Kering Group is struggling with Chinese consumers

Kering, the French luxury group, is adapting its sales approach to better cater for increasingly sophisticated Chinese customers, according to group managing director Jean-François Palus.
“We’ve changed the way we conduct our business in China and the way we address Chinese clients when they’re abroad,” said Mr Palus at the Financial Times luxury conference in Lisbon on Tuesday.
“We learnt that a very serious risk is to become complacent, to think that it’s an easy business, an easy customer base, easy to open stores with good products and then people will come in. That was true for a moment but Chinese customers have become sophisticated and highly demanding and we need to adapt.”
Chinese consumers account for more than 30 per cent of global luxury consumption, according to consultant Bain, which is forecast to increase to 35 per cent by 2020.
How much of global luxury consumption Chinese consumers account for, according to Bain, a figured set to rise to 35% by 2020
In the past, luxury houses relied on rapidly opening up stores in China to fuel growth amid rampant Asian demand for their products, but this approach has been undermined by an economic slowdown in China.
In the final quarter of last year, Chinese consumers showed signs of returning, although notably shopping more in mainland China, while tourism in Europe has slowed in part owing to recent terrorist attacks.
In China, Kering is retraining shop assistants and replacing email communication with WeChat, China’s most popular social media platform with more than 800m daily users.
Mr Palus said: “The way the Chinese treat very important clients is different — they have a very candid approach to wealth.”
He pointed to a recent visit to a Gucci store in Beijing where the store manager told him he had hired the daughter of a billionaire to work with clients in the shop “because to talk to wealthy people in China, you need to be wealthy”. He added that bad feng shui in a shop can hurt client traffic.
According to Pierre Gervois, the Founder and Publisher of the STC magazine, a luxury travel publication for High Net Worth Chinese global travelers “HNWI Chinese clearly signaled about  five years ago that they wanted to purchase luxury goods outside China, to enjoy the full experience of the iconic flagship stores in London, Paris or New York”
“This new trend has not been immediately recognized by luxury conglomerates such as LVMH and Kering, that led to an inflation of store openings in China in the years 2010/2015, with little customer traffic, insufficient staff training, and in some cases damaging consequences in terms of brand image.”, Mr Gervois added.
Kering posted a 31.2 per cent rise in revenues to €3.57bn in the first three months of 2017, lifted by a 34 per cent jump in sales from luxury activities.
Among its brands, Gucci led the way, posting record revenue growth of 51.4 per cent for the three months — the latest sign of improvement under creative director Alessandro Michele. Other Kering brands such as Brioni and Bottega Veneta were doing less well than the likes of Saint Laurent.
Mr Palus said: “The market has become more difficult and the pace of growth has slowed down. In this environment you need to take market share from the competition.”
Kering was not looking at acquisitions, added Mr Palus. “We have so much on our plate with helping our existing brands tap their potential . . . we don’t have enough time to think about M&A.”
He said that Kering was also still adapting to digital platforms. “We need to open ourselves to what’s happening in other industries and other countries. Our industry needs to become less product-centric and become more customer-centric.”

Source: The Financial Times.

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Luxury brands in a quandary as China’s wealthy young develop resistance to bling

Hainan Airlines - Chinese touristsThere was no shortage of frocks and handbags in Milan last week as representatives of the $1.5 trillion global fashion industry gathered for the spring 2015 trade shows. Behind the glamour and gloss, however, there was discernible anxiety that the mighty Chinese consumer, responsible for one third of luxury goods and fashion sales, is not living up to expectation as a consumer of fashion and bling – and could even be developing a resistance to ostentatious western brands. Leading luxury conglomerates, including LVMH (Moët Hennessy Louis Vuitton) and Kering, owner of Gucci, as well as brands like Prada – which sent models down the catwalk wearing its spring/summer 2015 collection in Milan on Thursday – are reporting disappointing financial results, and have pointed their collective finger at China, where growth in the luxury goods market has slowed to 2% after rising 30% in 2011.
Analysts warn that after years of chasing Chinese consumers, domestically and as voracious luxury shoppers in foreign capitals, the big brands may be no closer to understanding the market. With analysts warning that shares in luxury brands could fall as prominent investors dump stock, the fashion industry is seeking answers to the riddle of China’s luxury consumer.
“China was everyone’s dream but it’s proved a lot more difficult than anyone expected,” says HSBC analyst Erwan Rambourg and author of The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun.

