In February this year, the local epidemic in Shanghai was in a state of peace with zero new additions for many consecutive days, and several luxury brands held new year's parties one after another, and guests and hosts were immersed in the joy of the substantial growth in the past year.
One CEO talked about Omikejong, believing that the decline in store traffic caused by the epidemic is still occurring in different parts of the country, which may bring trouble to the luxury industry this year.
In March, Chinese mainland the epidemic rebounded, and some luxury stores fell into a state of "quarantine and waiting".
In the past two years, the luxury industry has taken a turn for the worse, with many brands re-entering the high-growth trajectory after a brief decline. The price increase of explosive single products shows the confidence of the brand and proves the strong support of the market.
The financial reports of major luxury goods groups have talked about the epidemic, and Kering has the largest space.
We have studied Kering's 2020 and 2021 financial reports, observing the performance of luxury brands represented by Gucci in the epidemic, and may provide some inspiration in today's haze that has not yet dissipated.
There is a sentence in Kering's financial report: the epidemic has not changed the fundamentals of the market, but has accelerated some of the original market trends.
From pre-pandemic 2019 to 2021, Kering's revenue curve is V-shaped. In 2021, the market picked up, and many of Kering's data returned to pre-epidemic levels or achieved growth.
Revenue in 2021 was €17.6 billion, up 35% from 2020 and 13% from 2019.
However, this performance is slightly inferior to LVMH and Richemont, as the other two have significantly exceeded pre-pandemic incomes.
In the following, we will sort out the two years under the epidemic in Gucci from the aspects of the return of Chinese tourists, channels and marketing strategy reforms. Please note that unless otherwise noted, the data in this article is from Kering's financial report.
01
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Chinese tourists return
Chinese tourists are buying luxury goods in Europe, which has become a phenomenon before the epidemic. "Chinese Tourists" succeeded the "Japanese Tourists" of the 1970s and were the big money owners of Luxury Shops in Europe.
Some brands have tried to change this, such as Chanel, which has publicly lowered its retail price in China since 2015, and at the same time raised the European retail price to close the spread and encourage Chinese customers to spend on their doorstep.
But there are also some brand headquarters that feel that no matter where Chinese is spent, money will fall into their own pockets, and there is no incentive to do things that level the price difference.
The epidemic has exposed the energy of Chinese tourists. Global tourism has stagnated, and according to the International Air Transport Association, the volume of global air passengers has fallen by more than 60% in 2020.
The Chinese faces of European luxury stores seem to have disappeared overnight, leaving a few behind, and shopping expenses have also been greatly reduced.
In 2020, Kering's luxury sales in Europe fell by 36%. The situation is similar to that of Canada, also because the number of tourists has plummeted.
China is at the other end of the scale, with Chinese consumers turning to domestic stores to buy luxury goods, Chinese mainland the luxury market ushered in a massive return of consumption in 2020, with Kering growing by as much as 48%.
Brazil is similar to China, because Brazilians who used to love to go to the United States and Europe to sweep goods have also returned to China to consume.
Hong Kong, China's status as a "luxury consumer destination" has been hit for years. Mainland merchants have spared no effort to seize the return of consumers, the most prominent is Hainan Province, and various policies such as tax exemption have been introduced, which has spawned a boom in luxury consumption in Hainan.
From 2020 to the present, the epidemic has been battled against the economic stimulus plans of various governments. The United States and Europe have implemented active fiscal policies and loose monetary policies, which have mitigated the negative impact of the epidemic. China's economy is thriving, and other regions are very different.
In such a complex international economic situation, Kering calculated the general ledger for 2020: there is a decline compared with 2019, Chinese mainland the increase in luxury consumption, which is not enough to offset the decline in the European market.
For a long time to come, Chinese consumers will have a deep impact on the global luxury industry. Bain estimates that by 2025 Chinese will consume 40-45% of the world's luxury goods.
Kering believes that Chinese consumers, especially millennials and Gen Z, are the main growth drivers, they have their own values, and brands need distinct, sustainable development strategies.
