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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Mandarin speaking sales associates are not enough to attract Chinese affluent shoppers: A good digital strategy is more efficient.

Chinese shoppers- China Elite FocusOver two-thirds of luxury spending by mainland Chinese was made overseas in 2013, an increase from 2012, according to the China Luxury Market Study from consultancy firm Bain & Company released on Monday.
Chinese shoppers often wait for trips abroad, plan shopping sprees to Hong Kong or get friends or specialist “daigou” agencies to bring back luxury items from overseas because they are often cheaper due to China’s high import taxes.
“Sometimes I’ll go to a China store and look online for details about things I’ve liked, or try something on for size I’ve seen online. But when it comes to actually buying it I’ll always get a friend to bring it back from abroad,” said Fang.
China is the number one luxury spender worldwide, making up 29 percent of total global luxury spend this year, according to the Bain report. So Chinese consumers – wherever they may be – are a key battleground for firms from LVMH Moet Hennessy Louis Vuitton SA and Gucci owner Kering Holland NV to trench coat maker Burberry Group PLC , cosmetics giant L’Oreal SA and Cartier watchmaker Compagnie Financiere Richemont SA .
Chinese luxury spending slowed at home in the wake of a crackdown on corruption and shows of wealth, prompting warnings of a sales slowdown from liquor maker Pernod Ricard SA and Volkswagen-owned Bentley Motors and Lamborghini.
Luxury brand store openings dropped significantly in 2013, according to Bain, which estimated China’s luxury market will grow two percent this year versus seven percent a year earlier.

On London’s Bond Street and Fifth Avenue in New York, luxury stores have been getting ready to welcome Chinese shoppers, boosting China know-how ahead of peak seasons such as the week-long Lunar New Year beginning January 31, 2014.
London’s Harrods department store is planning a themed display for the festival, with special products and menus designed for the occasion, it said.
Chinese visitors spent 300 million pounds ($488.34 million) in Britain in 2012, while the British government has relaxed visa rules to attract more people from the world’s second-largest economy.
“Having a strategy for Chinese visitors makes a massive difference. Chinese spending in the UK was up 132 percent in the first half of 2013,” said Jeremy Gordon, London-based director of China Business Services, which helps UK firms target Chinese shoppers.
“That’s obviously going to have a massive impact on your bottom line at a time when overall retail sales are not growing at anything like that rate.”
On Fifth Avenue, jeweler Tiffany & Co said it employs Mandarin-speaking staff. Tiffany has seen strong growth in the China market as the allure of diamonds grows, and said last month that sales at its flagship New York store were driven by Chinese and European tourists.
Around 1.5 million Chinese travelers visited the United States in 2012, a more than five-fold increase from 2005, according to the U.S. Department of Commerce.

“Western luxury brands have now fully understood the necessity to have Mandarin speaking sales associates in their New York and London stores, but it’s not enough. The purchase decision is made well before the trip, when future Chinese travelers are checking their luxury travel magazines on their iPad and luxury lifestyle Weibo pages. The irony of this is even if the sales associates do not speak Mandarin, Chinese shoppers will still buy”  said Pierre Gervois, author of “How U.S. Retail, Travel and Hospitality Industries can attract affluent Chinese tourists”
Saks Fifth Avenue, the department store unit of Hudson’s Bay Co , has a Lunar New Year strategy to focus on beauty products, while the flagship store of Macy’s Inc has a visitor centre with Chinese-language material.
Barneys, meanwhile, is launching its first Lunar New Year-themed marketing campaign in 2014. The department store has increased adverts in Chinese magazines and is testing campaigns around Chinese payment system Union Pay, it said.

Luxury firms are also going online to woo Chinese shoppers. Tiffany has a Chinese engagement ring app while Chanel offers an online make-up “classroom”. Italian fashion house Fendi has held talks on China’s Twitter-like Weibo, while Prada SpA and Christian Dior SA have Chinese videos online.
Luxury travel clubs for wealthy Chinese travelers have also their iPad App: The Shanghai Travelers’ Club has its own App, entirely in Chinese Mandarin, and features articles about US$50M private jets, gold plated hand made laptops, or entire private islands for rent for discerning (and rich) Chinese tourists.
Luxury leather goods firm Coach Inc has a U.S.-focused campaign in Mandarin using popular Chinese social media app WeChat. The app, developed by Tencent Holdings Ltd , has 272 million users worldwide.
Coach tailors some of its U.S. products for Chinese shoppers, a spokeswoman said. Chinese are the fast-growing segment of the firm’s North American tourist sales, which make up a fifth of total sales in the region.
“This trend is going to continue because the Chinese are a lot more integrated in the global economy and really informed, especially about price,” said Bruno Lannes, Shanghai-based partner with Bain and lead author of the luxury market report.
“At the end of the day it comes to the same thing: shoppers will either travel or go online to buy abroad.”