Can Gucci Turn it Around in China?

A Gucci boutique in Beijing. (Shutterstock) Despite strong sales of portfolio brands like Yves Saint Laurent and Bottega Veneta last year, French conglomerate Kering this week reported a drop in net profits in 2014. According to The New York Times, Gucci—Kering’s most important brand, accounting for nearly 80 percent of the group’s revenue—remained a drag throughout the year, spurned by Chinese consumers at home and abroad and in dire need of a refresh. Although Kering put new management—namely chief executive Marco Bizzarri and creative director Alessandro Michele—in place, and has made moves to push its products higher upmarket, the question remains: is there any way for Gucci to turn it around in China? China struggles are nothing new for Gucci, which—having entered the market in 1996—was a relatively early entrant. That comparatively long history in China has been, to many luxury brands, a problem in recent years, as the likes of Louis Vuitton (which entered China in 1982) and Rolex (1995) have been spurned by consumers in top-tier cities as second- and third-tier “tuhao” (nouveau riche) buyers have entered the market—and as Xi Jinping’s ongoing anti-corruption campaign continues with no sign of abating. Quite simply, these brands have lost their exclusivity in China, and given the current luxury climate, owning them can be a liability for many people. In many ways, Gucci suffers from the same problem as Louis Vuitton and Chanel in China, and that is that the brand has become a victim of its own success. The brand has also been widely counterfeited over the years, but arguably the biggest problem is that the brand’s core consumer in China now has a far wider knowledge of brands than she did in 1996. This has not necessarily been a bad thing for parent company Kering, which boasts a number of brands that have become hugely popular among China’s wealthier (non-bureaucrat) global shoppers. Among them, Bottega Veneta has gained significant steam among Chinese shoppers in Europe and the United States, and younger shoppers—many of them international Chinese students—flock to Kering-owned labels like Alexander McQueen, Balenciaga, and Saint Laurent. Despite confidence that a change in management will help inject new life into the brand—and it just might—it won’t be easy for Gucci, which relies on China for around one-quarter of its sales. One problem that the luxury mega-label has come up against over the past three years in China has been over-expansion, which the brand fought against by shutting down or relocating boutiques in mainland China. The brand’s “tiered” approach to interior markets in 2013 arguably hurt Gucci’s prospects among an important—albeit less sophisticated—consumer, as stores in second- and third-tier cities were stocked with entry-level items rather than ready-to-wear or higher-end leather goods. This meant emerging consumers’ first experience of Gucci was often lower-priced small accessories rather than the most expensive offerings—which they were often looking for. Then, as now, when Chinese consumers are ready to buy from a luxury brand, they’re often ready to buy its most high-end product. At the moment, it looks like Gucci’s best bet in China is to refocus its marketing efforts more to younger middle-class consumers than the middle-aged demographic. The brand should expect far more purchases to be made overseas—particularly in Europe—owing to a weakening euro and stronger yuan. To prop up sales in China, Gucci will likely have to put renewed emphasis on stores in less glamorous cities—where wealthier consumers often shop locally rather than abroad—and consider a store concept revamp in Beijing and Shanghai to stand out and get people interested in the brand again. Meanwhile, the brand should revive its social media efforts and more effectively leverage CRM (particularly via WeChat) to increase outreach to VIPs, heavily promote its upmarket offerings, and engage buyers overseas. Avery Booker is a partner at China Luxury Advisors.

Can Gucci Turn it Around in China?

On this page

Published February 19, 2015

Sectors

Insights

Company

Can Gucci Turn it Around in China?