Thankfully, the group has branches around the world, avoiding putting eggs in the same basket, and somewhat compensating for the poor performance in other regions during the period of Chinese mainland rapid recovery.
02
Crisis of the whole industry chain
The impact of the epidemic on luxury goods is not only the closure of stores, in Kering's financial report, we see that the entire business chain of luxury goods has encountered trouble.
The supply of raw materials, design and development, manufacturing, logistics and retailing – whether it's a factory where leather goods are made or an office where drawings are drawn – is disrupted.
Italy is Gucci's most important production base, the epidemic in Italy was once rampant, the city lockdown was suspended, people stayed at home to avoid the epidemic, and the development and production of products came to an abrupt end.
In Switzerland, Italy and the United States, warehouses, logistics stations and the transport of goods have all come to a standstill to varying degrees. Out of caution, Gucci tightly controls inventory.
The superposition of various factors has caused that even if some stores can barely open, there is a shortage of goods, a small supply, and a delay in the listing of new products.
In this regard, the e-commerce platform is naturally helpless, and the goods that guests place orders online, the progress of delivery, transportation and receipt are extremely slow.
In such a complex situation, Gucci is still implementing the plan set before the epidemic - the transformation of distribution channels, that is, to reduce the proportion of sales in wholesale channels, and to use direct stores as the main sales channel as much as possible.
The difference is that Kering's Saint Laurent, Bottega Veneta, Balenciaga and other brands do not talk much about channel transformation, and still rely on wholesalers to a high degree, and the brand size is still small, which may be one of the reasons.
Traditionally, wholesalers order goods from brands and distribute them in their own way, and buyers such as Lane Crawford are a type of wholesaler.
The wholesale model can help brands quickly withdraw funds, but brands lose the opportunity to face consumers.
Wholesalers have the right to display goods on their own terms, discounts, and even let goods flow to outlets. It is often considered to be detrimental to the brand image and value.
From before the epidemic to the present, Gucci has repeatedly said that it is necessary to compress wholesale channels to continuously enhance brand value, maintain absolute control over all details, and communicate directly with consumers and talk about feelings.
Data from the pandemic also confirms this strategy: in 2020, Gucci's revenue from direct stores accounted for 87% of the total, and in 2021, this figure was raised to 91%.
During the pandemic, some of Gucci's store opening plans were delayed, and the store renovation work did not go as planned. The Group has tightened its control over costs but has increased its investment in areas such as IT systems and e-commerce.
Not surprisingly, Kering's online sales have seen phenomenal growth, becoming the fastest growing business during the pandemic. Online sales have doubled in two years and now account for 15% of retail sales.
In 2020, Gucci and Alibaba announced the opening of a Gucci flagship store at the Tmall Luxury Pavilion, while Gucci's official website in China gucci.cn to start online sales in 2017.
Consistent with the strategy of compressing wholesale channels, Gucci said that the control of e-commerce channels will continue to be strengthened, which may be understood as more cautious cooperation and stricter terms for integrated e-commerce websites.
In short, the epidemic has not changed Kering's extremely high expectations for Gucci, if not all brands can be fully directly operated, at least to ensure that Gucci's stores are of high standards and under control.
03
Marketing tactics have changed dramatically
After Alexandra Micheli became creative director in 2015, Gucci has a strong market style, on the one hand, marketing activities are extremely frequent, on the other hand, the pursuit of surprise wins, repeatedly breaking through the norm, lest it lack eyeballs.
During the epidemic, Fashion Week fell to pieces, gucci quit and played by himself. In November 2020, Gucci released a series of skits called The Boundless Overture, releasing one episode a day and staging a series over the course of a week.
The short drama style is grotesque, the actors are neutral, the picture is colorful, the popular stars Ha Roll, Bi Li and Lu Han have all starred, and the alternative plot does not delay the actors from wearing a variety of Gucci new products.
This is the Gucci conference that replaced the catwalk, and the new product implantation in the play is slightly abrupt, but this way is obviously more suitable for online transmission under the epidemic than the catwalk.
In November 2021, the house of Gucci movie, starring Lady Gaga, about the murder of the gucci founder family was released.
