A Split Reaction in Kering’s Stock Price

What Diverging Investor Reactions Reveal—Unpacking Market Bias in Luxury

Todays writer:

My name is Ruofan Pi. I have a proven background in banking, consulting, and luxury management. I write market insights that uncover market dynamics through cross-industry analysis, specialising in synthesising perspectives from different fields to create new understanding at their intersection. My work brings fashion industry insights to financial analysis, revealing the quantifiable impact of the seemingly intangible.

On 16 June, Kering announced that Luca de Meo, CEO of Renault, would be its new CEO, signalling a bold move to revive the struggling luxury group. This cross-industry leadership shift came just three months after another bold decision: the controversial appointment of Demna Gvasalia, Balenciaga’s avant-garde creative director, to lead Gucci’s creative direction.

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The market reacted in opposite ways to two pivotal leadership appointments at Kering: while de Meo’s appointment as CEO triggered an immediate 11.8% surge in Kering’s share price on the day of the announcement, the naming of Demna as Gucci’s creative director earlier led to a 10.5% decline the following day. This divergence in investor sentiment reflects the market's distinct confidence levels in each executive decision.

Notably, the delayed response to Demna's hiring, occurring 24 hours after the announcement, suggests a classic information processing pattern, where investors required additional time to assess the implications of the creative hire. Conversely, the immediate positive reaction to de Meo's selection indicates potential institutional front-running or pre-positioned confidence in his capabilities.

These events formed a perfect market sentiment mirror. Investors appeared to place greater trust in de Meo’s cross-industry expertise, particularly his successful "Renaulution" transformation at Renault, than in Demna's creative track record despite his acclaimed rebranding success at Balenciaga.

The market's response reveals two critical insights about investor perception: the transferability of operational excellence across industries appears widely acknowledged, whilst the measurability of creative impact on luxury brand performance remains systematically undervalued.

Kering’s “Renaulution”- Why de Meo?

When de Meo took over Renault in 2020, the century-old French automaker was on the edge of collapse. The company had just reported a €7.3 billion loss due to the pandemic, facing a severe ageing product line, lagging far behind Tesla and Volkswagen in electrification, and relying on emergency government bailout funding (15% stake) to survive.

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However, within just five years, de Meo led a systematic transformation called "Renaulution" that not only pulled Renault back from bankruptcy but delivered remarkable results: €56.2 billion in revenue (up 7.4% year-on-year) and €752 million in net income in 2024.

This turnaround has become the cornerstone of capital markets’ confidence in his leadership of Kering Group. His ability to drive cross-industry, system-level transformation is precisely the kind of rare strategic asset the luxury industry is seeking.

De Meo summarised his "Renaulution" in one simple slogan: “moving focus from volume to value”. He focused on applying LEAN methodology principles, originally developed from the Toyota Production System, to maximise value whilst minimising operational waste. This systematic approach enabled Renault to revive profitability through aggressive cost reduction and operational efficiency improvements.

De Meo excels at systematically restructuring companies on the brink of bankruptcy, turning losses into profits through cost control, efficiency improvements, profit growth, and cash flow enhancement. Capital markets recognise his value and believe this capability is transferable across industries.

Kering’s Bet on Gucci & Demna

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Kering's 2024 annual report reveals that the company's revenue decline was primarily driven by Gucci, which experienced a sharp 21% drop on a comparable basis. As Kering's flagship brand, Gucci faces intense pressure to compete with top-tier luxury brands like Hermès, Chanel, and Louis Vuitton. However, its underwhelming performance has weakened its position against Louis Vuitton, which is also a hard luxury brand rooted in leather goods.

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Moreover, frequent changes in creative directors and continuous market experimentation have left the brand with a fragmented brand identity and unclear market positioning. Although Gucci achieved remarkable revenue growth under the leadership of Marco Bizzarri (former president & CEO of Gucci) and Alessandro Michele (former creative director of Gucci), Michele's signature maximalist aesthetic struggled to resonate in the post-pandemic economic downturn as fashion cycles shifted back to "old money aesthetics." His successor, Sabato De Sarno, failed to win back consumers with his minimalist design. Instead, the new collections appeared disconnected from Gucci's heritage.

At this very moment, Gucci, the lifeline of the Kering Group, desperately needs a transformative saviour who can reverse its fortunes. That person turned out to be Demna.