In response to a government corruption crackdown that has curbed the practice of “gifting”, wealthy Chinese consumers are reported to be wary of wearing visibly branded clothes.
Resistance to bling, says Rambourg, has harmed brands including Gucci, which showed in Milan on Wednesday, and Louis Vuitton – labels young consumers associate with their mothers. Without a radical shift in perception, changing patterns of consumption are unlikely to improve the outlook. In less than a decade, Chinese luxury consumers will be on average 10 years younger than their European counterparts and more than 15 years younger than consumers in the US. If projections hold, Chinese shoppers will account for more than half of all luxury sales by 2025.
Chinese consumers have developed sophisticated sensibilities more rapidly than western brand managers anticipated. “It’s what I call the French paradox, says Rambourg. “If you are a niche brand, everyone wants you. If you are a big brand, then by selling more you compromise a sense of exclusivity and the notion of luxury itself.”
Nor are Chinese consumers necessarily impressed by a luxury label alone. Raw material quality can be seen as a more important attribute than branding or fancy designs, Rambourg notes.
“They’re not only much younger and super-demanding, they’re also extremely well informed. If you’re complacent and don’t communicate the way they communicate, it’s going to be difficult.”
In the early years of China’s love affair with luxury, Chinese visitors to foreign capitals could be relied on to shop without restraint. Shoppers, often male, bought for their friends and relatives. Steep markups for products sold in China led to the growth of “haiwai daigou”, or overseas personal shoppers, estimated to be worth $12bn annually.
Now, even as more Chinese travel abroad, they’re spending less or choosing different destinations. Tax-refund claims by Chinese tourists in Europe grew 18% last year, compared with 57% in 2012.
“Hong Kong was cool. Western Europe was cool. But neither are true any more. The Chinese travelling abroad ditched Japan two years ago. So now they’re discovering the US and US brands.”
At home, Chinese shoppers – now more likely to be female – are balking at paying inflated prices, often 50% higher than abroad. Retailers have begun to discount but analysts warn of the risk of training consumers to wait for price cuts before buying, often impulsively, items they don’t want.

“We see a major shift in the behavior of affluent Chinese travelers”, says Pierre Gervois, Publisher of Luxury Hotels of America, a luxury travel publication for affluent Chinese tourists. “They now clearly consider that Western Europe is a little bit out of fashion, and want to experience U.S. brands”
Brands benefiting from the shift in perceptions include Burberry. “They’re the only legitimate global British brand competing against a sea of French and Italian brands. Its phenomenal appeal is linked to an association with Britishness and rock and roll rebelliousness,” says Rambourg.
The industry is taking corrective measures to rekindle the love of Chinese consumers. Last week, the Costume Institute at the Metropolitan Museum of Art in New York announced that next May’s fundraising ball at its new Anna Wintour Costume Centre will celebrate the influence of China on fashion, film and art.
The chosen theme of the party, sometimes called the Oscars of fashion, offers a clear signal to designers to direct their research toward Chinese history and design. With the Chinese actress Gong Li and Wendi Deng, the ex-wife of Rupert Murdoch, selected as co-hosts, and Wong Kar-Wai, director of the epic In The Mood For Love as artistic director, fashion could be about to have a Chinese moment. Luxury-brand managers will no doubt be hoping Chinese consumers will reciprocate the love.
“If they only try to mimic, consumers will know it’s not genuine,” warns Rambourg.
As last week’s $160bn public offering of Chinese e-commerce giant Alibaba shows, faith in Chinese consumerism remains strong. When the French brand Hermès opened a substantial new store in Shanghai this month, chief executive Axel Dumas said the brand was still doing well. “We are very, very confident about the Chinese market. People are now buying for themselves, there is also a refinement, a knowledge of what is luxury.”

Source: The guardian, Edward Helmore