Business / Corporate

Gucci owner sees online leading recovery after sales plunge

Bloomberg

Fashion conglomerate Kering is seeing signs of a recovery led by online sales after pandemic-induced lockdowns hit the previously runaway demand for the Gucci owner’s clothing.

Luxury brands are trying to make up for lost time after COVID-19 exposed their reliance on in-store business. During the second quarter, e-commerce sales soared 72 percent, Kering said in a statement Tuesday. But this was still only 13 percent of total retail sales at the end of June — showing more work is needed to get shoppers to splurge online for handbags and high fashion.

Overall, revenue fell 44 percent on an organic basis in the three months through June. The decline is greater than the sales fall that rival LVMH reported Monday, though less than the 47 percent drop analysts expected.

Kering follows the Louis Vuitton owner as well as Moncler SpA, Richemont and Burberry Group PLC in reporting what analysts expect will be their worst quarter ever. Prada SpA and Hermes International will provide updates Wednesday and Thursday, respectively.

"We have weathered what we hope was the worst of the crisis,” Jean-Francois Palus, deputy CEO, said during a call with analysts. "The appetite of millennials and Generation Z isn’t diminishing.”

While there were "encouraging” demand trends overall for Kering’s premium products in late June, which were confirmed at the start of this month, the company remains vigilant, Chief Financial Officer Jean-Marc Duplaix said during the call.

He cited the current lack of tourists in Europe this summer, normally a strong period when visitors typically splash out on luxury goods. Duplaix said the lack of international travel flows could last until the first half of next year.

The lack of visibility on the luxury market makes it impossible to forecast second-half sales, Kering said, adding that the loss in revenue in the first half will not be overcome in the latter six months of the year.

Duplaix said Kering still aims to spend up to 7 percent of its revenue in investment to improve operations. This goal will stand even after it trimmed this spending by around 5 percent in the first half.

"We remain attentive not to cut initiatives that will bring growth,” he said. "We have strategic initiatives that are for the long term, and we don’t change strategies because there’s a temporary element or because of a rival’s move,” he added, citing Kering’s push to improve its e-commerce and delivery capabilities.

There were some positive surprises during the quarter, notably performance at the Bottega Veneta brand, which was "outstanding,” according to Luca Solca, an analyst at Bernstein. Sales fell 24 percent on a comparable basis in the second quarter, showing more resilience than Gucci or Saint Laurent. The brand, known for its signature woven-leather shoes and handbags, has been enjoying a renaissance under Creative Director Daniel Lee.

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