Gucci could be Kering’s greatest strength and responsibility in China
Has China become too important for Gucci? Although the Italian brand has apparently cracked the code to keep consumers engaged (and spent) while operating a relatively uncontroversial operation in China, there are signs that complications could be on the horizon, counterintuitive due to too Hit.
Under chief executive Marco Bizzarri and creative director Alessandro Michele, Gucci enjoyed a nearly decade-long boom, with profits roughly quadrupling and revenues nearly tripling between 2015 and 2019. After a disappointing, COVID-hit 2020 that cut revenue, Gucci revenue jumped 31% in 2021reaching 9.7 billion euros ($10.1 billion) and surpassing its pre-COVID 2019 revenue of 9.6 billion euros ($10 billion).
Reliable classification as one of China’s favorite luxury brandsGucci is also one of the most active in the Greater China market, expertly employing collaborations, ambassadors that are a bit off the beaten track, and a clear brand narrative. All of this, over the past seven years, has added up to an outsized success that makes the brand far more exposed in China than its rivals. According According to Barclays estimates, China accounts for around 35% of Gucci’s annual sales, compared to 27% of fashion and leather goods sales for LVMH and 26% for Hermès.
For parent company Kering, this success in China is both a blessing and a source of concern, given that Gucci accounts for more than half of the group’s total turnover. At no time has Kering’s vulnerability in China been clearer than in the first quarter of this year, when Gucci was hit by extended shutdowns that effectively shuttered the country’s luxury hub, Shanghai. While Gucci maintained 13.4% growth in the first quarter of 2022 compared to the same quarter last year, the blockages in China weighed down the brand globally, with earnings falling short of expectations by just under one percent.
Definitely, when China sneezes, Gucci catches a cold. Now, the Chinese conundrum for Gucci and its parent company Kering is that the local brick-and-mortar and e-commerce market is arguably bigger than ever. Outbound tourism (and the millions of shoppers it brought to Gucci stores in Japan, Europe and North America, pre-COVID) is unlikely to recover. until 2024ensuring that many, if not most, of China’s most active luxury shoppers will do more of their high-end shopping closer to home or online for at least another few years.
This means that increasing sales in the market will remain a priority for Gucci, even if Kering plans to increase the revenues of the other brands in the portfolio. like Yves Saint Laurent and experiences with the crypto world. Still, the possibility of further closures in 2022 is far from the only Chinese market hurdle that Gucci and Kering will face in the second half.
The Chinese government’s continued crackdown on celebrities and influencers – which has ensnared some of the country’s top stars and live streamers like Through and Li Jiaqi — shows no signs of stopping, putting brands in a constant search for “safer” ambassadors who are less likely to attract unwanted attention or poor PR. And with the 20th Party Congress set to take place later this year, government censors and regulators are working overtime to catch and penalize any marketing message that even comes close to crossing the Party line.
All of this means Gucci needs a solid plan for China that will help it bounce back from the recent wave of COVID lockdowns and weather a continued crackdown on celebrities and a more tightly regulated media environment for the rest. of the year.
To this end, Kering recently typed old Tiffany veteran Laurent Cathala to lead Gucci’s fashion operations in Greater China, with Cathala expected to give local teams greater control over marketing and advertising efforts. The brand too to separate its watch and jewelry businesses will be managed globally from the head office in Milan, in an effort to achieve consistency. Now the question is what Gucci’s more powerful local advertising and marketing team will prepare for China in the coming year, and what other brands can learn from their efforts.