Gucci, the luxury fashion brand owned by Kering, saw a significant decrease in sales at the beginning of the coronavirus pandemic due to its heavy reliance on Chinese customers. Kering reported a 15.4% decline in sales to 3.2 billion euros in the first quarter of 2020, largely due to store closures. On a like-for-like basis, which excludes the impact of acquisitions and currency fluctuations, sales for Gucci dropped by 23.2% during this period, compared to a 13.8% decrease for Kering’s Saint Laurent brand.
The virus outbreak initially impacted China, a crucial market for high-end goods, before spreading to other countries, including Italy, France, and the United States, all of which implemented lockdown measures. However, Kering’s Financial Chief Jean-Marc Duplaix stated that the sales outlook for mainland China is improving as shops gradually reopen, which is expected to benefit Gucci. He also noted that trends have been positive for most of Kering’s brands in mainland China since April.
Duplaix emphasized that it is still early to assess Kering’s performance in the second quarter, as most Western countries are still under lockdown until May. He anticipates that a significant recovery will not happen until June or July. In response to the challenging circumstances, Kering, like its competitor LVMH, is reducing its dividend payout for 2019 earnings by 30%.
To prepare for declining sales, Kering had previously warned that comparable sales for the first quarter would likely decrease by around 15% and that operating margins would also decline. The company is now implementing cost-reduction measures, although specific details were not provided.
Kering, which also owns Balenciaga, has been among the leading beneficiaries of the luxury goods boom in recent years, along with LVMH. Gucci, in particular, has seen significant success. These cash-rich conglomerates are in a better position than some independent brands that were already undergoing turnaround efforts when the pandemic struck.
According to analyst Thomas Chauvet from Citi, Kering and Italian puffer jacket maker Moncler are expected to weather the crisis better than their competitors. Chauvet also believes that Kering will benefit from the increasing shift towards e-commerce to offset the impact of physical store closures. However, the overall outlook for the luxury sector remains gloomy.
Duplaix revealed that online sales during the first quarter increased by 20%, with Gucci’s online sales in China surpassing 100%. These positive trends in online sales may help mitigate some of the losses resulting from store closures.