By  on February 19, 2013

PARIS — Faced with a fast-changing landscape in China, Gucciis ditching the rapid expansion model of recent years for an “à lacarte” approach to retail and merchandising.

François-HenriPinault, chairman and chief executive officer of Gucci parent companyPPR, said the group saw a rebound in sales of luxury goods in China inthe fourth quarter of 2012 following a slowdown earlier in the year,when consumers reined back conspicuous spending ahead of Communist Partyleadership elections.

With the Chinese New Year falling inFebruary this year, compared with January in 2012, it is still too earlyto tell whether that positive trend carried through into the firstmonths of 2013, Pinault told a news conference in Paris following publication of the conglomerate’s annual results.

Whatis certain is that Gucci, which accounted for close to 60 percent ofrevenues at PPR’s luxury division last year, is having to contend inChina with a growing gap between consumer spending in major urbancenters like Shanghai and Beijing, and in secondary cities where luxurybrands are still a novelty.

In new locations, the Italian luxuryfirm offers entry-level leather goods and accessories before graduallyintroducing ready-to-wear and other accessories as consumer tastesmature — a process that is unfolding far more rapidly in China than itdid previously in other markets, Pinault noted.

“Logos are partof the brand’s universe. The key is being able to vary your productoffering in line with your customers’ aspirations with exceptionalproducts that are very personal, very sophisticated, and are perceivedin a much more hedonistic way,” he said.

“Having those two modelsin the same country allows us to be very reactive, and that is thereason we continued to grow at a relatively healthy pace in 2012,despite the economic slowdown in China,” he added.

PPR is thelatest luxury goods group to restrategize its approach in China as thetastes of consumers in major cities matures and brands push more andmore into smaller locales. LVMH Moët Hennessy Louis Vuitton two weeksago revealed it was altering its approach to the market, while Burberryand Compagnie Financière Richemont are doing the same.

ButPinault’s admission that logos still have a place in Gucci’s productassortment, which has been given a luxury upgrade in recent years,stands in contrast to the public stance of his rival Bernard Arnault,chairman and ceo of LVMH.

Two weeks ago, Arnault pledged thatLouis Vuitton will accentuate quality and resist the temptation tomarket less-expensive, logo-driven products in secondary cities inChina, whose economy is expected to grow at 8 percent this year.

Where the two companies agree is that the days of rolling out dozens of new stores a year are over.

Jean-FrançoisPalus, group managing director of PPR, said Gucci will hold off onopening stores in new cities in China this year and focus instead onrenovating or expanding existing ones to keep pace with the country’srapid geographical evolution.

“We will be staying in the samecities, but we are moving a lot of stores,” he said. “There are timeswhen a neighborhood is really hot and there is a lot of footfall, andthree or four years later the footfall has moved to another spot.”

Sharesin PPR closed up 7.6 percent at 172 euros, or $230.29, on the ParisStock Exchange on Friday after the group reported a 6.3 percent rise innet profits last year, as it reduced its reliance on sluggish Europeanmarkets and continued to expand in rapid-growth economies. On Monday,PPR’s shares closed up 0.5 percent to 172.85 euros, or $230.89.

PPR,whose other brands include Yves Saint Laurent, Bottega Veneta,Boucheron and Puma, said it was positive heading into 2013 after postingnet income of 1.05 billion euros, or $1.35 billion, in 2012.

Strippingout its loss-making Fnac and Redcats retail activities, which the groupis divesting, net profits were up 28.2 percent.

PPR officialsnoted that it has almost completed the transition to a pure apparel andaccessories player. The group expects to sell La Redoute, the last majorchunk of the Redcats empire, by the end of this year.

“A numberof potential buyers are interested,” said Palus. “We are going to startthe process in about a month.” He noted that La Redoute performed“slightly less well” in 2012 than in the previous year, but declined tobreak out the catalogue retailer’s sales.

In 2012 as a whole, PPRposted total revenues of 9.74 billion euros, or $12.52 billion — anincrease of 20.8 percent year-on-year in reported terms and of 10.6percent at comparable scope and exchange rates.

With the luxurydivision continuing to outpace the sports and lifestyle segment, salesin the fourth quarter rose 17.5 percent to 2.56 billion euros, or $3.3billion. This represented a rise of 11.7 percent in comparable terms.(All dollar rates are calculated at average exchange rates for theperiod concerned.)

Though Puma posted a net loss in the fourthquarter, as reported, Palus reiterated PPR’s commitment to the brand andsaid it would name a new ceo for the sportswear company within weeks.

Thoughit did not give precise guidance, PPR expects “another year of robustrevenue growth and enhanced operating and financial performances” in2013.

Pinault noted its luxury brands have plenty of avenues for growth.

YvesSaint Laurent and Bottega Veneta — whose 2012 revenues rose 33.7percent and 38.5 percent, respectively — will become increasingly largerplayers within the group’s luxury division. “This allows us to balanceour value creation by relying on several motors and not just a singlelocomotive,” he said, referring to the current dominance of Gucci withinthe division.

In the U.S., tourist flows from Latin America andbeyond will account for a growing proportion of sales, Pinaultpredicted. “In the luxury field, this will be an extremely importantphenomenon for our brands,” he said.

In response to an analystwho questioned whether brand ubiquity risked making luxury goods lessdesirable, Pinault advocated branching out into even more productcategories.

“In the last few years, Gucci has developed a verysuccessful children’s line, and there is still a lot of work to do anddevelopment to plan in those areas,” he noted. “I am absolutely notworried about our capacity to create and maintain a very high degree ofattractivity, exclusivity and desirability for all of our brands.”

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