Balenciaga at a crossroads

The spotlight is on Balenciaga. Tomorrow, the brand will unveil its Spring 2025 collection in Shanghai. Balenciaga is also the focus of an investigation by MFF, involving analysts and luxury industry experts. The brand, under Kering and designed by Demna, has been a trendsetter for years, ranking in the top three of reputation analysis firms such as Lyst from 2017 to the first half of 2022. The first quarter of this year showed «some early signs that the brand is on the right track to recover, with a return to double-digit growth in the key North American market», Swetha Ramachandran, who manages the leading consumer brand strategy and co-manages the global select strategy at Artemis, notes. As for brand power, after dropping to the 18th position in Lyst’s first-quarter 2023 ranking and staying below the top ten for the rest of the year, the maison is gradually regaining ground.

«Its recent rise to number 8 in Lyst’s quarterly ranking is encouraging», Ramachandran explains. The restoration of Balenciaga’s brand image is progressing thanks to initiatives such as the appointment of Nicole Kidman and Michelle Yeoh as brand ambassadors, with Kidman’s outfit particularly appreciated on the Met gala red carpet, and the launch of its first skiwear collection. «The Brand has been quiet over the past year, but it is now trying to gradually win back consumers», Carole Madjo, Head of European Luxury Goods Research at Barclays, observes.

Since 2022, the Brand has been under pressure due to an advertising campaign that sparked strong negative reactions, especially in North America. «Regaining momentum after the impact of the campaign is the main challenge Balenciaga still faces. Sentiment in the US will be crucial for assessing the Brand’s recovery», the analyst adds. According to Kering management, in the first quarter of 2024, Balenciaga’s trends have significantly improved in North America and Western Europe, with a solid performance also in the Asia-Pacific region.

«The Brand’s momentum seems to be improving significantly on Western social media platforms, with the communication issues from some time ago now largely resolved», Luca Solca, Senior Research Analyst for global luxury goods at Bernstein, explains. «Balenciaga has regained momentum. In China, store traffic seems stable, while in Shanghai it is slightly declining». However, Balenciaga’s weight within François-Henri Pinault’s Kering group remains relatively marginal. “I believe the critical focus for Kering now is the relaunch of Gucci», Luca Solca adds.

In Kering’s financial reports, Balenciaga’s results are grouped under the Other Houses division, along with Alexander McQueen, Brioni, and jewelry brands Boucheron and Pomellato.

In the 2023 fiscal year, these brands contributed 3.5 billion euros, a 9% decrease from the previous year. Artemis estimates that Balenciaga contributes less than a high single-digit percentage of Kering’s total revenue, currently generating a mid-single-digit profit margin due to ongoing investments in future growth and limited scale affecting profitability.

«In a sector polarized between mega-brands exceeding 10 billion euros and others, Balenciaga’s strength lies in its position as a fresh, experimental alternative rather than a predictable mega-brand», Ramachan notes. «As a designer, Demna has always loved taking risks with his innovative creations, risks that are more challenging to undertake in a large brand where stakes are high».

What aspects should Balenciaga focus on to regain its former appeal? «As the Brand matures, paying greater attention to merchandising and expanding beyond fashion and leather goods will be crucial for sustained long-term growth», the Artemis expert concludes. Flavio Cereda, co-investment manager for luxury brands at Gam, adds: «Balenciaga needs to maintain its wow factor and distinctive profile. A radical change in direction is not necessary, but given recent challenges, careful attention to communication is essential». Overall, experts remain confident in Balenciaga’s current creative direction.

«Balenciaga’s customer is unique, young and always looking for products that amaze or surprise», Flavio Cereda explains. «Demna has always met this expectation, but a more volatile market poses challenges even for a brand with such a vibrant past». «The Creative Director recently announced a return to his and Balenciaga’s roots, with a focus on crafting quality garments rather than just creating buzz or a pure image. This shift reflects the Brand’s maturity and a serious response to past controversies», Minutella concludes. (All rights reserved)