Gucci growth down as they reposition upmarket

Italy
Published:  25 October, 2013

Gucci still has more work to do to become a more exclusive brand, parent Kering said on October 24 after the leather goods maker posted its weakest sales growth in four years.

Gucci, which accounts for more than half of Kering's valuation, has been hit like rival LVMH's Louis Vuitton by lower Asian demand and disruptions linked to efforts to reposition itself more upmarket.

Gucci's like-for-like third-quarter sales rose 0.6%, undershooting analysts' forecasts of at least 1% growth, while Louis Vuitton's sales rose an estimated 1-2% during the period.

By comparison, both brands still enjoyed sales growth of more than 10% between 2010 and early 2012, bouncing back from the 2008-2009 spending downturn triggered by the US and European financial crises.

The declining sales trends at Gucci and Louis Vuitton are more a reflection of consumers' weaker appetite for mega brands than a sign of a general slowdown in the luxury goods market, analysts said.

Rival brands such as Prada, Salvatore Ferragamo, Hermes and Burberry continue to report sales growth well above 10%.

"It would be wrong to extrapolate Gucci trends, or Louis Vuitton for that matter, to the overall industry," HSBC luxury goods analyst Antoine Belge said.

"The repositioning of both brands towards less logo and more leather is working at full speed, but is a long-term process."

Suffering from being seen as too ubiquitous, Gucci and Louis Vuitton are trying to strengthen their high-end offering with fewer logo-embossed goods and a greater variety of expensive leather bags.

"There is still some progress to be made regarding this repositioning. This transformation is not over yet," Kering Chief Financial Officer Jean-Marc Duplaix told analysts about Gucci during a conference call.

Duplaix said no-logo handbags such as the Bamboo Shopper made up 55% of total Gucci leather goods sales against 35% in the third quarter of 2012, while the average handbag price was 10% higher.

Gucci is also cleaning up its wholesale distribution, particularly in countries such as the United States, Japan and Italy, and refurbishing and enlarging directly operated stores where it now makes 77% of total revenue.

"The performance of Gucci is due to a consumer environment in China that has become more negative and the brand's move upmarket which has led to lower volumes of entry-price leather goods," Duplaix said.

Analysts pointed to the strong performance of Kering's other luxury brands in the third quarter with comparable sales at Bottega Veneta up 16%, up 12% at Yves Saint Laurent while at other brands together, including Stella McCartney and Alexander McQueen, they rose 9.4%.

Globally, Kering said the picture was mixed as Gucci's like-for-like sales in China had dropped "in low single digits" during the third quarter and 2% in Western Europe, but they rose 10% in Japan and 3% in North America.

The group's Puma brand, which is in the middle of a restructuring and strategy revamp, saw quarterly revenue drop 0.8% on a like-for-like basis.

Source: Reuters

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