What do the luxury sector and the automotive sector have in common? Until recently, even asking the question would have seemed incongruous, given the apparent dissimilarity between brands engaged in mass production in search of economies of scale and those based on lavish spending and limited editions. The arrival of Luca de Meo (formerly of Renault) at the head of Kering signals a change for the group founded by French entrepreneur François-Henri Pinault, but also for the entire sector. Is playtime officially over?

During Kering’s general meeting earlier this month, de Meo officially took his place as head of the luxury group, the second-largest in France. The choice of the former Renault executive as the new CEO raises questions. Can luxury survive the logic of financial optimisation, such as that found in industry and FMCG (fast-moving consumer goods)?

Luxury in transformation

Since the 1990s, the rise of conglomerates like LVMH and Kering has fundamentally changed the luxury sector, creating an industrial rather than brand-driven logic. These conglomerates took advantage of the high profit margins in luxury and used financial leverage to expand rapidly and acquire brands. They benefitted from economies of scale, ranging from real estate to marketing budgets (which allowed them to negotiate with major media), and from bargaining power with subcontractors on production costs.

Today, however, this strategy is being called into question. Luxury brands are struggling with saturation, declining perceived quality, and loss of exclusivity, even as they continue pursuing growth through volume. A widening gap exists between consumers’ perception of luxury prices and product quality. Many brands are perceived – rightly or wrongly – as having cut corners on craftsmanship and materials while significantly increasing prices, relying mainly on marketing to justify costs. The industry is at a turning point, with many brands stating they will focus on “value rather than volume” in the future. Yet, it remains to be seen whether they can truly return to the fundamentals of luxury, namely craftsmanship and genuine (not orchestrated) rarity.

The new role of the CEO in luxury

Traditionally, luxury brands were family businesses, with leadership passed down from generation to generation. This preserved the brand’s heritage and artisanal dimension. Decisions were made with a long-term vision, in contrast to the dictates of the stock market and financial logic, which require regular reporting. Hermès still follows this model, with its CEO Axel Dumas belonging to the sixth generation of the Hermès-Dumas family.

A second model later emerged: hiring CEOs from within the luxury industry, aligned with the unique aspects of managing luxury brands. This vision dominated during the massive expansion of luxury brands, which went from being regional champions of European excellence and craftsmanship to global leaders in high-value-added premium goods. Today, for example, Nicolas Bos, the new CEO of Richemont – the Swiss luxury conglomerate – previously led Van Cleef & Arpels.

More recently, a new model seems to be emerging, where luxury brands are recruiting CEOs from other industries, especially consumer goods (FMCG) or industries that produce on a large scale. Such was the case with Leena Nair at Chanel, poached from Unilever, and now with de Meo at Kering. This brings new management approaches but also creates tensions with the sector’s traditional values.

Industrial production

Indeed, the FMCG approach has introduced stricter financial management, optimised segmentation and marketing, a growth strategy based on brand extensions, and large-scale production in luxury. However, this also undermines the focus on creativity, craftsmanship and exclusivity in the sector.

These appointments can certainly provide a fresh perspective: Nair’s appointment at Chanel, for example, brings human resources expertise into a sector where talent is scarce. Still, questions remain, especially concerning how excellence in service and customer experience, where luxury practices are far beyond those of consumer goods, can be integrated.

Kering faces specific challenges

There are many challenges for Kering and its new CEO. Gucci – the group’s flagship brand – has seen a 25% drop in sales, while other brands in its portfolio are underperforming. De Meo will need to tackle these issues.

The company expanded rapidly by using financial leverage, but this strategy may have reached its limits given Kering’s current debt. Many concerns remain about the dilution of the group’s brands and the loss of exclusivity.

The traditional luxury group strategy of acquiring trendy or declining brands and reviving them through marketing – boosting desirability and perceived value – and retail (via customer experience) may no longer be as effective in today’s market.

The appointment of a former Renault executive – accustomed to working in a mature industry where platform creation and margin preservation are key – signals that the luxury industry itself is reaching maturity. This strategy focuses marketing efforts on high-value-added flagship products, such as leather goods, beauty and accessories (eg sunglasses). For these products, a platform logic can be applied, where synergies between brands allow cheaper production and distribution, even at the cost of sacrificing brand individuality.

‘Platformisation’ of luxury

The new CEO will need to balance financial performance with preserving the brand’s capital and exclusivity. This may require tough decisions, such as scaling back certain operations or selling underperforming brands. A strategy of returning to exclusivity – by reducing the number of boutiques and focusing on high-value-added items – was successfully implemented by Chanel in the 1980s.

The new leader of Gucci, Balenciaga, and Bottega Veneta will have much to prove to show that a CEO coming from outside the luxury industry can successfully take on these challenges and restore Kering’s growth trajectory while maintaining its luxury positioning.

These difficulties reflect the broader challenges of a business model that has adopted mass‑market tactics, treating emotional and creative products as commodities. This “FMCG for the wealthy” approach poses a real risk of eroding the very essence of luxury.

Conflicting pressures

Luxury brands face conflicting pressures – maintaining exclusivity and craftsmanship while delivering the growth and profits expected by financial markets and conglomerate owners. The industry may have reached the limits of its expansion strategy. This is evidenced by the opening of stores in second‑ and third‑tier cities around the world and the constant launch of new product categories, which dilute brand equity.

Moreover, there is a growing tension between creative, artistic leadership and financial, operational management within luxury houses. The traditional “magic duo” of the creative director and the business leader is being disrupted. The aura of a luxury brand is built above all around a charismatic figure – at once creative and visionary – who is also committed to a brand over the long term.

Finally, there are increasing concerns about the long‑term sustainability of today’s luxury business models, particularly their reliance on marketing rather than genuine quality and authentic exclusivity to justify high prices.

A weekly e-mail in English featuring expertise from scholars and researchers. It provides an introduction to the diversity of research coming out of the continent and considers some of the key issues facing European countries. Get the newsletter!

This article is republished from The Conversation, a nonprofit, independent news organization bringing you facts and trustworthy analysis to help you make sense of our complex world. It was written by: Ben Voyer, ESCP Business School and Perrine Desmichel, ESCP Business School

Read more:

Ben Voyer received funding from the ESCP HEC Paris Cartier Turning Points Research Chair.

Perrine Desmichel ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.