Gucci spared no effort to support the film's costumes, props and historical materials, and Kering's hostess Salma Hayek even played a role herself.
Before the film's release, Gucci hosted a grand catwalk on the Los Angeles Walk of Fame, diluting the downturn of just 3.8 percent growth in the third quarter of 2021.
In recent years, Gucci has continued to carry out joint names with various characters, all kinds of unexpected, co-branded objects including The North Face, Doraemon, and even Balenciaga, bombarding the market again and again, arousing high discussion.
Some commentators believe that Gucci relies too much on co-branding and is not innovative enough in design, in any case, brand popularity is the root of performance growth.
The earnings report concluded: The Gucci brand is still hot, occupying a high position in major lists.
Some intangible changes are also taking place, and after the great shift in the purchasing power of Chinese tourists, the luxury goods industry is lamenting the importance of local consumption.
Gucci tries to make its stores more connected to consumers, strives to grasp CRM, tailors plans for each market, and engages in relationships with local customers.
Gucci has put forward his own perception of the current customer relationship: they focus not only on the goods themselves, but also on the sense of participation, and brands need to have strong narrative skills and be able to create better content to attract customers.
Kering expressed its views on the industry in the financial report, believing that the epidemic has accelerated the formation of a new world of luxury goods.
In this market, a small number of globalized large groups compete with a large number of independent small brands, from China to European countries, the United States, Brazil, has long been globalized.
In the past three or four years, the brands under the luxury goods group have performed superiorly, and those small and medium-sized groups that are independent or composed of three or four brands have generally performed inferiorly.
Kering pointed out that the advantages of large groups are highlighted by the increasing polarization of the luxury industry, mergers and acquisitions are constantly occurring, the market is becoming more global, and the complexity of managing brands is higher.
04
Gucci with Louis Vuitton
In its earnings report, Kering reviewed the path taken by the luxury market in the first decade of the epidemic: strong growth from 2010 to 2012, and gradually decelerated from 2013 to 2016. This stage also coincided with the trough of China's luxury market, stemming from the heavy blows of anti-corruption at that time.
From 2017 to 2018, the global macroeconomic situation was generally good, and luxury growth accelerated until a slight slowdown in 2019.
In the five years leading up to the pandemic, Gucci had experienced incredible growth, and the pandemic brought this momentum to an abrupt end.
Gucci's revenues for the three years 2019, 2020 and 2021 were: €9.6 billion, €7.4 billion and €9.7 billion, respectively, out of a V-shape, with the 2021 level just back to before the pandemic.
In the process of returning to the climb in 2021, Gucci's revenue was relatively sluggish in the third quarter of 2021, and in the fourth quarter, similar to other leading brands in the industry, it achieved gorgeous high growth.
Several of the biggest leaders in the luxury industry have weathered the onslaught of the pandemic, with a few of the best performing better than before the pandemic in regional opportunities.
In August 2020, Louis Vuitton CEO Michael Burke spoke about the pandemic in an interview with BOF, arguing that the luxury business needs to be "resilient" and not put too many eggs in one basket.
"Some brands are overly dependent on China, some are overly dependent on the United States, some are overly dependent on travel retail, some are overly dependent on wholesale, and some are overly dependent on third-party e-commerce."
He believes that these unbalanced and fragile business models have brought crises to enterprises. One of the big changes brought about by the pandemic is that no one travels anymore, and brands that develop better for their local customer base perform better.
Kering is optimistic about the outlook for the luxury goods industry, believing that there is a solid growth driver in the market: the middle class in emerging countries is growing rapidly, while the global wealthy group is also expanding, and people's average disposable income is increasing.
Kering also judged that Chinese consumers will spend domestically for a long time to come.
Since the epidemic has been in the past two years, Gucci, as a luxury brand, is still in a state of "transformation", and in many aspects has not yet reached maturity.
If there is only one most important lesson to be learned after the epidemic, it should be: you can't rely too much on travel consumption.
A person who loves to buy luxury goods while traveling is more price sensitive and cares more about tangible materials than experiences. The stickiness of these guests is not enough, and relying too much on these guests will make it more difficult to resist risks.