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9 Jan

Balenciaga Scandal Seen Contributing to ‘Bad as It Gets’

Balenciaga’s ad scandal stifled the brand’s “hyper growth mode,” notably within the U.S. and U.K., meaning fourth-quarter results for French luxury group Kering “might be as bad because it gets,” in line with an equity research report from HSBC released Thursday.

The bank also cited slowing momentum in China and the U.S. and a “tough basis of comparison” as additional aspects more likely to have dented Kering’s revenues in the course of the crucial holiday season.

It forecasts Q4 revenues, due out on Feb. 15, will slip 3.1 percent in organic terms, reflecting a 12.5 percent dip at Gucci and an 8 percent improvement in “other brands,” which include Balenciaga, Alexander McQueen, Boucheron, Brioni, Pomellato and Queelin.

Still, the report, titled “Leave Your Troubles Behind,” suggests that the worst at Balenciaga is “likely behind us” and that Gucci is more likely to do higher in 2023, despite the exit of creative director Alessandro Michele, who helped take the Italian brand from 3.9 billion euros in 2015 to 9.7 billion euros in 2019.

His successor has yet to be named.

“It seems that management is starting to handle the problems faced by the Gucci brand,” the report said. “The commitment to spend more by way of promoting, combined with a stronger team in mainland China in addition to in merchandising should help the brand converge towards peers’ sales growth no matter the very fact it’s going to be in a transition period.”

Balenciaga represented about 10 percent of Kering’s 2021 group sales, versus 55 percent for Gucci, 14 percent for Saint Laurent, and eight percent for Bottega Veneta, in line with HSBC charts tabulating company data.

HSBC also cut its earnings-before-interest-and-taxes estimates for Kering by a mean of 4 percent “for FY22-24 as we now have taken into consideration a rather less favourable FX set-up, the results on sales of the recent Balenciaga promoting scandal and a tougher situation in mainland China overall than previously anticipated.”

Amongst downside risks are COVID-19 resulting in delays in tourism-related spending and “longer-term pain at Balenciaga from the recent PR problems.”

Last November two Balenciaga campaigns triggered outrage that engulfed the French fashion house, photographers, creatives and even longtime collaborator Kim Kardashian.

One featured children posing alongside quite a lot of items, including logo beer glasses and purses shaped like teddy bears wearing bondage gear. One other fashion campaign, depicting actresses Nicole Kidman and Isabelle Huppert in business attire, included a closeup of a handbag resting on a page from the 2008 Supreme Court ruling “United States v. Williams,” which confirmed the promotion of kid pornography as illegal and never protected by freedom of speech.

By Nov. 23, Balenciaga pulled each campaigns from all platforms, apologized for any offense it caused and pointed the finger of blame at external production corporations.

After a mounting backlash, Balenciaga on Nov. 28 publicly condemned child abuse and took full responsibility for the controversies surrounding the 2 campaigns, a day after Kardashian said on Nov. 27 that she was “reevaluating” her relationship with the brand, writing that she was “shaken by the disturbing images.”

Creative director Demna and chief executive officer Cédric Charbit issued further apologies on Instagram on Dec. 2, together with vows to vary Balenciaga’s “content organization” and “help make a difference in protecting children.” The corporate also dropped its legal motion against production company North Six Inc. and set designer Nicolas des Jardins.

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