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Luxury sales growth stalls at Gucci

Friday, February 21 17:32:08

Sales growth at Italian luxury brand Gucci almost ground to a halt in the fourth quarter, hit by over-expansion in China where demand weakened and a painful upmarket repositioning.

Its performance is likely to reinforce concerns among investors about the long-term growth prospects of mega-brands such as Gucci and LVMH's Louis Vuitton as consumers increasingly favour newer, more niche labels.

Gucci's parent Kering, which also owns Yves Saint Laurent and Bottega Veneta, reported a steep drop in full-year profits due to heavy restructuring costs.

Sales growth at Gucci, which accounts for more than half of Kering's market value, fell to 0.2 percent in the three months to Dec. 31 at constant currencies from 0.6 percent in the previous quarter while analysts had expected an improvement.

In the 2000s, Gucci and Louis Vuitton milked demand for designer logo products with price tags in the hundreds of euros and boosted growth by opening shops at breakneck speed in new markets such as China, Russia and the Middle East.

In response to signs of consumer fatigue with logo-heavy products, Gucci and Louis Vuitton strengthened their higher-end offering with more logo-discreet leather bags and fewer canvas totes. But the brands say the strategy took its toll on sales.

Gucci's sales at constant currencies rose 2.2 percent in 2013 while the previous year, they were up 9 percent, 18.7 percent in 2011 and 11 percent in 2010.

Mirroring Gucci's woes, Louis Vuitton's sales growth has fallen to low-single digits from above 10 percent three years ago.

Kering Chief Executive Francois-Henri Pinault on Friday argued Gucci's slowdown was self-inflicted and mainly due to its repositioning and clean-up of the brand's retail network.

"Of course, if I want to increase Gucci's sales by 10 percent, I can just open the tap for entry-level price products and everything will fly off the shelf," Pinault said. "But it would be very dangerous for the exclusivity of the brand."

He said the number of entry-level products had been cut by 25-30 percent and the proportion of sales from no-logo products reached 62 percent in the fourth quarter, against 44 percent the previous year. (Reuters)