Luca de Meo's Automotive Acumen: Can It Revive Kering's Luxury Engine?

The appointment of Luca de Meo, former Renault CEO, as Kering's new CEO marks a bold strategic pivot for the luxury conglomerate. Known for turning around Renault's financial performance through aggressive cost discipline and innovation, de Meo's automotive background raises critical questions: Can his operational expertise translate to the high-margin, brand-sensitive world of luxury goods? And does Kering's stock (KER.PA) present a contrarian buy opportunity amid its current struggles?

The de Meo Playbook: Cost Cuts and Innovation at Renault

At Renault, de Meo slashed costs by €792 million in 2024, reinvesting savings into product innovation while improving operating margins by 0.5 points. His focus on “price/mix/enrichment” strategies—boosting margins through premium product launches—could resonate with Kering's luxury portfolio. For instance, Renault's electrification push (33% of European sales now electrified) mirrors Kering's need to modernize its brands, particularly Gucci, which has seen EBIT margins collapse to 21% in 2024 from a peak of 35% in 2022.

Strategic Fit: Automotive vs. Luxury Dynamics

The challenge for de Meo lies in adapting his automotive playbook to a sector where brand desirability and exclusivity are paramount. Key risks include:

1. Margin Expansion Limits:
   Luxury brands operate on razor-thin margins compared to automotive. While Renault's automotive margins improved to 7.4%, Kering's core luxury division (Gucci, Saint Laurent) faces margin erosion due to rising marketing costs (+€177M at Renault, a similar pressure on Kering's creative investments). Can de Meo cut costs without undermining brand equity?

2. Creative vs. Operational Priorities:
   Automotive's focus on scale and supply chain efficiency clashes with luxury's reliance on artistic vision. Gucci's recent stumble under Sabato De Sarno—a creative director whose minimalist “Gucci Ancora” line failed commercially—highlights the industry's volatility. Demna Gvasalia's controversial appointment as Gucci's new creative director (see ) underscores the need for a leader who balances operational rigor with creative flair.

3. Asia-Pacific Recovery Hurdles:
   Kering's Asia-Pacific sales dropped 25% in Q1 2025, contrasting with Renault's success in scaling emerging markets. De Meo's experience in cost-conscious markets like India or Southeast Asia may aid Kering's push to recover share in China and South Korea, where luxury spending remains sluggish.

The Contrarian Case for Kering: Margins, Gucci, and Liquidity

Despite these risks, three factors argue for a strategic long-term investment:

1. Margin Turnaround Potential:
   Kering's 2025 target of ≥7% operating margin (vs. 2024's 6.9%) aligns with de Meo's track record. If he can replicate Renault's cost discipline—trimming excess distribution (Gucci's wholesale revenue fell 53% in 2024) and prioritizing high-margin retail—Kering could reclaim margin leadership.

2. Gucci's Brand Revival:
   Demna's arrival signals a gamble on bold creativity, but his experience with Balenciaga's viral campaigns (despite recent declines) offers a path to reconnect with Gen Z. If Gucci's Q4 2025 collection under Demna generates buzz, resale platforms like The RealReal could see demand rebound.

3. Financial Flexibility:
   Kering's €2.9B free cash flow in 2024 (similar to Renault's liquidity management) suggests de Meo has the capital to invest in Gucci's physical/digital infrastructure without overleveraging.

Key Metrics to Watch

• Brand Desirability: Monitor Gucci's placement in Lyst's 2025 Q3 prestige index. A return to the top 10 would signal creative success.
• Asia-Pacific Sales: A sequential rebound in Q3 2025 sales would validate de Meo's regional strategies.
• Operating Margins: Achieving ≥7% by 2025 would validate his cost discipline in a luxury context.

Investment Thesis

Kering's stock trades at a 13% discount to its five-year average P/E ratio, offering a contrarian entry point if de Meo's operational overhaul succeeds. However, investors must be patient: luxury cycles typically take 18–24 months to turn, and Demna's impact won't materialize until late 2025.

Actionable Advice:
- Buy: Accumulate KER.PA at current levels (€480/share) if Gucci's Q3 sales show sequential growth and brand sentiment improves.
- Hold: Maintain a neutral stance until Q4 2025, when Demna's first collection and margin data will clarify the turnaround's trajectory.
- Avoid: Steer clear if Asia-Pacific sales remain flat or Gucci's EBIT margin slips below 18%.

Conclusion

Luca de Meo's appointment is a high-stakes experiment: Can an automotive CEO's cost-cutting and innovation ethos save a luxury icon? The answer hinges on his ability to balance operational efficiency with the intangible alchemy of brand desirability. For investors, the reward—a potential margin-driven rebound in a high-margin sector—could outweigh the risks, but success demands a long-term view.

Final Take: Kering is a speculative play for patient investors. If de Meo's strategy delivers on margins and Gucci's revival, this could be a multi-year winner. But tread carefully—luxury's whims are as fickle as its fashion cycles.