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

Since the start of the decade, the luxury group Kering has made significant strides in real estate acquisitions, investing hundreds of millions of euros annually. Notable among these acquisitions are the future Gucci flagship on rue de Castiglione in Paris, slated to open its doors in 2026, as well as the Canadian embassy building on avenue Montaigne in Paris, and another prestigious property on Fifth Avenue in New York. 

Kering allocated nearly 1.4 billion euros for its real estate investments last year, according to figures released on February 8 by the French luxury giant, whose declining revenue fell just below the 20 billion euros mark.

These costly moves have raised questions about the group’s strategy in this regard. Especially since Bernard Arnault, CEO of the world’s leading luxury good group, LVMH, made a scathing criticism at the end of January, suggesting that “It’s not buying such premises that needs to be avoided, but buying B+ ones at AAA prices. Unfortunately, this seems to be something that some of our competitors haven’t quite grasped,” just days after Kering announced the completion of its New York operation.

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

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

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

“These are very rare assets that correspond to the brand elevation strategy. Just because a building is available in a certain location doesn’t mean we’ll buy it,” detailed Kering’s CEO in a press conference. “We’ll take 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 have no interest in jumping on everything that’s up for grabs!”

For the group, it is about asserting itself in competition with other major luxury houses, especially those of the LVMH group, which are acquiring mega flagships on the most affluent shopping streets in the world.

“Our aim is to reinforce the exclusivity and upscale positioning of our houses. Ten years ago, Saint Laurent made 500 million euros, and we didn’t envision a space of more than 1,000 square meters on the most beautiful avenues in the world,” asserted François-Henri Pinault. “With over 3 billion euros in revenue, it becomes essential. Others didn’t wait for us to take these locations, which is why in some places, in some cities, we invest.”

With transactions announced in the 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 aim to upscale, as well as in technologies and training, these amounts could strain its development capabilities in other areas.

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

Kering could thus develop agreements with investment funds to secure its ultra-premium locations while investing significantly less in its real estate operations. However, the deputy CEO hinted that the current financial climate may not necessarily favor such financial arrangements and that the first ones could occur within one to two years.

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