Coronavirus Forces Gucci to Shift Gears in China

Date: Thursday, February 13, 2020
Source: The Wall Street Journal

Kering is the latest industry player to feel the impact of the outbreak

PARIS—Gucci parent Kering SA KER -0.27% said the coronavirus outbreak has hit its business in China hard and forced it to shuffle its logistics and production, in the latest sign that the epidemic is roiling the luxury-goods industry.

The outbreak interrupted a strong run in the fourth quarter and January for Kering, which also owns Saint Laurent, Bottega Veneta, Balenciaga and other brands. Sales in the quarter rose 11% to €4.36 billion (about $4.75 billion).

Kering executives said its January sales were exceptionally strong, particularly to all-important Chinese clientele. But that was before the coronavirus outbreak began to take a deep toll at the end of the month.

Chinese shoppers are the luxury-goods industry’s most important clientele, representing about 35% of total global sales, according to Bain & Co. At Kering, they account for slightly more than 30% of global revenue, executives say.

Kering isn’t the first luxury-goods maker to feel the impact of the coronavirus.

Earlier this month, the U.K.’s Burberry Group BURBY -0.57% PLC said the outbreak was hurting demand for its products in China and scrapped its full-year sales and profit guidance.

A raft of other industry players, including Prada 1913 2.12% SpA and Hugo Boss AG BOSS -0.16% , have closed stores in China because of the epidemic.

François-Henri Pinault, the French billionaire who is the chief executive and the controlling shareholder of Kering, said Wednesday, “We have a strong drop in traffic and sales in the last 10 days.”

Half of the conglomerate’s stores in mainland China are closed, he said. The ones that are open are operating on reduced hours.

Kering is changing its production schedules and inventory distribution to reflect lower demand in China.

“We are now brand by brand reallocating that inventory to other regions in the world so that we are not too heavy in stock in China,” Mr. Pinault said.

Kering said full-year sales were €15.88 billion, up 13% after adjusting for currency swings and other one-off impacts. Net profit for the year fell to €2.31 billion from €3.71 billion in 2018, largely due to a $1.4 billion tax settlement reached with Italian authorities.

 

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