Gucci has issued a third profit warning: as its sales plummeted by 20 %, it is dragging down the rest of the Kering Group as well. Without the “Chinese cluster”, the luxury sector seems lost.
“Chinese cluster” drops out
The luxury industry seems lost, now that Chinese shoppers are dropping out. Burberry and LVMH had already released disappointing results, and now Kering is doing the same: the luxury group saw its revenues drop 11 % in the past half year to 9 billion euros. Operating profit (EBIT) even almost halved, going down 42 % to 1.6 billion euros.
The “Chinese cluster”, as CFO Armelle Poulou calls the combination of customers in China and Chinese tourists abroad, sold a quarter less in the first half of the year. France in particular attracted fewer rich Chinese shoppers, while sales in China itself fell by 22 %. While rival LVMH was able to compensate this somewhat with (tourist-driven) growth in Japan, Kering does not seem to have that luck.
Gucci improves image
Flagship Gucci, accounting for 60 % of all profits at Kering, is the biggest problem: the brand has already had to warn for disappointing profits three times in a matter of months. In the first half of this year, sales (excluding currency effects) fell by almost 20 % to 4.1 billion euros. As a result, operating profit even halved to a billion euros. In the second half of the year, profits will be down another 30 %.
CEO François-Henri Pinault admitted that the economy was “difficult” and that it put additional pressure on sales and profits. Gucci aims to revamp its watered-down image by eliminating stock and closing outlet stores to make way for the classier style of new creative director Sabato De Sarno. That transition, however, is taking time: the new collections only account for a quarter of the offerings, and the stores are also attracting fewer visitors.
Luxury brands must reinvent themselves in a declining market. Five clear trends are emerging, but they present fashion houses with tough choices and dilemmas. In other words, it will be a work of long haul….
