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PARIS — Faced with a fast-changing landscape in China, Gucci is ditching the rapid expansion model of recent years for an “à la carte” approach to retail and merchandising.
This story first appeared in the February 19, 2013 issue of WWD. Subscribe Today.
François-Henri Pinault, chairman and chief executive officer of Gucci parent company PPR, said the group saw a rebound in sales of luxury goods in China in the fourth quarter of 2012 following a slowdown earlier in the year, when consumers reined back conspicuous spending ahead of Communist Party leadership elections.
With the Chinese New Year falling in February this year, compared with January in 2012, it is still too early to tell whether that positive trend carried through into the first months of 2013, Pinault told a news conference in Paris following publication of the conglomerate’s annual results.
What is certain is that Gucci, which accounted for close to 60 percent of revenues at PPR’s luxury division last year, is having to contend in China with a growing gap between consumer spending in major urban centers like Shanghai and Beijing, and in secondary cities where luxury brands are still a novelty.
In new locations, the Italian luxury firm offers entry-level leather goods and accessories before gradually introducing ready-to-wear and other accessories as consumer tastes mature — a process that is unfolding far more rapidly in China than it did previously in other markets, Pinault noted.
“Logos are part of the brand’s universe. The key is being able to vary your product offering in line with your customers’ aspirations with exceptional products that are very personal, very sophisticated, and are perceived in a much more hedonistic way,” he said.
“Having those two models in the same country allows us to be very reactive, and that is the reason we continued to grow at a relatively healthy pace in 2012, despite the economic slowdown in China,” he added.
PPR is the latest luxury goods group to restrategize its approach in China as the tastes of consumers in major cities matures and brands push more and more into smaller locales. LVMH Moët Hennessy Louis Vuitton two weeks ago revealed it was altering its approach to the market, while Burberry and Compagnie Financière Richemont are doing the same.
But Pinault’s admission that logos still have a place in Gucci’s product assortment, 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 that Louis Vuitton will accentuate quality and resist the temptation to market less-expensive, logo-driven products in secondary cities in China, 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-François Palus, group managing director of PPR, said Gucci will hold off on opening stores in new cities in China this year and focus instead on renovating or expanding existing ones to keep pace with the country’s rapid geographical evolution.
“We will be staying in the same cities, but we are moving a lot of stores,” he said. “There are times when a neighborhood is really hot and there is a lot of footfall, and three or four years later the footfall has moved to another spot.”
Shares in PPR closed up 7.6 percent at 172 euros, or $230.29, on the Paris Stock Exchange on Friday after the group reported a 6.3 percent rise in net profits last year, as it reduced its reliance on sluggish European markets 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 posting net income of 1.05 billion euros, or $1.35 billion, in 2012.
Stripping out its loss-making Fnac and Redcats retail activities, which the group is divesting, net profits were up 28.2 percent.
PPR officials noted that it has almost completed the transition to a pure apparel and accessories player. The group expects to sell La Redoute, the last major chunk of the Redcats empire, by the end of this year.
“A number of potential buyers are interested,” said Palus. “We are going to start the process in about a month.” He noted that La Redoute performed “slightly less well” in 2012 than in the previous year, but declined to break out the catalogue retailer’s sales.
In 2012 as a whole, PPR posted total revenues of 9.74 billion euros, or $12.52 billion — an increase of 20.8 percent year-on-year in reported terms and of 10.6 percent at comparable scope and exchange rates.
With the luxury division continuing to outpace the sports and lifestyle segment, sales in the fourth quarter rose 17.5 percent to 2.56 billion euros, or $3.3 billion. This represented a rise of 11.7 percent in comparable terms. (All dollar rates are calculated at average exchange rates for the period concerned.)
Though Puma posted a net loss in the fourth quarter, as reported, Palus reiterated PPR’s commitment to the brand and said it would name a new ceo for the sportswear company within weeks.
Though it did not give precise guidance, PPR expects “another year of robust revenue growth and enhanced operating and financial performances” in 2013.
Pinault noted its luxury brands have plenty of avenues for growth.
Yves Saint Laurent and Bottega Veneta — whose 2012 revenues rose 33.7 percent and 38.5 percent, respectively — will become increasingly larger players within the group’s luxury division. “This allows us to balance our value creation by relying on several motors and not just a single locomotive,” he said, referring to the current dominance of Gucci within the division.
In the U.S., tourist flows from Latin America and beyond will account for a growing proportion of sales, Pinault predicted. “In the luxury field, this will be an extremely important phenomenon for our brands,” he said.
In response to an analyst who questioned whether brand ubiquity risked making luxury goods less desirable, Pinault advocated branching out into even more product categories.
“In the last few years, Gucci has developed a very successful children’s line, and there is still a lot of work to do and development to plan in those areas,” he noted. “I am absolutely not worried about our capacity to create and maintain a very high degree of attractivity, exclusivity and desirability for all of our brands.”