Balenciaga Case: Demna, a “Marketing” Genius

Balenciaga, a French-Spanish fashion house, falls under the “Other Houses” category of the Kering Group. Looking at its evolution over the years, Nicolas Ghesquière became the creative director in 1997, introducing his retrofuturist aesthetic to this haute couture maison. This transformation marked Balenciaga's renaissance after founder Cristóbal Balenciaga's retirement, positioning the brand once again as a pioneer in the fashion industry.

However, Ghesquière left Balenciaga in 2012 and joined Louis Vuitton the following year as artistic director of the women's collection. During his final period at Balenciaga, he expressed his frustration in an interview, stating that some collaborators failed to understand fashion as an art form, instead treating it as a commodity that was much more reproducible and flat. Compared to designing under Cristóbal's towering legacy, Ghesquière found more freedom at Louis Vuitton, which originated in luggage and leather goods with relatively sparse fashion heritage.

Following Ghesquière’s departure, Alexander Wang took over Balenciaga's creative director position, serving for only three years. During this tenure, his designs appeared to play it safe, referring a lot to the brand's archive and craftsmanship without showcasing a distinctive personal style. This three-year period served more as a transitional phase. Finally, in 2015, the brand appointed 34-year-old wunderkind designer Demna Gvasalia as its creative director.

Demna is, in fact, a cross-disciplinary talent. Before pursuing a fashion career, Demna studied international economics for four years and was supposed to start working at a bank in Germany. However, he found that prospect so depressing and later attended the Royal Academy of Fine Arts in Antwerp, where he graduated with a Master's degree in Fashion Design in 2006. His cross-industry background later helped him in his creative director role.

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Demna's greatest strength lies in creating a brand's metaverse. Through his absurd and playful creative ideas, he has made the brand's social media accounts go viral. His marketing strategy is infused with his distinctive humour and ironic visual art, making Balenciaga stand out among conservative luxury brands, becoming edgy and highly recognisable.

Demna's collaborations are always widely discussed in the media, and whilst some have been extremely controversial, he consistently manages to transform controversy into a sense of belonging amongst younger generations. What Demna does is outsource his playful ideas to professional teams to realise his creative vision. The most successful example was the animated brand campaign The Simpsons | Balenciaga, in which the Simpson family entered a Balenciaga show wearing the brand's iconic pieces. The campaign uses humour and satire to critique consumerism and the absurdity of the fashion industry. Although some audiences found the combination of The Simpsons with luxury goods mismatched, the tremendous buzz successfully introduced the brand's design language to wider audiences who had previously been indifferent to luxury.

Unlike many luxury brands' confusing and rigid applications of technology and AI, Demna truly understands what technology can offer him. For example, Balenciaga's Spring 2019 ready-to-wear campaign utilised photogrammetry scans and digital deformation in visualising a distorted world. Additionally, Balenciaga staged its Autumn/Winter 2021 collection as a virtual reality runway show presented through Oculus glasses sent to 330 guests worldwide, and released the video game Afterworld: The Age of Tomorrow.

Technology helps Balenciaga present a bizarre, surreal, yet romantic virtual world. Within Balenciaga's metaverse, there are narratives addressing social issues, sarcasm directed at absurd reality, and imaginary dystopian futures. These spiritual outcries and resonances have precisely captured the hearts of Generation Z consumers, forming Demna's followers and the Balenciaga community.

Therefore, when Facebook officially changed its name to Meta, the company posted a tweet mentioning Balenciaga:

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What Demna does at Balenciaga is more akin to using this platform to express his creativity, opinions on society, and attitude towards life, and these have already become integral to the brand's equity. This is exactly how the luxury industry operates: consumers purchase far more than a product's utility value, but rather the identity it brings. What truly drives revenue are not those design-forward, niche pieces that are difficult to digest, but rather the T-shirts, hoodies, and trainers with the Balenciaga logo.

Although Demna thoroughly rebranded Balenciaga, he has not abandoned efforts to reconnect with the brand's heritage. In July 2021, Balenciaga relaunched its haute couture line for the first time in 53 years since its closure in 1968. Demna combined futuristic technological aesthetics with traditional craftsmanship, integrating streetwear elements into Balenciaga's classic silhouettes to create visual tension. He intended to perpetuate the couture DNA of the couturier master Cristóbal Balenciaga through his own modernised design approach.

