and methods (how much, when, how). These objectives include:
making Kering the undisputed Challenger of luxury (the ‘Good No. 2’) in 5-10 years: more agile, first on trends, on the podium in every category, the fastest and most efficient.
building the Group’s competitive advantage by incorporating technology at every level of the organisation (hardware and software), making Kering the most technologically advanced luxury group.
creating a fully integrated ecosystem built around customers to meet every expectation of an extraordinary life. A company built around the Cloud; the Cloud built around the Customer.
Relaunch Gucci’s growth at a sustainable pace, reducing the Group’s dependence on a single brand.
Rebalance the contribution of the Fashion segment to the Group’s total profitability by 2035; explore the rebalancing of fashion cycles by investing in accretive and stable businesses.
Find a resilient and differentiated growth model for each brand.
Go beyond the current scope: start thinking now about where HNWIs (High Net Worth Individuals) will want to spend and build the Group accordingly.
Create an integrated structure of industry, processes, technology, software (AI), data and talent to serve existing brands and integrate new brands and businesses.
Become the most asset-light luxury group.
While my heartfelt wish for the ailing Kering is certainly a speedy recovery,
I cannot help but note that, in this first phase of the top-secret strategic plan, the prognosis still appears to be largely uncertain, especially with regard to the actions that should bring the brands back to the podium of desirability and competitiveness.
