TheChek News Flow

The luxury giant must address challenges at Gucci and Balenciaga, plus uncertainty in China, the company’s most important market. Plus, what else to watch for this week.

Kering executives probably want to pretend the last few months of 2022 never happened. Balenciaga became mired in scandal over the brand’s ties to Ye and a widely condemned campaign that posed BDSM-inspired objects with children. Alessandro Michele left Gucci, where growth continues to lag other big luxury labels. Sales for many luxury brands were dismal in China amid a surge in Covid cases. Kering doesn’t break out Balenciaga’s sales publicly – or its brands’ revenues in China, for that matter – but the impact will be hard to hide in fourth-quarter and annual results due out on Feb. 15.

After laying low for much of December and January, Kering has taken some steps to put its fashion houses in order. It appointed Sabato De Sarno, a Valentino designer, to succeed Michele. Balenciaga said it would show at Paris Fashion Week, and Demna addressed the controversial campaigns in a Vogue interview. Kering also announced it was forming a new beauty division, headed by veteran Estée Lauder executive Raffaella Cornaggia, creating new potential avenues of growth for some of its brands.

Kering is less able to control turbulence in its most important market, China. In the third quarter, Gucci’s sales in the country were still down year-on-year, even as some other luxury brands had begun to recover. The fourth quarter was an even tougher environment; last month, LVMH said it saw an unexpectedly steep decline in Chinese sales in December as coronavirus cases boomed in the country. Since abruptly lifting its Zero Covid policy, there are signs China will quickly rebound – get used to hearing a lot about “revenge travel.”

For Kering, the solutions to last year’s problems could be starting to fall into place. Still, it’s hard to say how Balenciaga’s return to the spotlight or Gucci’s creative revamp will actually land with consumers. The devil is in the details, and this week’s financial results are a key opportunity for the company to reassure investors it’s ready to move on.

BRUSSELS, Feb 13 (Reuters) - European countries' bill to shield households and companies from soaring energy costs has climbed to nearly 800 billion euros, researchers said on Monday, urging countries to be more targeted in their spending to tackle the energy crisis.

European Union countries have now earmarked or allocated 681 billion euros in energy crisis speding, while Britain allocated 103 billion euros and Norway 8.1 billon euros since September 2021, according to the analysis by think-tank Bruegel.

The 792-billion-euro total compares with 706 billion euros in Bruegel's last assessment in November, as countries continue through winter to face the fallout from Russia cutting off most of its gas deliveries to Europe in 2022.

Germany topped the spending chart, allocating nearly 270 billion euros - a sum that eclipsed all other countries. Britain, Italy and France were the next highest, although each spent less than 150 billion euros. Most EU states spent a fraction of that.

On a per capita basis, Luxembourg, Denmark and Germany were the biggest spenders.

The spending earmarked by the countries on the energy crisis is now in the same league as the EU's 750-billion-euro COVID-19 recovery fund. Agreed in 2020, that saw Brussels take on joint debt and pass it onto the bloc's 27 member states to cope with the pandemic.

The energy spending update comes as countries debate EU proposals to loosen state aid rules further for green technology projects, as Europe seeks to compete with subsidies in the United States and China.

Those plans have raised concerns in some EU capitals that encouraging more state aid would unsettle the bloc's internal market. Germany has faced criticism over its mammoth energy aid package, which far outstrips what other EU nations can afford.

Bruegel said governments had focussed most of the support on non-targeted measures to curb the retail price consumers pay for energy, such as VAT cuts on petrol or retail power price caps.

The think-tank said that dynamic needed to change, as states are running out of fiscal space to maintain such broad funding.

"Instead of price-suppressing measures that are de facto fossil fuels subsidies, governments should now foster more income-support policies targeted towards the lowest two quintiles of the income distribution and towards strategic sectors of the economy," research analyst Giovanni Sgaravatti said.

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