Gobal luxury brand conglomerates such as Kering, previously known as PPR, the parent company to brands such as Gucci, Yves Saint Laurent, and a slew of other high profile brands, are a double edged sword: They can gain profits from a diverse brand portfolio, yet they can see sales sink when the luxury market is sluggish in a particular region of the world.
At the moment, the region in question is Asia, and more specifically China. While China is still consuming luxury goods, it seems that “Chinese shoppers are cutting back on designer duds, leather handbags, and pricey watches” according to the Associated Press. In fact, sales of luxury goods in China are expected to limp along and grow just 2.5 percent this year—a far cry from the double digit growth of a few years ago.
Chinese publication Jing Daily confirms that, “Chinese consumer tastes continue to quickly shift toward logo-free products and niche brands. …The rise of popularity of niche designer labels in contrast to major logo-focused brands was exhibited this fall in the openings of three major department stores in mainland China…” Also a likely contributor is China’s national austerity drive, which has put a negative connotation on luxury goods and experiences of all kinds.
Gucci, one of Kering’s premier brands, saw its weakest sales growth on a quarterly basis in four years, causing Kering’s stock price to skid 3.6 percent. This despite the fact that Kering’s luxury division as a whole enjoyed a 5.6 percent rise in sales. In fact, Kering brands Bottega Veneta, Yves Saint Laurent, Stella McCarthy, and Alexander McQueen all enjoyed gains. Unfortunately, Gucci accounts for more than half of Kering’s sales. Puma, another Kering brand, also saw a drop, causing Kering’s sports division to lose over 7 percent in the third quarter.
“The performance of Gucci is due to a consumer market in China that has become more negative and the brand’s move upmarket which has led to lower volumes of entry-price leather goods,” said Jean-Marc Duplaix, Kering’s head of finance.
Kering isn’t the only luxury company feeling the pinch. A few weeks earlier, Louis Vuitton also reported a slowing in Asian sales. Like Gucci is to Kering, Louis Vuitton is the biggest luxury brand owned by LVMH, which saw a 4 percent increase on an organic basis in the first nine months of 2013, below its 5 percent first half gain. Both LVMH and Kering are French holding companies, but LVMH is the larger of the two organizations, which are fierce rivals.
Given the new reality of the luxury market in China, both Kering and LVMH are following similar strategies: the Gucci and Louis Vuitton brands are now focusing on producing more “logo-free” product offerings, such as Gucci’s “Bamboo Shopper” bag and Louis Vuitton’s “Alma” bag.
It certainly is a changing world for luxury brands as consumer needs and wants have seemed to shift away from the obvious.