Mimosa Spencer and Casey Hall

PARIS/SHANGHAI (Reuters) – Kering (EPA): Gucci’s star label Gucci will announce plans this week to boost sales. This spotlight will also be placed on China, which is a crucial growth engine for luxury homes that was hit hard by COVID lockdowns.

Investors closely monitor China’s luxury market to see how it has impacted the demand for premium fashion and accessories.

Kering recently hired Laurent Cathala (ex-Tiffany executive) to lead Gucci’s Chinese operations. Gucci accounts for more than half of Tiffany’s overall revenue.

Analysts believe Cathala will help to strengthen local teams and give them the control over marketing activities. This is a rare move in an industry in which strategy is usually dictated in Paris or Milan by Europe-based executives.

Leaf Greener, an expert in luxury brands based out of Shanghai, says that it is important to empower local employees at a moment when understanding the culture and knowing your customers is essential.

“The brand haven’t given enough thought to how they can build this cultural bridge.” Greener explained that brands need to get on board as quickly as possible. Greener said, “It is not about celebrities selling a lot more product.”

Kering will not comment on Thursday and Wednesday as it presents its investor presentation.

China’s economy is in a slump and its customers are feeling the pinch. They just emerged from lockdowns at Shanghai and other large cities. Analysts believe that government stimulus measures might not be sufficient to stimulate consumer spending. ()

Due to restrictions, Gucci was more affected than competitors like Louis Vuitton and Hermes owned by LVMH in the first quarter.

Kering shares fell 26% from the start of the year, compared with a 16% drop for spirits-to–jewellery conglomerate LVMH. LVMH is considered more resilient due to its more diverse business.

BRAND FUNDAMENTALS

Jean-Marc Duplaix is Gucci’s Chief Financial Officer. He said Gucci’s lower performance could be due to Gucci being exposed more to China than its competitors. Barclays According to LON:, the label is responsible for around 35% of China’s annual sales. This compares with 27% for LVMH’s fashion and leather goods and 26% for Hermes.

Investors will be interested to know how Kering plans to recover lost ground, as restrictions ease this month.

Analysts at Barclays stated in a note that “beyond trading currents, we believe investors also require reassurance about the brand’s fundamentals”.

Gucci saw its profits almost quadruple under Marco Bizzarri, CEO and Alessandro Michele as creative directors. In 2015-19 Gucci had nearly tripled its revenues and profit margins. A large part of Gucci’s past success has been due to young, wealthy Chinese buyers who visited Europe’s fashion capitals, and bought Michele’s quirky, extravagant designs.

But growth slowed as international travel froze during the pandemic, fuelling questions over what Kering might do to boost sales and reduce its dependence on the label – including potentially through M&A deals. Gucci expanded its reach into homeware and make-up to increase its appeal. It also collaborated with Adidas (OTC).

Jefferies analysts don’t expect a rapid return to China’s growth rate seen in the second quarter of 2013. They cite a muted footfall in Shenzhen, Shenyang and other cities earlier in the year following the lifting of lockdowns.

The country’s luxury sales will drop by 15% over the first half of the year, and then grow at around 11% during the second half.

Kering will speak at the ‘Capital Markets Day’ about Kering’s Yves Saint Laurent and jewelry and glass businesses.