KER Kering

By Joshua Kirby

Luxury-goods group Kering is looking at creating a new executive role to oversee brand safety and forestall any further scandals like that suffered by its fashion house Balenciaga, a controversy that is continuing to weigh on the brand's top line.

The Paris-based conglomerate is reviewing the creation of the new role at group level, managing director Jean-Francois Palus said during a conference call following the company's 2022 update. The officer would coordinate safeguarding of brands' marketing and products to avoid controversies that affect the company's image--and sales.

Kering's revenue came short of analysts' expectations in the year's final quarter, falling 7% on year on a comparable basis. This was in part due to slowing sales at main brand Gucci, which suffered from the pandemic situation in China, as well as tough comparison bases. But the group's other-houses division, home to Balenciaga, also unexpectedly booked lower sales for the quarter, with Kering noting that the brand had endured a "difficult December."

Balenciaga was at the end of last year rocked by backlash to two ad campaigns. One featured children holding bags in the shape of teddy bears in apparently sexual outfits; another included a document relating to a U.S. Supreme Court ruling against child pornography. Critics accused Balenciaga of celebrating child abuse, forcing the brand to apologise and pull the campaigns from circulation.

The scandal not only hit Balenciaga's sales in the fourth quarter, but has continued to do so into the new year, Kering's Mr. Palus said. The effects should have dissipated by second quarter of this year, he added.

Kering isn't planning to make any changes in personnel at the brand as a result of the controversy, he said. Indeed, Balenciaga's elevation toward higher price points--a strategy common to all of Kering's fashion houses--could be accelerated by the changes to product and branding made in the wake of the scandal, Mr. Palus said. He noted that Balenciaga creative director Demna, who goes by one name and who was the target of much of the criticism around the ad campaigns, remained deeply wedded to the aesthetic principles of founder Cristobal Balenciaga.

Analysts at Citi said Balenciaga will have to change following the scandal.

"We expect potential changes to style and design, communication strategy and internal control following recent controversy, which has impaired sales and brand equity," Citi's Thomas Chauvet and Lorenzo Bracco wrote in a research note.

Balenciaga's travails are reminiscent of previous promotional faux pas made by luxury brands. In 2018, Italy's Dolce & Gabbana scrapped a Shanghai fashion show at the eleventh hour after coming in for heavy criticism over a series of short videos for the show that appeared to mock Asian people. Entitled "Eating with Chopsticks," the videos showed a fashionably-dressed Asian woman attempting to eat Western foods such as spaghetti and pizza with a pair of chopsticks.

The following year, Versace drew similar ire in China for a T-shirt that appeared to suggest Hong Kong and Macau were independent countries rather than Chinese territories. The Italian brand, which is owned by Capri Holdings Ltd., was forced to apologize after the mistake generated a surge of anger on Chinese social media.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

(END) Dow Jones Newswires

February 15, 2023 06:41 ET (11:41 GMT)

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