Paris—Much like its rival LVMH reported earlier this month, Kering SA today reported a slowdown in its third quarter sales due to weaken demand even in China.
The parent to Gucci, Yves Saint Laurent and Bottega Veneta etc. said revenue fell 1.5% to 2.52 billion euros (about $3.48 billion) as the small increase in sales at its luxurygoods brands failed to offset a decline in the sports and lifestyle division. Excluding current fluctuations, Kering’s revenue rose 3.4%.
Sales in the luxurygoods division rose 1.5% to 1.62 billion euros helped by increased demand of Yves Saint Laurent (up 12%) and Bottega Veneta (up 16%). Stella McCartney and Alexander McQueen both posted 9.4% increase.
Gucci Move Upscale Hampers Sales
But at Gucci, which accounts for more than 50% of the division’s sales, revenue fell 4.5%. (Excluding currency shifts, revenue rose 0.6% after rising 4.1% in the previous quarter. Analysts, however, had predicted Gucci would have 2.1% growth. The brand’s performance was its weakest since third quarter 2009 when sales fell 7%.
Similar to LVMH’s Louis Vuitton, Gucci has embarked on a strategy to move more upscale, reducing entry-level merchandise in favor of higher-end goods. Evidently, however, the new higher end image didn’t connect with Gucci’s Chinese customers
Noting that the upscale move had indeed weighed on business, Jean-Marc Duplaix, chief financial officer, told analysts that “the consumer environment has momentarily deteriorated for the luxury industry in China.”
“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,” he said.
Duplaix noted that as part of the upscaling strategy, Gucci also revamped sales to third party stores. “We have stopped working with certain distributors in Italy in order to conserve the exclusivity of the brand,” said Duplaix, adding that the move contributed to the drop in Gucci’s European sales. Wholesale distribution in the United States and Japan, too, is being cleaned up. More emphasis put on Gucci’s own stores, which are being enlarged and refurbishes—company-owed stores now account for 77% of total revenue.
Meanwhile, the sports and lifestyle division, where Puma accounts for about 90% of sales, sales were down 7.6% to 892.6 million euros. Puma which is amid a restructuring and strategy revamp, posted a 0.8% decrease in like for like sales, better than the 2.3% decrease analyst had expected.
Puma sales developed positively in North America, though remained under pressure in Western Europe, Kering reported.
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