Research
Interview Synopsis

Kering – Gucci Challenges in China

  • Public Equity
  • Consumer
  • Greater China

As the House of Gucci enjoys star billing on the silver screen, the brand itself is “on the way down” in China, according to a commercial director at LVMH Fashion.

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Gucci jeopardising brand longevity by expanding too quickly

The Interview – which began with a review of trading levels in mainland China from August to early October – looked at expectations for the Chinese luxury goods sector in 2022, Gucci’s “sluggish” Q3 performance, Gucci’s e-commerce strategy and the challenges parent company Kering faces in diversifying away from Gucci.

August was a “challenging” month for the luxury goods market in China after adverse weather conditions and COVID-19 outbreaks in Beijing and Nanjing caused the footfall of “VIP” sales to drop. However, markets rebounded with “tremendous growth” in September and October, the specialist told Third Bridge Forum, as national holidays including Mid-Autumn Festival and Golden Week got people shopping again.

The overall luxury goods market in China is in good shape for 2022 but the specialist was less optimistic about Gucci’s long-term prospects in the country. Recent designs and products have been an “extension or update, but not a disruption” of the fashion industry, alienating key generation Y and Z Chinese consumers, they said. Its e-commerce strategy, of which it had been a “pioneer” in the Chinese luxury goods market, was now also significantly diluting the brand’s exclusiveness, while there are also questions as to how sustainable it will be once rules around outbound travel are relaxed, and duty-free markets reopen, the specialist added.  

On the operations side, Gucci is also doing “a lot wrong”, according to the expert. A lack of discounts in its stores and “so many” outlet stores – especially in comparison to Louis Vuitton, Christian Dior, Hermès and Chanel in China – has caused an inventory problem that, coupled with a less exclusive product, is “bringing down brand momentum”.

Hainan province, a small island off the Chinese coast offering duty free products, has also been a problem for Gucci’s mainland sales. Its store on the island is 25-35% cheaper than full-priced stores in Beijing or Shanghai, and, as such, people have been flying to the island to purchase its products rather than paying full price on the mainland, the specialist said.

Aria, Gucci’s latest collection, will help the company see “rather decent growth” in the last quarter of 2021, the specialist said, helped by the New Year holiday in China. But, long term, the specialist fears the company faces an uphill struggle, with “conflicting” strategies that hope to retain its older clientele as well as increase brand loyalty among younger consumers.

The specialist ended the Interview by saying Kering could diversify away from Gucci to make it less reliant on the Italian brand, with the purchase of both mega-brands and small designers a distinct possibility.

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The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.

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