According to François-Henri Pinault, “Kering does not aspire to become a real estate developer”


Translated by

Roberta Herrera

Published


February 9, 2024

Since the beginning of the decade, luxury group Kering has made significant steps in real estate acquisitions, investing hundreds of millions of euros a year. These acquisitions include the future Gucci flagship on rue de Castiglione in Paris, which is scheduled to open in 2026, as well as the Canadian embassy building on Avenue Montaigne in Paris, and another prestigious property on Fifth Avenue in Paris. NY.

12-14 Rue de Castiglione before work began. Gucci to open flagship store with VIP area in 2026 – Arcangel

Kering spent nearly €1.4 billion on its real estate investments last year, according to figures released on February 8 by the French luxury giant, whose declining revenues fell just below €20 billion.

These costly measures have raised questions about the group's strategy in this regard. Especially since Bernard Arnault, CEO of the world's leading luxury goods group, LVMH, launched a scathing critique at the end of January, suggesting that “It is not buying stores of this type that should be avoided, but rather buying B+ stores at AAA prices.. “Unfortunately, this seems to be something that some of our competitors haven't fully grasped,” just days after Kering announced the end of its New York operation.

During Kering's annual results presentation, Jean-Marc Duplaix, the group's deputy CEO, and François-Henri Pinault, its CEO, discussed their approach to these investments.

“We buy exceptional assets, coveted by all groups in a limited number of cities, because we believe they create value for our brands,” explained Jean-Marc Duplaix.

“We have just under 1,800 points of sale. Today, we have three flagship stores on the main hubs, and we could reach 10 or 15… But it is important to understand that this represents only 1% of our network. These assets have a relatively high value, but we do not aspire to become real estate developers.”

“These are very rare assets that correspond to the brand's elevation strategy. The fact that a building is available in a certain location does not mean that we will buy it,” explained Kering's CEO in a press conference. “We will accept it if it aligns with the brand's development strategy. For Gucci, it makes sense to have a flagship on rue de Castiglione at this stage of its development, just as it does for Saint Laurent on avenue Montaigne. We don't have Interest in taking advantage of everything that is at stake!

For the group, it is about imposing itself against other large luxury houses, especially those of the LVMH group, which acquire mega flagships in the most prosperous shopping streets in the world.

“Our goal is to reinforce the exclusivity and luxury positioning of our houses. Ten years ago, Saint Laurent earned 500 million euros and we could not imagine a space of more than 1,000 square meters on the most beautiful avenues in the world.” said François-Henri Pinault. “With more than 3 billion euros in turnover, this becomes essential. Others did not wait for us to occupy these places, that is why in some places, in some cities, we invested.”

With transactions announced for hundreds of millions of euros, the amounts are particularly significant. And while the group also needs to invest in expertise, especially in jewelry and leather goods, to further validate its scaling goal, as well as in technologies and training, these amounts could affect its ability to develop in other areas.

“One way to reduce our exposure to the real estate market and free up capital for other opportunities is to partner with financial partners. This collaboration allows us to be more agile, especially when market conditions do not favor us. For example, we took this approach with the Omotesando building in Tokyo, where we partnered with an investment fund on a 10-90% deal. This test demonstrates an effective and flexible strategy that we could employ more widely.”

In this way, Kering could develop agreements with investment funds to secure its ultra-premium locations and invest significantly less in its real estate operations. However, the deputy chief executive hinted that the current financial climate does not necessarily favor such financial deals and that the first could occur within a year or two.

One point is still unclear: which fashion house of the Kering group will benefit from the prime location acquired for 885 million euros at 715-717 Fifth Avenue, on the southeast corner of 56th Street, at the beginning of this year in New York?

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