Under Demna's highly personal leadership, Balenciaga’s revenue has skyrocketed from under €1 billion in 2018 to approximately €2.5 billion in 2024, suggesting that the majority of this growth can be attributed to his creative direction. As an old couture house, the fact that Demna can seamlessly and confidently express his creative vision at Balenciaga proves his commercial acumen and fashion instinct. Even at Balenciaga, where Ghesquière once felt constrained, Demna has thrived. By the same logic, it appears likely that at Gucci, Demna will also find a design space where he can work comfortably and freely.

Why is the market worrying?

Market concerns centre on whether Demna is too subcultural and unsuited to Gucci's brand identity. Compared to Balenciaga's specific customer base, Gucci has a broader audience covering more age groups.

Despite many questioning Demna's compatibility with Gucci, his connection with the brand was already evident during Gucci's 100th anniversary in 2021, when Gucci presented the "Aria" collection. This involved then-creative director Michele "hacking" Balenciaga's designs and iconography, merging them with Gucci's heritage and codes.

François-Henri Pinault, who was Kering's CEO at the time, said of the partnership: "Alessandro and Demna's innovative, inclusive, and iconoclastic visions are aligned with the expectations and desires of people today. Those visions are reflected not only in their creative offerings but also in their ability to raise questions about our time and its conventions."

After examining the Balenciaga case, we can see that Demna's success is transferable. His core ability lies in reconstructing brand storytelling. He transformed Balenciaga from being constrained by its heritage to becoming an avant-garde symbol. Gucci's current situation closely resembles Balenciaga's pre-2015 state, where the brand faces positioning confusion, possessing a rich heritage but lacking a focused direction. What Gucci needs is a brand alchemist, which is exactly what Demna can provide.

Back to the Stock Market

From a financial perspective, stock market voting is essentially a risk preference calculation. De Meo represents "quantifiable reform," whilst Demna embodies "creative uncertainty," the latter being particularly concerning given that Gucci accounts for half of the group's profits.

But is the market overly optimistic about de Meo’s systematic reforms?

Unlike managing a single brand within Kering, his reforms would directly impact the entire group. Whilst de Meo brings 30 years of leadership experience in the automotive industry, cross-industry management requires more cautious consideration.

The core of luxury profits lies not in "production efficiency," but in heritage, craftsmanship and emotional value. Overemphasis on cost-cutting and efficiency risks diluting brand identity, undermining craftsmanship, and stripping away uniqueness, reducing luxury brands to upscale fast fashion.

On the other hand, the luxury industry’s harsh lessons in 2024 have proven that price-raising strategies have long since failed. Bain's latest luxury report shows the global luxury market has contracted in customer base for the first time in its 23-year history of tracking. Between 2022 and 2024, the sector is estimated to have lost around 50 million customers. Resistance to greedflation is growing.

True profit growth doesn’t come from higher margins per item, but from stimulating volume through brand equity—and that lies within the creative director’s remit.

The contrast in market reactions suggests that investors may consistently undervalue creative directors in the luxury sector, lacking a full appreciation of how creative leadership influences both brand performance and financial outcomes. This may reflect a misreading and short-sightedness regarding the fundamentals of the luxury industry. Markets too often reduce creative appointments to aesthetic risk, ignoring their strategic role as brand directors.

This article does not aim to champion Demna or criticise de Meo as a fashion outsider. Having reviewed de Meo's comprehensive two-and-a-half-hour Renaulution Strategic Plan presentation upon his appointment as Renault CEO, his success clearly stems from thorough, in-depth research into both the industry and the company. There is genuine anticipation for the fresh perspectives and vision de Meo may bring to lead Kering Group, and potentially the entire luxury industry, out of its current challenges.

About Demna, I tried to focus solely on the professional aspects of his career to maintain analytical objectivity and avoid potential bias on controversial matters. The relationship between brand and designer is never a rivalry over whose traits dominate, but rather a blend of chemistry. Designer changes not only provide opportunities for new artistic fusion but also create scarcity for previous collections. Balenciaga under Demna is already being missed, with past designs becoming discontinued pieces, and scarcity represents the essence of luxury.

The market's initial reaction may reflect a broader question: in an industry where creative vision can transform brands dramatically, how should we weigh the measurable against the ineffable? The answer, perhaps, lies not in quarterly earnings or immediate market sentiment, but in time's ultimate judgement.